<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON*
REGISTRATION NO. 333-
------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
First Enterprise Service Group, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
- -------------------------------------------- ----------------------------------------- ------------------------------------------
Florida 6770 Applied For
- -------------------------------------------- ----------------------------------------- ------------------------------------------
<S> <C> <C>
State or other jurisdiction of PRIMARY STANDARD INDUSTRIAL I.R.S. Employer Identification No.
Incorporation or organization CLASSIFICATION CODE NUMBER
- -------------------------------------------- ----------------------------------------- ------------------------------------------
</TABLE>
2503 W. Gardner Ct.,
Tampa, FL 33611
813. 831.9348
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael T. Williams
PRESIDENT
First Enterprise Service Group, Inc.
2503 W. Gardner Ct.
Tampa, FL 33611
TELEPHONE: 813.831.9348
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
1
<PAGE> 2
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this registration statement becomes effective
and after the closing of the merger of the proposed merger described in this
registration statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b, under the securities act, check the following box and list the
securities act registration statement number of the earlier effective
registration statement for the same offering. *[ ]* registration number,
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the securities act, check the following box and list the securities act
registration statement number of the earlier effective registration statement
for the same offering. *[ ]* registration number,
If the securities being registered on this Form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. *[ ]
------------------------
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of Amount maximum maximum Amount of
securities to be offering price aggregate registration
to be registered per unit offering price fee
registered
Common
Stock, par
Value - no 28,386,752 $.001 $2,838.68 $946.23
(1) Represents an estimate of the maximum number of shares of common stock of
Registrant, which may be issued to former holders of shares of common stock of
Space Systems International Corporation pursuant to the merger described herein.
(2) The registration fee has been calculated pursuant to Rule 457(f)(2). As of
the filing of this registration statement, SSI had an accumulated capital
deficit. In addition, SSI's common stock has no par value. Accordingly, the
proposed maximum offering price has been calculated by multiplying one-third,
1/3, of an assumed par value for SSI's Common Stock of, .0001 par value per
share, pursuant to Delaware law by the maximum number of shares to be issued to
the holders of SSI common stock in the merger.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
- --------------------------------------------------------------------------------
2
<PAGE> 3
Space Systems International Corporation
INFORMATION STATEMENT FOR SHAREHOLDERS
FIRST ENTERPRISE SERVICE GROUP, INC.
PROSPECTUS
The board of directors of Space Systems International Corporation has
unanimously approved a merger between SSI and First Enterprise Service Group,
Inc. First Enterprise Service Group has committed to file to have its stock is
quoted on the over-the-counter bulletin board of the Nasdaq Stock Market Inc.,
under the symbol "*BBB symbol." Because First Enterprise Service Group is a
company whose securities will be quoted on the bulletin board, the SSI board
believes that the merger will
o Increase the visibility of SSI's business, which could be helpful in
further developing and commercializing SSI's products.
o Facilitate SSI's ability to raise capital in the public markets
o Potentially improve SSI's shareholders' ability to sell their shares
in the over-the-counter market.
Your board of directors has determined that the merger is fair to you and in
your best interests. In addition, shareholders owning approximately 60% of your
common stock have executed a written consent voting to approve the merger. No
further consent of you or any of the shareholders of SSI is necessary to approve
the merger under the laws of the state of Delaware.
The merger will close as soon as practicable after the SEC declares this
Information Statement/Prospectus effective. When the merger is completed, you
will receive one share of First Enterprise Service Group common stock for each
share of SSI common stock one share of First Enterprise Service Group Class A
Preferred Stock for each share of SSI Class A Preferred Stock and that you own.
First Enterprise Service Group was formed as a vehicle to acquire a private
company desiring to become an SEC reporting company in order thereafter to
secure a listing on the over the counter bulletin board.
The total number of shares of common stock that First Enterprise Service Group
will issue to all of the SSI shareholders in the merger is 12,835,150. The total
number of shares of Class A preferred stock that First Enterprise Service Group
will issue to all of the SSI shareholders in the merger is 7,120,720. There are
an additional 2,879,280 shares of Class A Preferred Stock authorized but
unissued. We will have the same number of such shares authorized but unissued
after the merger, assuming no further issuance of Class A preferred stock by SSI
prior to the closing of the merger. Further, there are options to acquire an
additional 3,500,000 shares of SSI common stock outstanding prior to this merger
and another 200,000 options to be granted upon the successful completion of this
merger. These will be converted to options to acquire our stock following the
merger. Additionally, 1,000,000 shares of restricted common stock will be issued
to a consultant subsequent to the completion of this registration statement.
3
<PAGE> 4
Assuming all SSI authorized Class A preferred stock is issued and converted, the
exercise of all options, and the issuance of the restricted shares described
above, there would be 27,535,150 shares of SSI common stock outstanding prior to
the merger. We estimate that this number will represent approximately 97% of the
outstanding First Enterprise Service Group common stock after the merger.
Following the merger, the surviving company will continue to file reports with
the SEC as a result of its filing of a form 8-A electing to be a reporting
company subject to the requirements of the 1934 act.
THE PROPOSED MERGER IS A VERY COMPLEX TRANSACTION WITH A NUMBER OF RISKS AND
UNCERTAINTIES ASSOCIATED WITH IT. THIS DOCUMENT PROVIDES YOU WITH DETAILED
INFORMATION ABOUT THE PROPOSED MERGER. WE STRONGLY URGE YOU TO READ AND CONSIDER
CAREFULLY THIS DOCUMENT IN ITS ENTIRETY, ESPECIALLY THE MATTERS REFERRED TO
UNDER "RISK FACTORS" BEGINNING ON *INSERT PAGE #.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED THE FIRST ENTERPRISE SERVICE GROUP
COMMON STOCK TO BE ISSUED IN THE MERGER OR INDICATED THAT THIS INFORMATION
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this information statement/prospectus is *date of information, and
it is first being mailed to SSI shareholders on or about *date mailed.
OTHER INFORMATION FOR SSI STOCKHOLDERS:
o THE PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION THAT IS NOT INCLUDED IN Or DELIVERED WITH THE DOCUMENT.
THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO SECURITY HOLDERS
UPON WRITTEN OR ORAL REQUEST TO: 11440 WEST BERNARDO COURT, SUITE
300, SAN DIEGO, CA 92127, 619/674-6600, EXT. 5792 (ED DALEY).
o Do not send in your SSI stock certificates now. If the merger is
completed, we will send you written instructions for exchanging your
share articles.
o The merger has been structured as a tax-free reorganization. The tax
basis in your SSI common stock will carryover and become the tax
basis in your new shares of First Enterprise Service Group common
stock.
o Like SSI, First Enterprise Service Group has never paid any
dividends.
o If you have any questions about the merger, please call Ed Daley at
SSI, at 619/674-6600, ext. 5792.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , all dealers that effect transactions in these securities, whether
or not participating in this offering, are required to deliver a prospectus.
4
<PAGE> 5
SUMMARY
This summary highlights selected information from this information
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we have referred you.
In the merger, SSI's shareholders will merger shares with First Enterprise
Service Group, and First Enterprise Service Group will be the surviving company
of SSI.
The merger agreement is attached as annex A to this document. We encourage you
to read the merger agreement, as it is the legal document that governs the
merger.
THE COMPANIES.
First Enterprise Service Group
2503 W. Gardner Ct.
Tampa, FL 33611
We were organized under the laws of the state of Florida in April 1999. Since
inception, our primary activity has been directed to organizational efforts. We
were formed as a vehicle to acquire a private company desiring to become an SEC
reporting company in order thereafter to secure a listing on the over the
counter bulletin board.
SSI, address and phone: 11440 West Bernardo Court, Suite 300, San Diego, 92127,
619/674-6600, ext. 5792.
SSI was incorporated in Delaware in 1998. SSI sells remote sensing and
telecommunications systems, products and services.
SSI'S REASONS FOR THE MERGER
o Increase the visibility of SSI's business, which could be helpful in
further developing and commercializing SSI's products.
o Facilitate SSI's ability to raise capital in the public markets.
o Potentially improve SSI's shareholders' ability to sell their shares
in the over-the-counter market.
5
<PAGE> 6
COMPARISON OF THE PERCENTAGE OF OUTSTANDING SHARES ENTITLED TO VOTE HELD BY
DIRECTORS, EXECUTIVE OFFICERS AND THEIR AFFILIATES AND THE VOTE REQUIRED FOR
APPROVAL OF THE MERGER.
Eighty-six percent of First Enterprise Service Group's shares are held by its
directors, executive officers and their affiliates. A majority vote of the
issued and outstanding shares is required to approve the merger. Shareholders
owning 86% of our common stock have executed a written consent voting to approve
the merger. No further consent of you or any of the shareholders of First
Enterprise Service Group is necessary to approve the merger under the laws of
the state of Florida.
Approximately 65.4% percent of SSI's shares are held by its directors, executive
officers and their affiliates. A majority vote of the issued and outstanding
shares is required to approve the merger. Shareholders owning approximately 60%
of your common stock have executed a written consent voting to approve the
merger. No further consent of you or any of the shareholders of SSI is necessary
to approve the merger under the laws of the state of Delaware.
NO REGULATORY APPROVAL REQUIRED.
Neither First Enterprise Service Group nor SSI is aware of any governmental
regulatory approvals required to be obtained with respect to the closing of the
merger, except for the filing of the articles of merger with the offices of the
secretary of state of the state of Delaware, the filing with the Commission of
the registration statement on Form S-4 registering the shares and this
information statement/prospectus, and compliance with all applicable state
securities laws regarding the offering and issuance of the shares.
DISSENTERS' RIGHTS
Dissenters' rights of appraisal exist. See PAGE * for further information.
FEDERAL INCOME TAX CONSEQUENCES.
Tax matters are very complicated and the tax consequences of the merger to you
will depend on the facts of your own situation. You should consult your tax
advisors for a full understanding of the tax consequences of the merger to you.
SSI and First Enterprise Service Group have structured the merger so that
neither SSI nor its shareholders should recognize gain or loss for federal
income tax purposes as a result of the merger.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of SSI and First Enterprise
Service Group has been derived from their respective historical financial
statements, and should be read in conjunction with such financial statements and
the notes thereto, which are included in this information statement/prospectus.
6
<PAGE> 7
SSI SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial information should be read in conjunction with
the SSI audited financial statements for the years ended February 28, 1998 and
1999 included elsewhere in the registration statement and Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
historical selected financial information as of August 31, 1999 and for the six
months ended August 31, 1998 and 1999 are derived from and should be read in
conjunction with the SSI unaudited financial statements included elsewhere in
the registration statement. The unaudited financial statements, in our opinion,
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the data for the periods presented. The results of
operations for the six months ended August 31, 1999 are not necessarily
indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28, SIX MONTHS ENDED AUGUST 31,
----------------------------------- ------------------------------
1998 1999 1998 1999
-------------- --------------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statement of operations data:
Revenues $ 103,621 $ 58,526 $ 7,023 $ 513,363
Cost of revenue 78,665 10,341 2,500 291,315
Gross margin 24,956 48,185 4,523 222,048
Operating expenses 21,032 501,153 192,987 457,091
Interest expense 3,352 2,097 1,580 11,266
------------ ------------ ------------ ------------
Net income (loss) $ 572 $ (455,065) $ (190,044) $ (246,309)
============ ============ ============ ============
Basic income (loss) per share $ 0.00 $ (0.05) $ (0.02) $ (0.02)
============ ============ ============ ============
Shares used to compute basic
income (loss) per share 7,200,150 9,464,417 8,893,162 10,425,150
============ ============ ============ ============
Diluted income (loss) per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
============ ============ ============ ============
Shares used to compute diluted
income (loss) per share 7,200,150 -- -- --
============ ============ ============ ============
</TABLE>
The following table sets forth, for the periods indicated, certain operating
information expressed as a percentage of revenue. The results of operations data
for the six months ended August 31, 1999 are not necessarily indicative of the
results to be expected for the full year or future periods.
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28, SIX MONTHS ENDED AUGUST 31,
------------------------ ---------------------------
1998 1999 1998 1999
---------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statement of operations data
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenue 75.9% 17.7% 35.6% 56.7%
Gross margin 24.1% 82.3% 64.4% 43.3%
Operating expenses 20.3% 856.3% 2,747.9% 89.0%
Interest expense 3.2% 3.6% 22.5% 2.2%
Net income (loss) 0.6% (777.5%) (2,706.0%) 48.0%)
</TABLE>
7
<PAGE> 8
FIRST ENTERPRISE SERVICE GROUP SELECTED HISTORICAL FINANCIAL DATA
TO BE DONE BY THEIR ACCOUNTANTS.
8
<PAGE> 9
UNAUDITED INTERIM FINANCIAL STATEMENTS OF
SPACE SYSTEM INTERNATIONAL CORPORATION
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of August 31, 1999 and the statements of
operations and cash flows for the six-month periods ended August 31, 1998 and
1999, respectively, have not been audited. However, these financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In management's opinion, the accompanying
financial statements reflect all material adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of the results for the
interim periods presented. The results for the interim periods are not
necessarily indicative of the results, which will be reported for the entire
year.
Space System International Corporation
Balance sheet
As of August 31, 1999 (Unaudited)
Assets
<TABLE>
<CAPTION>
<S> <C>
Cash $ 251,764
Accounts receivable 85,168
Prepaid expenses 5,170
---------
Total current assets 342,102
Furniture and equipment, net of accumulated
depreciation of $3,293 at August 31, 1999 2,796
Other assets 397
---------
Total assets $ 345,295
=========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 158,770
Notes payable 105,633
---------
Total current liabilities 264,403
---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value: 25,000,000
shares authorized: -0- issued and outstanding --
Common stock, $0.0001 par value; 50,000,000
shares authorized 1,093
Contributed and paid in capital 941,411
Common stock subscriptions receivable (25,000)
Accumulated deficit (836,612)
---------
Total stockholders' equity 80,892
---------
Total liabilities and
stockholders' equity $ 345,295
=========
</TABLE>
9
<PAGE> 10
Space Systems International Corporation
Statements of operations
For the six months ended August 31, 1998 and 1999 (Unaudited)
<TABLE>
<CAPTION>
Six months ended
August 31,
--------------------------------
1998 1999
-------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Sales $ 7,023 $ 461,876
Consulting -- 51,487
-------------- -------------
Total revenues 7,023 513,363
Cost of revenues 2,500 291,315
-------------- -------------
Gross margin 4,523 222,048
-------------- -------------
Operating expenses 192,987 457,091
Interest expense 1,580 11,266
-------------- -------------
Total expenses 194,567 468,357
-------------- -------------
Net loss $ (190,044) $ (246,309)
============== =============
Basic and diluted loss per share $ (0.02) $ (0.02)
============== =============
Shares used to compute basic and diluted
loss per share 8,893,162 10,425,150
============== =============
</TABLE>
10
<PAGE> 11
Space Systems International Corporation
Statement of changes in stockholders' equity
For the six months ended August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
COMMON CONTRIBUTED
COMMON STOCK STOCK AND TOTAL
------------------------- SUBSCRIPTIONS PAID IN ACCUMULATED STOCKHOLDERS'
SHARES VALUE RECEIVABLE CAPITAL DEFICIT EQUITY
------------- --------- --------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
February 28, 1999 10,300,150 1,030 (25,000) 628,974 (590,303) 14,701
UNAUDITED INFORMATION:
Issuable common stock
for $25,000 cash
during July 1999 125,000 13 -- 62,487 -- 62,500
Issuable common stock
for $63,000 cash
during August 1999 350,000 35 -- 174,965 -- 175,000
Issuable common stock
for $27,000 cash
during August 1999 150,000 15 -- 74,985 -- 75,000
Net loss for the six
months ended
August 31, 1999 -- -- -- -- (246,309) (246,309)
---------- ---------- ---------- ---------- ---------- ----------
Balance at August 31,
1999 (Unaudited) 10,925,150 $ 1,093 $ (25,000) $ 941,411 $ (836,612) $ 80.892
========== ========== ========== ========== ========== ==========
</TABLE>
11
<PAGE> 12
Space Systems International Corporation
Statements of cash flows
For the six months ended August 31, 1998 and 1999 (Unaudited)
Six months ended
August 31,
1998 1999
-------------- --------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $(187,044) $(246,309)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 400 400
Loss on disposal of furniture and equipment -- --
Common stock options issued to consultants 67,000 --
Changes in operating assets and liabilities:
Accounts receivable (3,523) (65,518)
Other assets (779) --
Prepaid expenses -- 16,536
Accounts payable and
accrued expenses 47,805 68,729
--------- ---------
Net cash used in operating activities (76,141) (226,162)
--------- ---------
Cash flow from financing activities:
Issuance of common stock 130,060 312,500
Borrowings on notes payable -- 90,000
Repayments of notes payable (6,619) (12,667)
--------- ---------
Net cash provided by financing activities 123,441 389,833
--------- ---------
Net increase in cash 47,300 163,671
Cash at beginning of period 192 88,093
--------- ---------
Cash at end of period $ 47,492 $ 251,764
========= =========
12
<PAGE> 13
Space Systems International Corporation
Statements of cash flows
For the six months ended August 31, 1998 and 1999 (Unaudited)
Six months ended
August 31,
------------------------------
1998 1999
------------- --------------
(Unaudited) (Unaudited)
Supplemental disclosure of cash flow information:
Cash paid during the period
for income taxes $ -- $ --
=============== =======
Cash paid during the period
for interest $ 1,580 $11,266
=============== =======
Supplemental disclosure of noncash investing and financing activities:
Effective March 1, 1998 the Company exchanged 7,200,150 shares of common stock
for all of the assets and liabilities of Space Liaison and Imaging Corporation.
The value of the assets and liabilities acquired were $4,303 and $31,056,
respectively.
13
<PAGE> 14
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
ACCOUNTS RECEIVABLE
Accounts receivable at August 31, 1999 of $85,168 consist principally of amounts
due for consulting services.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following at August 31,
1999:
Accounts payable-trade $ 2,876
Accrued salaries 87,500
Accrued salaries and payroll taxes
(Foreign consulting services) 68,394
----------
$ 158,770
==========
NOTES PAYABLE
Notes payable at August 31, 1999 consists of:
Note payable to a bank, interest payable
monthly at 13.50% per annum,
principal amount due on demand $ 11,290
Note payable to a finance company,
interest payable monthly at 12.38%
per annum 4,343
Notes payable to individuals,
interest payable monthly at 8.25% per
annum. This note is secured by
accounts receivable 90,000
--------
$105,633
========
14
<PAGE> 15
UNAUDITED PRO FORMA COMBINED BALANCE SHEET OF SPACE SYSTEMS INTERNATIONAL
CORPORATION (SSI) AND FIRST ENTERPRISE SERVICE GROUP INC. (FESG)
AUGUST 31, 1999
ASSETS
<TABLE>
<CAPTION>
PROFORMA PROFORMA
SSI FESG NOTE ADJUSTMENTS COMBINED
----------- --------- ---- ----------- ----------
<S> <C> <C> <C> <C>
Cash $ 251,764 $ -- I $1,500,000 $1,751,764
Accounts receivable 85,168 -- -- 85,168
Prepaid expenses 5,170 -- -- 5,170
Deferred consulting expenses -- -- A 712
G 500,000 500,712
---------- ---------- ---------- ----------
Total current assets 342,102 -- 2,000,712 2,342,814
---------- ---------- ---------- ----------
Furniture and equipment,
net of accumulated depreciation
of $3,293 2,796 -- -- 2,796
Other assets 397 -- -- 397
---------- ---------- ---------- ----------
Total assets $ 345,295 $ -- $2,000,712 $2,346,007
========== ========== ========== ==========
</TABLE>
15
<PAGE> 16
UNAUDITED PRO FORMA COMBINED BALANCE SHEET OF SPACE SYSTEMS INTERNATIONAL
CORPORATION (SSI) AND FIRST ENTERPRISE SERVICE GROUP INC. (FESG)
AUGUST 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PROFORMA PROFORMA
SSI FESG NOTE ADJUSTMENTS COMBINED
------------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable and
accrued liabilities $ 158,770 $ -- $ -- $ 158,770
Notes payable 105,633 -- -- 105,633
------------- --------------- ------------ -------------
Total current liabilities 264,403 -- -- 264,403
Commitments and contingencies
Stockholders' equity:
Preferred stock -- -- A 712 712
Common stock 1,093 79 B 40
C 25
D 20
E 22
F 45
G 100
H (20)
I 300
J 20
K 59 1,783
Contributed and paid in capital 941,411 -- B 199,960
C 125,000
D 99,980
E 112,478
F 224,955
G 499,900
H 20
I 1,614,537
J 99,981 3,918,222
Common stock subscriptions
receivable (25,000) -- B (40)
C (25)
D (40,000)
E (45,000)
F (45)
J (20)
K (59) (110,189)
Accumulated deficit (836,612) (79) (892,233) (1,728,924)
------------- --------------- ------------ -------------
Total stockholders' equity 80,892 -- 2,000,712 2,081,604
------------- --------------- ------------ -------------
Total liabilities and
stockholders' equity $ 345,295 $ -- $ 2,000,712 $ 2,346,007
============= =============== ============ =============
</TABLE>
16
<PAGE> 17
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
OF SPACE SYSTEMS INTERNATIONAL
CORPORATION (SSI) AND FIRST ENTERPRISE SERVICE GROUP INC. (FESG)
FOR THE SIX MONTHS ENDED AUGUST 31, 1999
<TABLE>
<CAPTION>
PROFORMA PROFORMA
SSI FESG NOTE ADJUSTMENTS COMBINED
------------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PROFORMA STATEMENT OF OPERATIONS DATA
Revenues $ 513,363 $ -- $ -- $ 513,363
Cost of Revenue 291,315 -- -- 291,315
Gross Margin 222,048 -- -- 222,048
Operating Expenses 457,091 79 --
A --
B 199,960
C 125,000
D 60,000
E 67,500
F 224,955
I 114,837
J 99,981 1,349,403
Interest Expense 11,266 -- -- 11,266
------------- --------- ------------- -------------
Net Loss $ (246,309) $ (79) $ (892,233) $ (1,138,621)
============= ========= ============= =============
Basic and Diluted Loss Per Share $ (0.02) $ (0.00) $ -- $ (0.07)
============= ========= ============= =============
Shares used to compute basic
and diluted loss per share 10,425,150 851,603 -- 16,535,150
============= ========= ============= =============
</TABLE>
17
<PAGE> 18
NOTES TO UNAUDITED PROFORMA ADJUSTMENTS
The following proforma adjustments are being recorded as if the grant and/or
exercise occurred as of August 31, 1999. The reverse split of First Enterprise
Service Group, Inc. common stock for a total of 851,603 shares of common stock
outstanding prior to the completion of this merger has been recorded as though
the reverse split took place March 1, 1999. Per share information assumes the
exercise of options as of March 1, 1999.
Unless otherwise noted exercisable options, granted to a consultant, to acquire
500,000 shares of common stock at an exercise price of $1.00 per share are not
exercised.
Note A - To record the issuance of 7,120,720 shares of convertible preferred
stock during January 2000. The shares are convertible based on the attainment of
certain revenue goals of SSI during SSI's fiscal year. The shares have been
valued at par value due to the uncertainty of the attainment of the revenue
goals for conversion into common stock. The conversion feature expires two years
after the grant. See "Description of SSI Capital Stock" located elsewhere in
this registration statement.
Note B - To record the sale and issuance of 400,000 shares of common stock to a
consultant during January 2000, on a proforma basis, at $.0001 per share and
secured by a note receivable in the amount of $40 from the consultant. The
shares have been valued at $.50 per share based on the anticipated offering of
shares as part of this registration statement.
Note C - To record the sale and issuance of 250,000 shares of common stock to
two consultants during January 2000, on a proforma basis, at $.0001 per share
and secured by notes receivable totaling $25 from the consultants. The shares
have been valued at $.50 per share based on the anticipated offering of shares
as part of this registration statement.
Note D - To record the sale and issuance of 200,000 shares of common stock to a
consultant during January 2000, on a proforma basis, at $.20 per share and
secured by a note receivable in the amount of $40,000 from the consultant. The
shares have been valued at $.50 per share based on the anticipated offering of
shares as part of this registration statement.
Note E - To record the sale and issuance of 225,000 shares of common stock to a
consultant during January 2000, on a proforma basis, at $.20 per share and
secured by a note receivable in the amount of $45,000 from the consultant. The
shares have been valued at $.50 per share based on the anticipated offering of
shares as part of this registration statement.
Note F - To record the sale and issuance of 450,000 shares of common stock to a
consultant during January 2000, on a proforma basis, at $.0001 per share and
secured by a note receivable in the amount of $45 from the consultant. The
shares have been valued at $.50 per share based on the anticipated offering of
shares as part of this registration statement.
Note G - To record the issuance of 1,000,000 shares of restricted common stock
to a consultant after giving effect to the merger described in this registration
statement, on a proforma basis, for services to be rendered during the initial
term of the consulting agreement (one-year). The shares have been valued at $.50
per share based on the anticipated offering of shares as part of this
registration statement.
18
<PAGE> 19
Note H - To record the cancellation of 200,000 shares of common stock to a
consultant during January 2000, on a proforma basis, for services to be rendered
during the initial term of the consulting agreement. The shares were accounted
for at par value but were never issued to the consultant.
Note I - To record the grants, during October, November, and December 1999, of
options and exercise of such options for a total of 3,000,000 shares to
consultants, on a proforma basis. The options are exercisable at $.50 per share
and have been valued in accordance with Statement of Financial Accounting
Standards No. 123 as of the grant date, on a proforma basis. The options expire
one year after SSI's common shares become publicly traded.
Note J - To record the grant and exercise of options to acquire 200,000 shares
of common stock, on a proforma basis, as discussed in Note 6 to the year ended
February 28, 1999 audited financial statements located elsewhere in this
registration statement. The options are exercisable at $.0001 per share and have
been valued in accordance with Statement of Financial Accounting Standards No.
123 as of the grant date, on a proforma basis.
The options expire one year after SSI's common shares become publicly traded.
Note K - To record the exercise of options to acquire 585,000 shares of common
stock, on a proforma basis. The options were granted during fiscal 1999 and are
exercisable at $.0001 per share. The options were exercised during January 2000.
19
<PAGE> 20
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision in our company. In addition, you should keep in mind that
the risks described below are not the only risks that we face. The risks
described below are all the risks that we currently believe are material risks
of this offering. However, additional risks not presently known to us, or risks
that we currently believe are immaterial, may also impair our business
operations. Moreover, you should refer to the other information contained in
this prospectus for a better understanding of our business.
Our business, financial condition, or results of operations could be adversely
affected by any of the following risks. If we are adversely affected by such
risks, then the trading price of our common stock could decline, and you could
lose all or part of your investment.
This information statement/prospectus contains forward-looking statements that
involve risks and uncertainties. SSI's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences, include, but are not limited to, those discussed in the following
section and in SSI's Management's Discussion and Analysis Of Financial Condition
and Results of Operations and SSI Business.
THE MERGER AGREEMENT CONTAINS A NUMBER OF CONDITIONS THAT MUST BE SATISFIED IN
ORDER FOR THE MERGER TO TAKE PLACE. IF THESE CONDITIONS AREN'T SATISFIED, THE
MERGER WILL NOT CLOSE AND SSI WILL HAVE SUFFERED A DELAY IN REACHING ITS
OBJECTIVE OF BECOMING A LISTED, TRADING COMPANY ON THE BULLETIN BOARD.
The conditions include:
o The shareholders of SSI must approve the merger, which condition has
been satisfied;
o The holders of no more than 10% of the outstanding shares of common
stock of SSI shall have exercising dissenters' rights;
o The Securities and Exchange Commission must declare this
registration statement effective;
o First Enterprise Service Group must have filed an application to
have its stock quoted on the bulletin board; and
o SSI and its counsel must have satisfactorily completed their due
diligence review of First Enterprise Service Group
SSI is not to complete the merger if the other conditions are not satisfied.
Please understand that there is no guarantee that any of these conditions will
be satisfied, or that the merger will occur in the time frame contemplated, or
occur at all.
SHAREHOLDERS OF SSI WILL INCUR IMMEDIATE DILUTION OF PERCENTAGE OF OWNERSHIP IN
THE AMOUNT OF 3%, ASSUMING ALL SSI AUTHORIZED CLASS A PREFERRED STOCK IS ISSUED
AND CONVERTED AND ASSUMING THE EXERCISE OF ALL OPTIONS, AS A RESULT OF THE
MERGER.
20
<PAGE> 21
Dilution refers to a decrease in the percentage ownership interest of a company
that a share of stock represents. The total number of shares of common stock
that First Enterprise Service Group will issue to all of the SSI shareholders in
the merger is 12,835,150. The total number of shares of Class A preferred stock
that First Enterprise Service Group will issue to all of the SSI shareholders in
the merger is 7,120,720. There are additional 2,879,280 shares of Class A
Preferred Stock authorized but unissued. We will have the same number of such
shares authorized but unissued after the merger, assuming no further issuance of
Class A preferred stock by SSI prior to the closing of the merger. Further,
there are options to acquire an additional 3,500,000 shares of SSI common stock
outstanding at the time of this merger and another 200,000 options to be granted
upon the successful completion of this merger. These will be converted to
options to acquire our stock following the merger. Additionally, 1,000,000
shares of restricted common stock will be issued to a consultant subsequent to
the completion of this registration statement. Assuming all SSI authorized Class
A preferred stock is issued and converted, the exercise of all options, and the
issuance of the restricted shares described above, there would be 27,535,150
shares of SSI common stock outstanding prior to the merger. We estimate that
this number will represent approximately 97% of the outstanding First Enterprise
Service Group common stock after the merger.
BECAUSE WE HAVE EXPERIENCED LOSSES, INCLUDING A LOSS OF $455,065 FOR THE YEAR
ENDED FEBRUARY 28, 1999 AND EXPECT OUR EXPENSES TO INCREASE, WE MAY NOT BE ABLE
TO ACHIEVE PROFITABILITY.
Almost since our inception, we have incurred losses. As of end of last fiscal
year, we had an accumulated deficit of $590,303. We expect to continue to incur
losses until we are able to significantly increase revenues from sales of our
remote sensing and telecommunications systems, products and services. Our
operating expenses are expected to continue to increase significantly in
connection with our proposed expanded activities, particularly marketing
activities. We cannot be certain that we will be able to accurately predict our
revenues, particularly in light of the general uncertainty and intense
competition for the sale of remote sensing and telecommunications systems,
products and services systems, products and services. and our limited operating
history. Accordingly, our future profitability will depend on our ability to
increase our revenues while controlling costs. We cannot assure you that we will
ever become or remain profitable.
WE NEED TO OBTAIN AT LEAST $500,000 IN EITHER ADDITIONAL SALES, ADDITIONAL
FINANCING OR A COMBINATION OF BOTH IN THE NEXT 12 MONTHS OR WE WILL NOT BE ABLE
TO REMAIN A GOING CONCERN, IN WHICH CASE YOUR STOCK WILL PROBABLY HAVE NO VALUE.
Our independent certified public accountants have pointed out that we have an
accumulated deficit and negative working capital such that our ability to
continue as a going concern is dependent upon obtaining additional capital and
financing for our planned operations.
We do not have sufficient working capital to continue operations for the next 12
months. We need at least $500,000 in revenues and/or financing during the next
12 months or we may have to cease operations. If we do not generate these
revenues and/or secure this additional financing in the next 12 months, then you
will probably lose your entire investment. We have no commitment from any source
to provide any financing. If we do not generate the required amount in sales
revenues, we might not be able to secure these necessary funds from a financing
transaction.
21
<PAGE> 22
WE WILL DEPEND ON INDIVIDUAL PRODUCT ORDERS SHORT-TERM CONTRACTS THAT MAY NOT BE
RENEWED. IF CUSTOMERS STOP ORDERING OUR OF REMOTE SENSING AND TELECOMMUNICATIONS
SYSTEMS, PRODUCTS AND SERVICES PRODUCTS AND SERVICES OR CANCEL OR DO NOT RENEW
OUR SHORT-TERM CONTRACTS, IT COULD REDUCE OUR REVENUES AND INCREASE OUR LOSSES.
We anticipate that we will derive a significant portion of our revenues from the
sale of remote sensing and telecommunications systems, products and services. A
significant number of these remote sensing and telecommunications systems,
products and services sales will be made either as individual orders or under
short-term contracts that average less than 12 months in length. Many of our
remote sensing and telecommunications systems, products and services customers
could cease purchasing remote sensing and telecommunications systems, products
and services quickly and without penalty. As a result, our quarterly operating
results will depend heavily on remote sensing and telecommunications systems,
products and services revenues from individual sales or contracts entered into
within the quarter and on our ability to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. If customers stop placing
individual orders or cancel or defer existing remote sensing and
telecommunications systems, products and services contracts or if we fail to
obtain new orders or contracts in any quarter, our business, results of
operations and financial condition for that quarter and future periods will be
adversely affected.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY FOR THE FOLLOWING REASONS:
The market for remote sensing and telecommunications systems, products and
services is intensely competitive and rapidly changing. We are subject to
competition that is expected to intensify in the future because the number of
competitors is increasing. For example, 5 years ago, there were no real
competitors in this business. We may lack the financial resources needed to
capture increased market share. Our larger existing or potential future
competitors
o Are better known
o Have longer operating histories
o Have well-established reputations for providing remote sensing and
telecommunications systems, products and services
o Have broader distribution abilities
o Have stronger sales and marketing abilities
o Have more technical expertise
o Have greater human and financial resources
We currently do not have the human or financial resources needed to compete on
this level.
For all of the foregoing reasons, we cannot assure you that we will be able to
compete successfully.
OUR OPERATING RESULTS WOULD BE HURT SIGNIFICANTLY IF GLOBALSTAR AND ERICSSON,
OUR MAJOR CUSTOMERS, CEASES TO PURCHASE FROM US.
We are dependent on the purchase of telecommunications engineering support in
Russia from us by Globalstar and Ericsson. These customers account for 95% of
our sales. The agreements are short-term in nature and can be canceled within
22
<PAGE> 23
30-day notice with 3-month termination pay required under Russian Law.
Termination or material interruptions of purchases of telecommunications
engineering support by Globalstar and Ericsson would lead to reduced sales,
which would hurt our operating results.
IF WE CANNOT OBTAIN ACCESS TO THE REQUIRED REMOTE SENSING IMAGES OR TO
TELECOMMUNICATIONS PRODUCTS THAT MAKE UP PART OF OUR SYSTEMS, SALES OF OUR
REMOTE SENSING AND TELECOMMUNICATIONS SYSTEMS, PRODUCTS AND SERVICES MAY DECLINE
AND THIS WOULD HURT OUR OPERATING RESULTS.
We rely on third-party providers of required remote sensing images or
telecommunications products that make up part of our systems. If we fail to
obtain what we need from these providers, our sales revenue might decrease. Our
ability to obtain required remote sensing images or telecommunications products
that make up part of our systems may be adversely impacted by a number of
factors, including the following:
o Third parties may increase the price of the required remote sensing
images or telecommunications products that make up part of our
systems they provide.
o Many third-party providers of remote sensing images or
telecommunications products that make up part of our systems may
compete with us for customers and may decide not to provide us with
remote sensing images or telecommunications products that make up
part of our systems
o We anticipate that our contracts, if any, with third party content
providers will be usually short-term and may be canceled with little
or no notice.
o Our competitors and many third-party providers of remote sensing
images or telecommunications products that make up part of our
systems may provide products and services that are similar or the
same as our remote sensing and telecommunications systems, products
and services and may do so at a lower cost.
OUR MANAGEMENT HAS SIGNIFICANT CONTROL OVER STOCKHOLDER MATTERS, WHICH MAY
IMPACT THE ABILITY OF MINORITY STOCKHOLDERS TO INFLUENCE OUR ACTIVITIES.
Our officers and directors and their families control the outcome of all matters
submitted to a vote of the holders of common stock, including the election of
directors, amendments to our certificate of incorporation and approval of
significant corporate transactions. These persons will beneficially own, in the
aggregate, approximately 54% of our outstanding common stock. This consolidation
of voting power could also have the effect of delaying, deterring or preventing
a change in our control of that might be beneficial to other stockholders.
FAILURE BY SUPPLIERS OF REMOTE SENSING IMAGES OR TELECOMMUNICATIONS PRODUCTS
THAT MAKE UP PART OF OUR SYSTEMS TO BE YEAR 2000 COMPLAINT COULD ADVERSELY
AFFECT OUR OPERATIONS. BECAUSE OUR EVALUATION OF THESE ISSUES IS CONTINUING, WE
CANNOT ASSURE YOU THAT ADDITIONAL ISSUES WILL NOT BE DISCOVERED WHICH COULD
PRESENT A MATERIAL RISK OF DISRUPTION TO OUR OPERATIONS.
We would be harmed if there were any systems failures or interruptions in
service resulting from the inability of our computing system or any of our
existing third-party suppliers' systems to recognize the year 2000. We are
highly dependent upon third-party suppliers of remote sensing images or
telecommunications products that make up part of our systems. Because many of
these providers are located in Russia, this risk may be greater than if our
providers were U.S. based companies. We have had no discussions with our
suppliers concerning their operating systems and are uncertain as to whether
their operating systems are or will be year 2000 compliant.
23
<PAGE> 24
RAPID TECHNOLOGICAL CHANGE COULD CAUSE OUR REMOTE SENSING AND TELECOMMUNICATIONS
SYSTEMS, PRODUCTS AND SERVICES TO BECOME LESS ATTRACTIVE TO POTENTIAL CUSTOMERS.
OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS MAY BE ADVERSELY
AFFECTED IF WE ARE UNABLE TO ANTICIPATE OR RESPOND QUICKLY AND ECONOMICALLY TO
ANY DEVELOPMENTS.
Our industry is characterized by rapidly changing technology, developing legal
issues, changing consumer requirements, frequent new product and service
introductions and enhancements and evolving industry standards in our industry.
If we are unable to respond to these changes, our remote sensing and
telecommunications systems, products and services may become less attractive to
potential consumers. Our success will depend upon our ability to develop
competitive methods to enhance our remote sensing and telecommunications
systems, products and services and to develop and introduce new remote sensing
and telecommunications systems, products and services in a timely and
cost-effective manner. Developing these methods for remote sensing and
telecommunications systems, products and services may require substantial time
and expense. We cannot assure you that we will be able to respond quickly,
cost-effectively or sufficiently to these developments.
CERTAIN RISKS IN OUR INTERNATIONAL OPERATIONS COULD INTERRUPT THE SUPPLY OF OUR
PRODUCT COMPONENTS AND THE INTERNATIONAL DISTRIBUTION OF OUR REMOTE SENSING AND
TELECOMMUNICATIONS PRODUCTS.
Our international operations are subject to the inherent risks of doing business
abroad. The loss of certain foreign suppliers, customers or distributors could
harm our ability to deliver our products on time and cause our sales to decline.
Our financial performance could be materially adversely affected by many events
and circumstances relating to our international operations, including:
- Shipping delays and cancellations;
- Increases in import duties and tariffs;
- Foreign exchange rate fluctuations;
- Changes in foreign laws and regulations; and
- Political and economic instability.
BECAUSE WE IMPORT SUBSTANTIALLY ALL OF OUR PRODUCTS, OUR BUSINESS IS SUBJECT TO
POTENTIAL ADVERSE TRADE REGULATIONS AND RESTRICTIONS.
SSI does not own or operate any facilities or equipment that is used to make our
products. Instead, we must import substantially all of our products from
independent foreign suppliers, primarily in Russia and Canada. As a result,
substantially all of our products are subject to customs duties and regulations
in the countries of import. Within its discretion, the import countries' customs
service may also set new regulations regarding the amount of duty to be paid,
the value of merchandise to be reported or other customs regulations relating to
our imported products. Failure to comply with these regulations may result in
the imposition of additional duties or penalties or forfeiture of merchandise.
24
<PAGE> 25
The countries in which facilities or equipment that is used to make our products
are located may impose new quotas, duties, tariffs or other charges or
restrictions. This could adversely affect our financial condition, results of
operations or our ability to continue to import products at current or increased
levels. In particular, our costs could increase, or the mix of countries from
which we import our products may be changed, if the favorable trade regulations
in import countries, such as the Generalized System of Preferences program or
"Most Favored Nation" status in the U.S., are not renewed or extended each year.
We cannot predict what regulatory changes may occur or the type or amount of any
financial impact these changes may have on us in the future.
BECAUSE ALL OF OUR CURRENT SIGNIFICANT OPERATIONS ARE LOCATED IN RUSSIA, OUR
BUSINESS IS EXPOSED TO POTENTIAL ECONOMIC AND POLITICAL RISKS.
All of our significant operations are located in Russia. Because of this, we are
subject to the following risks that could restrict our ability to operate or
increase our costs:
o economic and political instability in Russia
o transportation delays
o restrictive actions by the Russian government
o the laws and policies of the United States affecting importation of
goods, including duties, quotas and taxes
o Russia trade and tax laws
In particular, we could be adversely affected if the ruble appreciates
significantly relative to the United States dollar. This is because the cost of
our operations fluctuates with the value of the RUBLE.
THE PRICE OF OUR STOCK MAY FALL IF, AFTER THE MERGER, OUR INSIDERS SELL A LARGE
NUMBER OF THEIR SHARES. IT MAY ALSO FALL IF NON-INSIDERS SELL THEIR SHARES AS
WELL.
After the merger, eleven of our principal executive officers and other insiders
will own an aggregate of 7,200,150 restricted shares. These shares may only be
sold in compliance with Rule 144, except that there is no one year holding
period because these shares are being issued under this registration statement.
After the merger, 63 non-insiders will own an aggregate of 5,635,000 restricted
shares. These non-insiders are not subject to the restrictions of Rule 144, and
all of these non-insider shares may be sold immediately.
25
<PAGE> 26
Rule 144 generally provides that a person owning shares subject to the Rule who
has satisfied or is not subject to a one year holding period for the restricted
securities may sell, within any three month period (provided we are current in
our reporting obligations under the Exchange Act) subject to certain manner of
resale provisions, an amount of restricted securities which does not exceed the
greater of 1% of a company's outstanding common stock.
A sale of shares by these security holders, whether under Rule 144 or otherwise,
may have a depressing effect upon the price of our common stock in any market
that might develop after the merger.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK. IF WE DON'T GET OUR STOCK
LISTED FOR TRADING AFTER THE MERGER, WE WILL NOT HAVE SATISFIED THE PRIMARY
OBJECTIVE OF THE MERGER TRANSACTION.
Prior to this offering, you could not buy or sell our common stock publicly. We
may not be able to secure a market maker to file an application to have our
stock listed for trading. Even if we do, an active public market for our common
stock may not develop or be sustained after the offering.
WE EXPECT THE PRICE OF OUR COMMON STOCK TO BE VOLATILE. YOU MAY NOT BE ABLE TO
SELL YOUR STOCK FOR MORE THAN YOU PAID FOR IT.
The market price of the common stock may fluctuate significantly in response to
a number of factors, some of which are beyond our control, including:
o quarterly variations in operating results
o changes in financial estimates by securities analysts
o changes in market valuation of companies in our industry
o announcements by us of significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments
o loss of a major customer
o additions or departures of key personnel
o any shortfall in revenue or net income or any increase in losses
from levels expected by analysts;
o future sales of common stock
o stock market price and volume fluctuations, which are particularly
common among highly volatile securities of our industry's companies.
In the past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its securities.
We may in the future be the target of similar litigation. Securities litigation
could result in substantial costs and divert management's attention and
resources, which could have a material adverse effect on our business, operating
results and financial condition.
WE WILL BE SUBJECT TO PENNY STOCK RULES THAT MAY MAKE IT MORE DIFFICULT FOR YOU
TO SELL YOUR SHARES.
26
<PAGE> 27
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock rules adopted by the Commission. Penny stocks
generally are equity securities with a price of less than $5.00. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules generally require that prior to a transaction in
a penny stock, the broker-dealer make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. As our shares immediately following the closing of the merger
and listing of our stock be subject to such penny stock rules, our
shareholders will in all likelihood find it more difficult to sell their
securities.
MERGER APPROVALS
APPROVAL OF THE MERGER
On *DATE , 1999, Michael T. Williams as the sole member of our board of
directors approved the merger proposal. The majority of our stockholders
approved the merger proposal on the same date.
On *DATE , 1999, your board of directors unanimously approved the merger
proposal. The majority of your stockholders approved the merger proposal on the
same date.
MERGER TRANSACTION
The merger agreement provides that each outstanding share of SSI common stock,
other than dissenting shares, as defined later in this document, will be
exchanged for one share of common stock of First Enterprise Service Group. The
total number of shares of Class A preferred stock that First Enterprise Service
Group will issue to all of the SSI shareholders in the merger is 7,120,720.
There are additional 2,879,280 shares of Class A Preferred Stock authorized but
unissued. We will have the same number of such shares authorized but unissued
after the merger, assuming no further issuance of Class A preferred stock by SSI
prior to the closing of the merger. Further, there are options to acquire an
additional 3,500,000 shares of SSI common stock outstanding prior to this merger
and another 200,000 options to be granted upon the successful completion of this
merger. These will be converted to options to acquire our stock following the
merger. Additionally, 1,000,000 shares of restricted common stock will be issued
to a consultant subsequent to the completion of this registration statement.
Assuming all SSI authorized Class A preferred stock is issued and converted, the
exercise of all options, and the issuance of the restricted shares described
above, there would be 27,535,150 shares of SSI common stock outstanding prior to
the merger.
27
<PAGE> 28
The agreement provides that at the closing of the merger, First Enterprise
Service Group will
o Reincorporate in Delaware
o Change its name to Space Systems International Corporation
o Adopt Space Systems International Corporation articles and bylaws
o Elect, effective upon the effectiveness of the merger, new officers,
a new board of directors to consist of the current officers and
current directors of SSI.
The agreement provides that SSI's shareholders who vote against the merger are
entitled to dissenters' rights with respect to the proposed the receipt shares
of First Enterprise Service Group common stock as set forth in Delaware law.
None of the shares of First Enterprise Service Group common stock outstanding
prior to the closing of the merger will be converted or otherwise modified in
the merger and all of such shares not otherwise returned to us as provided in
the merger agreement will be outstanding capital stock of First Enterprise
Service Group after the closing of the merger.
The merger will be consummated promptly after this information
statement/prospectus is declared effective by the SEC and upon the satisfaction
or waiver of all of the conditions to the closing of the merger. The merger will
become effective on the date and time a properly executed articles of merger are
filed with the offices of the secretary of state of Delaware. Thereafter, SSI
will be merged and First Enterprise Service Group, with the result that SSI will
cease to exist and First Enterprise Service Group will be the surviving
corporation in the merger.
EFFECT ON OUTSTANDING SSI'S OPTIONS
At the closing of the merger, First Enterprise Service Group will assume all
SSI's options outstanding immediately prior to the closing of the merger. In
accordance with their terms, each of SSI's options will become the right to
acquire, on the same terms and conditions as were applicable to such SSI's
options outstanding as of the closing of the merger, that number of shares of
First Enterprise Service Group's common stock to which the holder of such SSI's
options would have been entitled to receive in the merger had such SSI's options
been exercised in full prior to the closing of the merger. Following the merger,
an aggregate of 4,085,000 shares of First Enterprise Service Group's common
stock will be issuable upon the exercise of SSI's options and another 200,000
options to be granted upon the successful completion of this merger.
Additionally, 1,000,000 shares of restricted common stock will be issued to a
consultant subsequent to the completion of this registration statement.
EFFECT ON OUTSTANDING SSI'S CLASS A PREFERRED STOCK
At the closing of the merger, First Enterprise Service Group will issue on a one
share for one share basis Class A preferred stock for all SSI's Class A
preferred stock outstanding immediately prior to the closing of the merger.
First Enterprise's and SSI's Class A preferred stock will become the right to
acquire, on the same terms and conditions as were applicable to such SSI's Class
A preferred stock have the same rights and preferences. Following the merger, an
aggregate of 7,120,720 shares of First Enterprise Service Group's common stock
will be issuable upon the conversion of what was previously SSI's Class A
preferred stock.
28
<PAGE> 29
FRACTIONAL SHARES
As of the date of this information statement/prospectus, there were no
fractional shares of SSI's common stock outstanding. Because each outstanding
share of SSI's common stock will be entitled to receive one share of First
Enterprise Service Group's common stock under the terms of the merger agreement,
there will be no fractional shares issued in the merger.
BULLETIN BOARD LISTING
First Enterprise Service Group will be subject to the reporting requirements of
the securities exchange act of 1934 after the merger as a result of its filing
of a form 8-A electing to be a reporting company subject to the requirements of
the 1934 act.
Upon closing of the merger, First Enterprise Service Group will seek to become
listed on the over the counter bulletin board under the symbol "*symbol". If and
when listed, the SSI's shareholders will hold shares of a publicly traded
Delaware corporation subject to compliance with the reporting requirements of
the exchange act. Because the state of incorporation, articles and bylaws of
First Enterprise Service Group will be the same as those of SSI prior to the
merger, the rights of shareholders of SSI will not change as a result of the
merger.
BACKGROUND OF THE MERGER
FIRST ENTERPRISE SERVICE GROUP. As discussed under First Enterprise Service
Group Business, First Enterprise Service Group was formed primarily to serve as
a vehicle to acquire a private company desiring to become an SEC reporting
company in order thereafter to secure a listing on the over the counter bulletin
board.
CONTACTS BETWEEN THE PARTIES
In April, 1999, Mr. Kevin Lovely retained Williams Law Group, P.A. to form an
acquisition corporation to secure an operating company to acquire. At Mr.
Lovely's request, Mr. Williams agreed to serve as co-founder, president and
director of the corporation. As co-founders, upon formation, Mr. Williams and
Mr. Lovely were issued 1,000,000 shares each. In addition, upon formation, First
Enterprise retained the services of Lenord Aernoff, Esq. as special counsel, and
he too was issued 1,000,000 shares. Of the $75,000 merger fee to be paid to us
by SSI under the terms of the merger agreement, Mr. Lovely will receive $7500
for his role as co-founder. First Enterprise agreed to pay Mr. Aernoff $10,000
for his legal services in assisting with the clearing of any possible comments
on this registration statement received from the SEC staff. Of the remaining
$57,500, $50,000 will be paid to Williams Law Group for legal services in
preparing this registration statement and the remaining $7500 will be paid to
Mr. Williams for his role as co-founder, president and director.
In April 1999, Jr. John M. Papazian, chairman, president, chief executive
officer of SSI contacted MGM Group to request assistance in going public through
a reverse merger with an acquisition company in order that SSI could become an
SEC reporting company that would be listed on the bulletin board. MGM's primary
business is providing accounting and accounting related services to clients as
well as coordination with third-party providers of accounting and legal
professional services. Although not rendering a formal fairness opinion, MGM
has agreed to advise SSI's board as to whether MGM believes the merger will
accomplish SSI's objectives. In addition, MGM will also be available to respond
29
<PAGE> 30
to any concerns or answer any questions the SSI board might have during the
acquisition process. SSI will pay MGM a fee of $50,000 plus 400,000 shares of
SSI common stock for rendering these services. MGM is not advising any other
businesses seeking to be acquired, and advising such companies is not a primary
aspect of its business. MGM and its affiliates are not affiliated in any way
with First Enterprise and its affiliates and are not receiving any compensation
from First Enterprise or its affiliates in connection with this transaction.
Principals of MGM knew that Mr. Aernoff was special counsel to various
acquisition companies and asked if any of these companies would be interested in
acquiring SSI. Thereafter, in October 1999, First Enterprise Service Group
indicated that it would be willing to enter into a business combination with
SSI. Drafting of this registration statement began immediately thereafter,
during which time there were various discussions in which representatives of
First Enterprise Service Group and SSI agreed upon the basic structure, terms
and conditions of the merger. In connection therewith, First Enterprise Service
Group agreed to effect a reverse split such that Mr. Williams will own 751,603
shares prior to the closing of the merger. In addition, Mr. Lovely and Mr.
Aernoff agreed that prior to the reverse split, they would return sufficient
shares to First Enterprise Service Group for no consideration such that after
the reverse split they will each own 50,000 shares of First Enterprise Service
Group prior to the closing of the merger. A merger agreement is currently being
drafted.
Neither of the respective boards of Directors of First Enterprise Service Group
or SSI requested or received, or will receive, an opinion of an independent
investment banker as to whether the merger is fair, from a financial point of
view, to First Enterprise Service Group and its stockholders or SSI and its
shareholders.
REASONS FOR THE MERGER
FIRST ENTERPRISE SERVICE GROUP REASONS FOR THE MERGER.
In considering the merger, the First Enterprise Service Group board took note of
the fact that SSI could produce audited financial statements and other
information necessary for the filing of this information statement/prospectus
and agreed to pay a merger fee to us.
SSI'S REASONS FOR THE MERGER.
o Increase the visibility of SSI's business, which could be helpful in
further developing and commercializing SSI's products.
o Facilitate SSI's ability to raise capital in the public markets.
o Potentially improve SSI's shareholders' ability to sell their shares
in the over-the-counter market.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Upon the closing of the merger, the current directors and executive officers of
SSI will become the directors and executive officers of the surviving
corporation.
30
<PAGE> 31
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax consequences
of the merger that are generally applicable to holders of SSI's common stock.
This discussion is based on currently existing provisions of the internal
revenue code of 1986, existing and proposed treasury regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change. Any such change, which may or may not be retroactive, could alter the
tax consequences to the SSI shareholders, as described herein.
SSI's shareholders should be aware that this discussion does not deal with all
federal income tax considerations that may be relevant to particular
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, banks or insurance companies, are subject to the
alternative minimum tax provisions of the code, are foreign persons, are
tax-exempt entities, are taxpayers holding stock as part of a conversion,
straddle, hedge or other risk reduction transaction, or who acquired their
shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the merger under foreign, state or local tax
laws or the tax consequences of transactions effectuated prior to, concurrently
with or after the merger as a result of its filing of a form 8-A electing to be
a reporting company subject to the requirements of the 1934 act, whether or not
such transactions are in connection with the merger. ACCORDINGLY, ALL
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
Neither First Enterprise Service Group nor SSI has requested, or will request, a
ruling from the IRS with regard to any of the federal income tax consequences of
the merger. It is the opinion of Williams Law Group, P.A., counsel to First
Enterprise Service Group, that the merger will constitute a reorganization under
Section 368(a) of the code. The tax opinion is based on certain assumptions, as
well as representations received from SSI, First Enterprise Service Group and
certain shareholders of SSI and will be subject to the limitations discussed
below. Of particular importance are the assumptions and representations relating
to the continuity of interest requirement discussed below. Moreover, the tax
opinions will not be binding on the IRS nor preclude the IRS from adopting a
contrary position. The tax description set forth below has been prepared and
reviewed by Williams Law Group, and in their opinion, to the extent such
descriptions relates to statements of law, it is correct in all material
respects.
Subject to the limitations and qualifications referred to herein, and as a
result of the merger's qualifying as a reorganization, the following federal
income tax consequences should, under currently applicable law, result:
No gain or loss will be recognized for federal income tax purposes by
the holders of SSI common stock upon the receipt of First Enterprise
Service Group common stock solely in merger for such SSI common stock
in the merger, except to the extent that cash is received by the
exercise of dissenters' rights.
The aggregate tax basis of the First Enterprise Service Group common
stock so received by SSI shareholders in the merger will be the same as
the aggregate tax basis of the SSI common stock surrendered in merger
therefore.
The holding period of the First Enterprise Service Group common stock
so received by each SSI shareholder in the merger will include the
period for which the SSI common stock surrendered in merger therefore
was considered to be held, provided that the SSI common stock so
surrendered is held as a capital asset at the closing of the merger of
the merger.
31
<PAGE> 32
A holder of SSI common stock who exercises dissenters' rights with respect to a
share of SSI common stock and receives a cash payment for such share generally
should recognize capital gain or loss, if such share was held as a capital asset
at the closing of the merger, measured by the difference between the
shareholder's basis in such share and the amount of cash received, provided that
such payment is not essentially equivalent to a dividend within the meaning of
Section 302 of the code nor has the effect of a distribution of a dividend
within the meaning of Section 356(a)(2) of the code after giving effect to the
constructive ownership rules of the code. A sale of shares under an exercise of
dissenters' rights generally will not be so treated if, as a result of such
exercise, the shareholder exercising dissenters' rights owns no shares of
capital stock of the First Enterprise Service Group, either actually or
constructively within the meaning of Section 318 of the code, immediately after
the merger.
Neither First Enterprise Service Group nor SSI will recognize gain solely as a
result of the merger.
Characterizing the merger as a reorganization is dependent on certain
requirements. One key requirement is that there is a continuity of interest with
respect to the business of SSI . In order for the continuity of interest
requirement to be met, shareholders of SSI must not, under a plan or intent
existing at or prior to the closing of the merger of the merger, dispose of so
much of their SSI common stock in anticipation of the merger, plus the First
Enterprise Service Group common stock received in the merger that the SSI
shareholders, as a group, would no longer have a significant equity interest in
the SSI business being conducted by the us after the merger.
SSI shareholders will generally be regarded as having a significant equity
interest as long as the First Enterprise Service Group common stock received in
the merger, in the aggregate, represents a substantial portion of the entire
consideration received by the SSI shareholders in the merger. This requirement
is frequently referred to as the continuity of interest requirement. If the
continuity of interest requirement is not satisfied, the merger would not be
treated as a reorganization. The law is unclear as to what constitutes a
significant equity interest or a substantial portion. The IRS ruling guidelines
require eighty- percent continuity, although such guidelines do not purport to
represent the applicable substantive law. Accordingly, certain SSI shareholders
will be asked to execute and deliver to SSI a continuity of interest
certificates prior to the closing of the merger. The continuity of interest
certificates obtained from such shareholders contemplate that the eighty-
percent standard will be applied. If such requirement is not satisfied, the
merger will not be treated as a reorganization.
A successful IRS challenge to the reorganization status of the merger would
result in significant tax consequences. For example,
o SSI would recognize a corporate level gain or loss on the deemed
sale of all of its assets equal to the difference between the sum of
the fair market value, as of the closing of the merger, of the First
Enterprise Service Group common stock issued in the amount of the
liabilities of SSI assumed by First Enterprise Service Group in the
SSI's basis in such assets
32
<PAGE> 33
o SSI shareholders would recognize gain or loss with respect to each
share of SSI common stock surrendered equal to the difference
between the shareholder's basis in such share and the fair market
value, as of the closing of the merger, of the First Enterprise
Service Group common stock received in merger therefore.
In such event, a shareholder's aggregate basis in the First Enterprise Service
Group common stock so received would equal its fair market value and the
shareholder's holding period for such stock would begin the day after the merger
as a result of its filing of a form 8-A electing to be a reporting company
subject to the requirements of the 1934 act is consummated.
EVEN IF THE MERGER QUALIFIES AS A REORGANIZATION, A RECIPIENT OF FIRST
ENTERPRISE SERVICE GROUP COMMON STOCK WOULD RECOGNIZE INCOME TO THE EXTENT THAT,
FOR EXAMPLE, ANY SUCH SHARES WERE DETERMINED TO HAVE BEEN RECEIVED IN MERGER FOR
SERVICES, TO SATISFY OBLIGATIONS OR IN CONSIDERATION FOR ANYTHING OTHER THAN THE
SSI COMMON STOCK SURRENDERED. GENERALLY, SUCH INCOME IS TAXABLE AS ORDINARY
INCOME UPON RECEIPT. IN ADDITION, TO THE EXTENT THAT SSI SHAREHOLDERS WERE
TREATED AS RECEIVING, DIRECTLY OR INDIRECTLY, CONSIDERATION OTHER THAN FIRST
ENTERPRISE SERVICE GROUP COMMON STOCK IN MERGER FOR SUCH SHAREHOLDER'S COMMON
STOCK GAIN OR LOSS WOULD HAVE TO BE RECOGNIZED.
THIS DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES OF THE MERGER TO HOLDERS
OF SSI WARRANTS AND OPTIONS, WHO, AS A RESULT OF THE MERGER, WILL RECEIVE FIRST
ENTERPRISE SERVICE GROUP WARRANTS AND OPTIONS. HOLDERS OF SUCH SECURITIES SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO SUCH TAX CONSEQUENCES.
TERMINATION.
At any time prior to the Effective Date, the merger agreement may be terminated,
and the merger abandoned under certain circumstances, including:
o By mutual consent of First Enterprise Service Group and SSI
o By either party if any of the other party's representations and
warranties contained in the merger agreement shall be or shall have
become inaccurate, or if any of the other party's covenants
contained in the merger agreement shall have been breached
o By either party if a court of competent jurisdiction or other
governmental body shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the
effect of permanently restraining, enjoining or otherwise
prohibiting the merger
o By SSI if the special meeting shall have been held and the merger
agreement shall not have been adopted and approved at such meeting
by the required vote
o By SSI if SSI reasonably determines that the timely satisfaction of
any condition to its obligations to consummate the merger has become
impossible or unlikely.
DISSENTERS' RIGHTS
THE FOLLOWING SUMMARY OF DISSENTERS' RIGHTS UNDER DELAWARE LAW IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SECTION 262, DELAWARE GENERAL CORPORATION LAW.
Pursuant to Section 262 of the Delaware General Corporation Law, the holder of
record of any shares of SSI common stock who does not vote such holder's shares
in favor of adoption and approval of the merger may assert appraisal rights and
elect to have the "fair value" of such holder's shares of SSI common stock
33
<PAGE> 34
determined and paid to such holder, provided that such holder complies with the
requirements of section 262, summarized below. All references to and summaries
of the rights of the dissenting shareholders are qualified in their entirety by
reference to the text of section 262 of the DGLC which is attached to this
Information Statement as Exhibit C.
Any shareholder entitled to vote on the merger who desires that SSI purchase
shares of SSI common stock held by such shareholder, must not vote in favor of
adoption and approval of the merger. Shares of SSI common stock voted in favor
of adoption and approval of the merger will be disqualified as dissenting
shares.
Shareholders whose shares are not voted in favor of adoption and approval of the
merger and who, in all other respects, follow the procedures specified in
section 262 will be entitled to have their SSI common stock appraised by the
Delaware Court of Chancery and to receive payment of the "fair value" of such
shares, exclusive of any element of value arising from the accomplishment or
expectation of the merger, as determined by the Court. The procedures set forth
in section 262 must be strictly complied with. Failure to follow any such
procedures will result in a termination or waiver of appraisal rights under
section 262.
Under section 262, a holder of SSI common stock may exercise appraisal rights as
follows:
o Either before the effective date of the merger or consolidation or
within ten days thereafter, SSI shall notify each of the holders of
any of its class or series of stock who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class
or series of stock, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be
given by the surviving or resulting corporation to all such holders
of any class or series of stock of a constituent corporation that
are entitled to appraisal rights. Such notice may, and, if given on
or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation.
o Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each corporation
shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or
series of stock of such corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
34
<PAGE> 35
o For purposes of determining the stockholders entitled to receive
either notice, each corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall
be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
o The written demand for appraisal must be made by or for the holder
of record of shares of SSI common stock. Accordingly, such demand
must be executed by or for such shareholder of record, fully and
correctly, as such stockholder's name appears on the stock
certificates representing the shares. If the applicable shares are
owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in
such capacity, and if the applicable shares are owned of record by
more than one person, as in a joint tenancy or tenancy in common,
such demand should be executed by or for all joint owners. An
authorized agent, including one of two or more joint owners, may
execute the demand for appraisal for a shareholder of record.
However, the agent must identify the record owner(s) and expressly
disclose the fact that, in executing the demand, the agent is acting
as agent for the record owner(s).
o A record owner, such as a broker, who holds shares as nominee for
other persons may exercise appraisal rights with respect to the
shares held for all or less than all of such other persons. In such
case, the written demand should set forth the number of shares
covered by it. Where no number of shares is expressly mentioned, the
demand will be presumed to cover all shares standing in the name of
such record owner.
o Within 10 days after the closing of the merger, SSI is required to,
and will, notify each shareholder who has satisfied the foregoing
conditions of the date on which the closing of the merger occurred
and that appraisal rights are available with respect to shares for
which a demand has been submitted. Within 120 days after the closing
of the merger, SSI, or any such shareholder who has satisfied the
foregoing conditions and is otherwise entitled to appraisal rights
under section 262, may file a petition in the court demanding a
determination of the value of the shares held by all shareholders
entitled to appraisal rights. If no such petition is filed,
appraisal rights will be lost for all shareholders who had
previously demanded appraisal of their shares. Shareholders of SSI
seeking to exercise appraisal rights should not assume that SSI will
file a petition with respect to the appraisal of the value of their
shares or that SSI will initiate any negotiations with respect to
the "fair value" of such shares. Accordingly, such shareholders
should regard it as their obligation to take all steps necessary to
perfect their appraisal rights in the manner prescribed in section
262.
o Within 120 days after the date of the closing of the merger, any
shareholder who has therefore complied with the applicable
provisions of section 262 will be entitled, upon written request, to
receive from SSI a statement setting forth the aggregate number of
shares not voted in favor of the merger and with respect to which
demands for appraisal were received by SSI, and the number of
holders of such shares. Such statement must be mailed within 10 days
after the written request therefore has been received by SSI or
within 10 days after expiration of the period for delivery of
demands for appraisal, which ever is later.
35
<PAGE> 36
o If a petition for an appraisal is timely filed, at the hearing on
such petition the court will determine the shareholders of SSI
entitled to appraisal rights. After determining the shareholders
entitled to an appraisal, the court will appraise the value of the
shares of SSI common stock owned by such shareholders, determining
the "fair value" thereof exclusive of any element of value arising
from the accomplishment or expectation of the merger. The court will
direct payment by SSI of the fair value of such shares together with
a fair rate of interest, if any, on such fair value to shareholders
entitled thereto upon surrender to SSI of stock certificates. The
costs of the proceeding may be determined by the court and taxed
upon the parties as the court deems equitable in the circumstances.
Upon application of a shareholder, the court may, in its discretion,
order that all or a portion of the expenses incurred by any
shareholder in connection with an appraisal proceeding, including
without limitation, reasonable attorneys' fees and fees and expenses
of experts, be charged pro rata against the value of all the shares
entitled to appraisal.
o Although SSI believes that the merger is fair, no representation is
made as to the outcome of the appraisal of fair value as determined
by the court and shareholders should recognize that such appraisal
could result in a determination of a value higher or lower than, or
the same as, the Conversion Value. Moreover, SSI does not presently
anticipate offering more than the Conversion Value to any
shareholder exercising appraisal rights and reserves the right to
assert, in any appraisal proceeding, that, for purposes of section
262, the "fair value" of a share of SSI common stock is less than
the Conversion Value. In determining the "fair value" of shares of
SSI common stock, the court is required to take into account all
relevant factors. Therefore, such determination could be based upon
considerations other than, or in addition to, the price paid for
shares of SSI common stock, including, without limitation, the
market value of shares and the asset values and earning capacity of
SSI. In WEINBERGER v. UOP, INC. ET AL., 457 A.2d 701,713 (Del.
1983), the Delaware Supreme court stated, among other things, that
"proof of value by any techniques or methods which are generally
considered acceptable in the financial community of SSI and
otherwise admissible in court" should be considered in an appraisal
proceeding. Section 262 provides that "fair value" is to be
"exclusive of any element of value arising from the accomplishment
or expectation of the merger." In WEINBERGER, the Delaware Supreme
court held that "elements of future value, including the nature of
the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be
considered."
o Any holder of shares of SSI common stock who has demanded an
appraisal in compliance with section 262 will not, after the closing
of the merger, be entitled to vote such holder's shares for any
purpose nor be entitled to the payment of dividends or other
distributions on such shares (other than those payable to
shareholders of record as of a date prior to the closing of the
merger).
o If (i) no petition for an appraisal is filed within 120 days after
the date of the closing of the merger or (ii) a holder of shares
delivers to SSI a written withdrawal of such holder's demand for an
appraisal and an acceptance of the merger, either within 60 days
after the closing of the merger or with the written approval of SSI
thereafter (which SSI reserves the right to give or withhold, in its
sole discretion), then the right of such shareholder to an appraisal
will cease and such shareholder will remain a shareholder of SSI. No
appraisal proceeding in the court will be dismissed as to any
shareholder without the approval of the court, which approval may be
conditioned on such terms as the court deems just.
36
<PAGE> 37
IT IS A CONDITION TO SSI'S OBLIGATIONS TO CONSUMMATE THE MERGER THAT THE HOLDERS
OF NO MORE THAN 10% OF THE OUTSTANDING SHARES OF SSI'S COMMON STOCK ARE ENTITLED
TO DISSENTERS' RIGHTS. If demands for payment are made with respect to more than
10%, of the outstanding shares of SSI's common Stock, and, as a consequence more
than 10% of the shareholders of SSI become entitled to exercise dissenters'
rights, then SSI will not be obligated to consummate the merger.
ACCOUNTING TREATMENT
For accounting purposes, the merger will be treated as a reverse merger with an
acquisition company.
MERGER PROCEDURES
Unless otherwise designated by a SSI shareholder on the transmittal letter,
certificates representing shares of First Enterprise Service Group common stock
issued to SSI shareholders will be issued and delivered to the tendering SSI
shareholder at the address on record with Space Systems International
Corporation. In the event of a transfer of ownership of shares of SSI common
Stock represented by certificates that are not registered in the transfer
records of SSI , the shares may be issued to a transferee if such certificates
are delivered to the Transfer Agent, accompanied by all documents required to
evidence such transfer and by evidence satisfactory to the Transfer Agent that
any applicable stock transfer taxes have been paid. If any certificates shall
have been lost, stolen, mislaid or destroyed, upon receipt of
o An affidavit of that fact from the holder claiming such certificates
to be lost, mislaid or destroyed, Such bond, security or indemnity
as the surviving corporation and the merger agent may reasonably
require
o Any other documents necessary to evidence and effect the bona fide
merger, the merger agent shall issue to holder the shares into which
the shares represented by such lost, stolen, mislaid or destroyed
o Certificates have been converted.
Neither First Enterprise Service Group, Space Systems International Corporation,
nor the Transfer Agent is liable to a holder of SSI's common stock for any
amounts paid or property delivered in good faith to a public official under any
applicable abandoned property law. Adoption of the merger agreement by the SSI's
shareholders constitutes ratification of the appointment of the Transfer Agent.
After the closing of the merger, holders of certificates will have no rights
with respect to the shares of SSI common stock represented thereby other than
the right to surrender such certificates and receive in merger the shares of
First Enterprise Service Group common stock to which such holders are entitled.
37
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION INCLUDED
ELSEWHERE IN THIS PROSPECTUS.
SSI SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial information should be read in conjunction with
the SSI audited financial statements for the years ended February 28, 1998 and
1999 included elsewhere in the registration statement and Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
historical selected financial information as of August 31, 1999 and for the six
months ended August 31, 1998 and 1999 are derived from and should be read in
conjunction with the SSI unaudited financial statements included elsewhere in
the registration statement. The unaudited financial statements, in our opinion,
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the data for the periods presented. The results of
operations for the six months ended August 31, 1999 are not necessarily
indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28, SIX MONTHS ENDED AUGUST 31,
------------------------ ---------------------------
1998 1999 1998 1999
----------- --------- ----------- -------------
(UNAUDITED) (UNAUDITED)
Statement of operations data:
<S> <C> <C> <C> <C>
Revenues $ 103,621 $ 58,526 $ 7,023 $ 513,363
Cost of revenue 78,665 10,341 2,500 291,315
Gross margin 24,956 48,185 4,523 222,048
Operating expenses 21,032 501,153 192,987 457,091
Interest expense 3,352 2,097 1,580 11,266
------------ ------------ ------------ ------------
Net income (loss) $ 572 $ (455,065) $ (190,044) $ (246,309)
============ ============ ============ ============
Basic income (loss) per share $ 0.00 $ (0.05) $ (0.02) $ (0.02)
============ ============ ============ ============
Shares used to compute basic
income (loss) per share 7,200,150 9,464,417 8,893,162 10,425,150
============ ============ ============ ============
Diluted income (loss) per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
============ ============ ============ ============
Shares used to compute diluted
income (loss) per share 7,200,150 -- -- --
============ ============ ============ ============
</TABLE>
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED AUGUST 31, 1999
TO THE SIX MONTHS ENDED AUGUST 31, 1998
REVENUES
Revenues increased to $513,363 for the six months ended August 31, 1999 from
$7,023 for the six months ended August 31, 1998. This increase of $506,363 or
731% is the result of agreements signed with two companies to provide wireless
engineering support services in Russia. These agreements expire December 1999.
38
<PAGE> 39
COST OF REVENUES
Costs of revenues consist primarily of contract labor costs. Cost of revenues
increased to $291,315, or 56.7% of revenues for the six months ended August 31,
1999 from $2,500 or 35.6% of revenues for the six months ended June 30, 1998.
The increase of $288,815 or 1,165% was due primarily to payment of Russian
contract workers providing support services.)
OPERATING EXPENSES
Operating expenses consist primarily of salaries, wages and related costs for
general corporate functions, including finance, accounting, facilities, legal
and other fees for professional services. Operating expenses increased to
$457,091 for the six months ended August 31, 1999 from $192,987 for the six
months ended August 31, 1998. The increase was primarily due to an increase in
revenue which was partly offset by an increase in operating expenses.
DEPRECIATION EXPENSE
Depreciation expense was $400 for the six months ended June 30, 1999 and 1998.
INTEREST EXPENSE
Interest expense increased from $1,580 to $11,266 for the six months ended
August 31, 1998 and 1999, respectively. This increase of $9,686 was a result of
our use of a factoring company for funding which was used to provide cash flow
to the company.
NET LOSS
Our net loss for the six months ended August 31, 1999 increased $56,265 from
$190,044 for the six months ended August 31, 1998 to $246,309 for the same
period in 1999. The increase in our net loss is due to an increase in our cost
of revenues and an increase in our operating costs as discussed above.
YEAR ENDED FEBRUARY 28, 1999 COMPARED TO THE YEAR ENDED FEBRUARY 28, 1998
REVENUES
Revenues decreased to $58,526 for the fiscal year ended February 28, 1999 from
$103,621 for the fiscal year ended February 28, 1998. This decrease in revenue
is a result of a decrease in imagery sales.
COST OF REVENUES
Cost of revenues decreased to $10,341 for the fiscal year ended February 28,
1999 from $78,665 for the fiscal year ended February 28, 1998. As a percentage
of revenues, cost of revenues decreased from 75.9% to 17.7% for the same
periods. This decrease of $68,324 or 760% is primarily due to the decrease in
revenue.
39
<PAGE> 40
OPERATING EXPENSES
Operating expenses increased to $501,153 for the fiscal year ended February 28,
1999 from $21,032 for the fiscal year ended February 28, 1998. As a percentage
of revenue, operating expenses increased from 20.3% to 856.3%. This increase, as
a percentage of revenue, is a result of an increase in the number of employees
and an increase in activity associated with raising additional funds and
marketing the company
DEPRECIATION EXPENSE
Depreciation expense decreased to $799 for the fiscal year ended February 28,
1999 from $1,117 for the fiscal year ended February 28, 1998. This decrease of
$318 or 28.5% is a result of a decrease in the furniture and equipment held by
the Company at February 28, 1999.
INTEREST EXPENSE
Interest expense decreased to $2,097 for the year ended February 28, 1999 from
$3,352 for the fiscal year ended February 28, 1998. This decrease of $1,255, or
37.4% is primarily a result of decrease borrowings through fiscal 1999 versus
fiscal 1998.
NET INCOME/(LOSS)
Our net loss for the fiscal year ended February 28, 1999 increased $455,637,
from income of $572 for the fiscal year ended February 28, 1998 to $(455,065)
for the same period in1998. This increase in our net loss is due to a reduction
in revenues during the year ended February 28, 1999 and an increase in operating
expenses as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through revenues and
capital recently raised in private placements. As of August 31, 1999, we had
$251,764 in cash. Cash flows used for operating activities was $76,141 for the
six months ended August 31, 1999. Net cash flows provided by financing
activities of $123,441 consists primarily of proceeds from the issuance of
common stock.
SSI BUSINESS
We are a company incorporated in Delaware on February 19, 1998. Since our
formation we have generated limited revenues. We are a successor to Space
Liaison and Imaging Corporation, a California Corporation. In March, 1998, we
acquired certain assets and assumed certain liabilities of Space Liaison, which
has subsequently been dissolved.
SSI was formed to market remote sensing and telecommunications systems, products
and services. Since inception, SSI's operating activities have consisted of
o Developing and refining SSI's line of remote sensing and
telecommunications systems, products and services
o Forming partnering/supplier relationships
o Developing marketing materials
o Securing new business
40
<PAGE> 41
CURRENT BUSINESS
We are currently engaged in marketing and sale of:
o Remote sensing products that involve the acquisition of
images/signals from a distance, in this case space - not unlike
taking a picture with a camera. We are selling of Russian supplied
images produced from satellite resources in several formats, such as
o DIGITAL ELECTRONIC TRANSMISSION OF DATA FROM SPACE NOT UNLIKE A
CAMCORDER/VIDEO CAMERA, AND HARDCOPY SUCH AS A PRINT OR
PHOTOGRAPH.
o ARCHIVAL SOURCES SUCH AS DATA STORED IN VAULTS OR ON COMPUTERS
WHICH ARE COPIED AND ARE USUALLY MORE THAN 1 YEAR OLD
o ADVANCE PRE-ORDERED IMAGES OF SPECIFIED SURFACE LOCATIONS OF THE
EARTH
THESE IMAGES HAVE SUCH USES AS URBAN PLANNING AND EARTH RESOURCE
MANAGEMENT. THE IMAGES/PICTURES, WHICH PROVIDE THE MOST ACCURATE
INFORMATION FOR THESE PURPOSES, ARE 2-METER RESOLUTION OR LESS,
OR A SIX-FOOT OBJECT SIMILAR TO A CAR.
o Telecommunications systems, products and services, initially
supplying wireless telecom deployment services in Russia and in the
future possibly expanded to other regions of the world
Our mission is to develop solutions to the remote sensing and communications
problems through integrated systems. As a provider of integrated systems, we
intend to put together the capabilities and equipment of select international
organizations, such as Sovinformsputnik, TELECOM, GDE/Tracor, T-Com, SADA-PRO,
ViaSat, GlobalVu Applied Technology, and Companion Technology, to provide cost
effective solutions to the customers' requirements. We intend offer complete
system solutions as well as associated subsystems and ancillary products and
services.
BUSINESS STRATEGY
SSI's business strategy is based on the follow situations we believe to exist:
o The pent-up demand for existing, remote sensing and
telecommunications products and services that have been targeted by
SSI for worldwide marketing and sales.
o SSI's awareness of lower cost, but reliable Russian technology and
being convinced of the base technology's availability and
attractiveness to the international marketplace.
o The Russian technology base in remote sensing and telecommunications
is equal to the West in many technical areas. Products currently
exist today that can be marketed immediately. Catalogued items will
be our near-term focus.
o The Russian economy has bottomed out and is booming in the outer
regions, not just Moscow. The Russian markets are huge, making this
a most opportune time to engage this part of the world.
o The strength of SSI's relationships with Russian agencies and
commercial companies that were formed over the last 5 years.
o Knowing there is opportunity and an important role to be played in
forming alliances between Western and Russian enterprises.
o A belief in the strength and merits of SSI's existing international
marketing, sales and distribution network.
41
<PAGE> 42
SSI plans to capitalize on the products paid for and developed by the Soviet
government during the years of the Cold War. The remote sensing systems have
been in use for 40 years successfully in the acquiring of images from space. The
Russian theoretical basis for math and science and ability to produce at a high
volume is world renowned, and has been applied effectively to telecommunications
algorithm and radio frequency component design. Since Russia is behind in the
development of analog and digital integrated circuit technology, this represents
a significant opportunity for SSI. Straightforward coupling of their theoretical
and production know-how with Western capabilities will yield partnering
opportunities and cost-effective solutions to SSI's customers.
The near-term plan is to market products and services that exist today. There is
no development required in the technology areas. This approach will allow SSI to
fine tune and expand its marketing and sales strategy with existing products.
The products to be marketed are not limited to Russian technology. We are a
supplier of cost effective, reliable systems solutions and will integrate
appropriate off the shelf technology that meets our customers' requirements
SSI's medium-term plan is to expand on this initial approach of marketing
Russian technology worldwide by including other technology as well. This
technology will be initially offered through licensing agreements to Russian
companies which will require advanced technology to improve the overall
marketability of their products and services. SSI has already identified
manufacturing companies in Russia that are seeking this type of technology
alliance, such as TELECOM, which leads the telecommunications manufacturing
trade association, and Crosna Spacecom, a Russian manufacturer and system
integrator.
As SSI becomes successful with marketing and sales of existing products,
expansion of the products and services are planned to occur. New joint ventures
may be formed during the second phase of the Company's plan that will enable a
better position in the markets through integration of existing Western and
Russian technology. The ventures will be Russian-based using lower cost, Russian
production techniques. This approach further cements relationships with the
Russian government and commercial enterprises, promoting the capturing of
Russian remote sensing and telecommunication markets. Management believes that
successful introduction of Western products and services into the Russian
marketplace requires obtaining the necessary governmental certifications and
licenses. Management believes that Russian participation in its ventures is
required to obtain the necessary governmental approvals.
Management believes its expertise and business relationships in the remote
sensing and telecommunications technologies are a basis of its growth plans.
Management also believes that SSI offers its international and Russian
customers, a mix of relationships, technical abilities and awareness, and a
marketing and sales infrastructure that will assist their growth.
SSI plans to become a leading provider of remote sensing and wireless
telecommunications technologies, products and services to the international
marketplace by:
42
<PAGE> 43
o Offering effective solutions from its worldwide government and
commercial contacts and relationships
o Forming international alliances and joint ventures, which leverages
currently available technologies, products and services
o Utilizing the sales and marketing of Russian remote sensing and
telecommunications technologies which meet the market's quality and
reliability requirements
REMOTE SENSING
INDUSTRY OVERVIEW
The remote sensing industry began with the launch of the first satellite by the
Russians in 1956. The industry has refocused on the commercialization of data
acquired from space through a variety of sensors on board satellites that orbit
the earth. The manipulation of this data through computers provides pictures,
maps, electronic signals and communication channels for use by governments and
the industrial/commercial /agricultural communities around the world.
The acquisition of the remote sensing end product requires placing in orbit
around the earth a complex and sophisticated satellite system. A complete
satellite system consists of
o The satellite
o The sensor payload
o The communications links
o The ground-station
o The processing workstations/software
It may cost up to $500 million to launch without any guarantees of a successful
orbit. A potential client for a complete satellite system would be a country or
a consortium of companies. SSI has five proposals outstanding for the sale of
complete satellite systems.
PRODUCTS AND SERVICES
SSI intends to provide complete systems, system components, and specific
products such as turnkey systems, individual sensors or ground-stations, or
ordered images and services such as market analysis and technical consulting. We
provide alternate paths to meeting customers' requirements, which are summarized
as follows:
o Complete Systems
o Remote sensing systems
o Telecommunications wireless networks
o System Components
o Sensor platforms
o Imaging sensors
o Imaging ground stations
o Imaging analytical tools
o Telecom network and Internet products
43
<PAGE> 44
o Specific Products
o Preordered images
o Archived images
o Maps
o Telecom antennas, transmitting/receiving equipment
o Services
o Image Analysis
o System design, integration and test
o Hardware/software design and development
o System certification
COMPLETE SYSTEMS
Integrated systems for the most part include the following:
o Platforms - which may include spacecraft, aircraft, lighter than
aircraft, or submersibles
o Sensors - including camera-infrared, digital, photographic film,
multi spectral
o Groundstations - which comprises processors, antennas, computers and
workstations
o Imaging and Analysis Tools - which includes specifically developed
software for analyzing imagery and generating maps
SYSTEMS COMPONENTS
SENSOR PLATFORMS
These products represent the hardware upon which a sensor would be placed. In
the case of satellites, it is the spacecraft itself and becomes part of our
total system sale. However SSI is also selling imaging and surveillance systems
that use balloons and aircraft as a platform in which it will provide the sensor
for surveillance and traffic monitoring. SSI has submitted proposals to the
governments of Taiwan and Thailand for systems using a lighter-than-air vehicle
manufactured by an associate, T-COM Corp.
IMAGING SENSORS
This product is what captures the image data and in essence is a camera. The
application of small lightweight, low-cost multi-spectral cameras for use in
aircraft and balloons to address border surveillance, traffic monitoring or crop
monitoring can be accomplished by using, in management's opinion, the low-cost
design of SADA-PRO's multi-spectral camera that is being proposed to Thailand
and Taiwan.
IMAGING GROUND STATIONS
This product line and subsystem capability will support both space based and air
based sensing systems. It is necessary to capture the signal and data stream as
either a mobile or fixed base station. It then provides for the distribution of
that signal to the end user of the data which can be either an individual or an
operation that will produce the data package such as a map or an analysis of the
44
<PAGE> 45
information. SSI has the choice of using either the ground station provided by
the Russians with each turnkey system or by providing a value added U.S.
configuration developed by General Dynamics Electronics. SSI has currently
proposed a combination of ground stations to prime customers including
Ministries of Defense, Interior, and Security in Thailand, Taiwan, Spain,
Malaysia and Turkey.
IMAGING ANALYTICAL TOOLS
This is a product that is essential for the rapid analysis and interpretation of
images or electronic data streams provided by any of the primary space based
systems SSI is offering. Although there are several commercial software packages
available to provide a mapping capability, General Dynamics Electronics has, as
an offshoot of a government-sponsored development for the U.S. intelligence
agencies, developed a low-cost, rapid access software product for image
exploitation, called IXP. This is usable with a variety of computer systems that
exists in the governments and organizations to which SSI will be providing
imagery. SSI has proposals to Thailand, Taiwan, Turkey, Singapore, and Malaysia
for this independent product and as a part of overall system capability.
Telecom Network and Internet Products/Antenna, Transmitters & Receivers
SPECIFIC PRODUCTS
PRE-ORDERED IMAGES - from the most current of the photographic based
data packages that SSI provides using the existing Russian space-based satellite
systems that are launched three times a year. Those images which have a
resolution of 2 meters to 5 meters provide information for making maps or
conducting surveillance of an area as well as for urban planning and
agricultural requirements. This data requires an advance payment of 50 percent
before launch and will result in the highest quality mapping data currently
available on a commercial basis. SSI has provided and is continuing to provide
this imagery to Taiwan.
ARCHIVED IMAGES - those images and data taken over the past ten-year
period using high-quality, Russian military satellite systems. They are being
made available for sale through SSI's affiliation with Sovinformsputnik.
However, not all areas of the earth are covered, or if they have been archived,
the date of archiving may not be consistent with the customer's time
requirements. SSI has sold and continues to sell this limited data to a variety
of international and industrial organizations in Thailand, Taiwan, Turkey,
Singapore and the U.S. A variety of corporations (inquiries from over 200) and
universities have purchased this data such as General Dynamics, Lockheed Martin
Marietta, McDonnell Douglas, Burns and Rowe and San Diego State University.
MAPS - which provide the high quality database for purposes of
navigating, engineering and locating environmental events. The generation of
maps from imagery is an exacting science that has been upgraded by the use of
software programs and computers. Once the data is acquired (through either
pre-ordered or archive), the data is manipulated to provide information on the
contour of the land and the height and location of objects in the image. From
this database, a map at a variety of scales is produced using mapping software
provided by GDE. SSI has mapping proposals submitted to Thailand and Taiwan at
this time. In the case of Thailand, this involves the establishment of a Mapping
and Remote Sensing Center which SSI will operate for the Royal Thai Government.
45
<PAGE> 46
TELECOM ANTENNAS, TRANSMITTING/RECEIVING EQUIPMENT
SERVICES
IMAGE ANALYSIS - the task of viewing the pictures/data acquired by
SSI's sensing systems or provided by SSI's pre-orders/archive maps. The art of
interpreting the image and producing a report or analysis is one of the most
significant outputs of any data package. The automated approach to this analysis
through computer software such as IXP, is what SSI provides through its
affiliation with GDE. The analysis of imports (number of cars dock-side/off
loaded can be counted) or the interpretation of crop yields and fertilization
requirements can now be automated.
SYSTEM DESIGN, INTEGRATION AND TEST - is a value added function SSI
provides as the integrator of technology (satellites, sensors) capability
(operational, low-cost) and requirements (Thailand's need for information of
border incursions) into a total space based system. This knowledge, along with
SSI's experience in hardware and software design (satellites, sensors, ground
stations, analytical tools), will allow SSI to certify that the system being
provided meets the customer's requirements.
HARDWARE/SOFTWARE DESIGN AND DEVELOPMENT
SYSTEM CERTIFICATION
PRODUCT APPLICATIONS
The technological long-term conventional film imagery to digital-based
electronic imagery represents a 10-fold leap in cost-effective use of space
assets and an ability to satisfy the need of the remote-sensing marketplace.
Examples of applications in this field are included in the following:.
MULTI-SPECTRAL REMOTE IMAGING APPLICATIONS
NEAR REAL-TIME RESPONSE
Cultivated Vegetation
o Crop productivity
o Stress identification
o Commodities predictions
HAZARD MONITORING
o Flood mapping
o Hurricane damage
o Tornado damage
Illegal Drug Crop Detection
Political Crisis Monitoring; i.e., Iraq, Libya, Morocco
46
<PAGE> 47
Ocean Monitoring
o Pollution
o Hazards; i.e., Great Barrier Reef
Water Resource Monitoring/Mapping
HISTORIC/ARCHIVE DATA
CARTOGRAPHY
o Map changes
o 3-dimensional topology
Surveys for Construction
o Pipelines
o Roadways
o Seaports
Urban Planning
Mineral Exploration/Monitoring
Natural Vegetation Monitoring
o Range improvement/inventory
o Forest assessment
MAP POSTERS
Databases for Flight Simulation
MARKETS
Recent market analysis conducted by the society of Photographic Scientists and
Engineers and the American Society of Photogrammetry indicate that the needs of
second and third world nations; as well as commercial endeavors around the world
in agriculture, environmental, insurance, urban planning, to name but a few,
require rapid, quasi-real time data acquisition of the earth and its environs.
This market is conservatively placed at between $9 billion - $12 billion a year.
Regions such as Latin America, Southeast Asia, the Pacific Rim, and the Middle
East are experiencing exponential need. Traditional earth resource
infrastructure, such as passive aerial photography, while reliable, is cost and
time prohibitive; also, it is difficult to implement in remote and rural areas
of the world.
47
<PAGE> 48
CUSTOMERS
The customers for the systems SSI offers are both international and varied in
interests. For dedicated remote sensing satellite systems, SSI has held
negotiations and submitted preliminary proposals to the ministries of interior
and defense of the following countries: Malaysia, Turkey, Taiwan, Spain and
Thailand. Their primary interest is in having a dedicated capability to acquire
pictures, images, maps and agricultural data for purposes of urban planning,
national security and food production. In addition, SSI has a continuing list
of clients who have ordered imagery from Russia's archives. SSI's relationship
with Russia goes back to 1993 when it first negotiated a marketing position for
their government-sanctioned product of high resolution (2 meters) and multi
spectral imagery. The company, Sovinformsputnik, was the first commercially
formed company in Russia authorized to sell the archives of the formally
classified Russian Military Space Command. Their name was derived from SOV
[meaning Soviet] INFORM [meaning information] SPUTNIK [meaning satellite in
Russian]. The relationship between the management of SSI and Sovinformsputnik
goes back over 30 years when we were adversaries during the "cold war period"
and each of us was working for our respective governments to develop advanced
space-based imaging systems to gather information on each other's capabilities.
SSI has begun to market its capability to provide images on a timely basis to
over 200 industrial companies with interests in flood control, insurance
claims, farming consortiums, civil engineering, highway departments,
newspapers, civil engineers, surveyors, industrial corporations and even
prosecutors in the O.J. Simpson murder trial who were trying to establish the
whereabouts of the Bronco.
TELECOMMUNICATIONS
SSI plans to offer telecommunications systems and capabilities including
satellite-based, wireless communication networks, components and services to
both public and private international organizations such as
o Telephone carriers and operators
o The financial industry
o The oil/gas industry
o Commercial enterprises
SSI will offer solutions to telecommunications problems faced by the public and
private sectors initially in the economically emerging countries such as Russia,
China, India, South America and Africa. In addition, SSI will offer licensing
agreements for the worldwide distribution of communications infrastructure and
component technologies. Some potential licensing agreements could cover such
applications as: communication gateway antennas, and TV/telephone distribution
technologies to include radio frequency (RF) component technology that provide
improved performance and capability at a lower cost, as well as complete
ground-based satellite communication terminals and systems.
SSI plans to meet these remote sensing and telecommunications goals by utilizing
and expanding current Russian relationships, such as our agreements with
Sovinformsputnik and TELECOM, to acquire the technology to be exported through
partnering and teaming agreements. SSI further intends to license non-Russian
technology for sales/distribution inside Russia and other emerging countries.
Dr. Victor Moguchev, Vice President of SSI Russian Operations, is a Russian
expert in the field of telecommunications and will be SSI's representative in
Moscow for the sale of complete Russian satellite systems.
48
<PAGE> 49
SSI has obtained the non-exclusive rights to represent Russia for:
1 The sale of complete satellite systems.
2. The sale of high resolution (2 meter), earth registered
pictures recorded on high-density digital data tape, CD-ROM or
other electronic media.
3. Data links from Russian satellites for existing and future
sensor and telecommunications data distribution.
4. Agreements, strategic alliances and arrangements with the
Russian organizations listed below, some of which were
acquired by SSI from the Predecessor.
<TABLE>
<CAPTION>
<S> <C>
Sovinformsputnik 2-meter resolution Satellite Imagery and dedicated
satellite systems
MINIRS Micro Electronics, Communication and Space Systems
MINITI Radio Communication Electronics
Gascom Space Communication Systems
ELECS Military Aircraft Systems
Far East Development Corp Military Systems
Security of Information Electronic Security Systems
Rostelesat Global, satellite-based telecommunications and
imaging systems.
TELECOM Previously Ministry of Telecom Industry, now a
joint stock company (JSC)
SWEET Government equipment and operational certification
agency
NPO-PM Telecom satellite contractor (Express, Raduga,
Coupon, Loutch)
TeleRoss, Sovam Teleport Global TeleSystems Group (GTS) owned telephone
service providers
MIR Teleport Intergovernmental (Russian/CIS) communications,
satellite-based
Crosna Space Comm Large system integrator for Russian telecom networks
Satcom-Tel Provider of VSAT based communication services.
Comstar Russian British JV. Digital overlay service provider
</TABLE>
SSI plans to expand its relationships in Russia through formal protocols,
letters of agreement, strategic alliances and joint ventures.
INDUSTRY OVERVIEW
The telecommunications industry has undergone rapid expansion over the last 2
decades with the advent of digital communications, the Internet, and the growth
of demand in mature and emerging markets throughout the world.
The acquisition of telecommunications end products range from deployment of
complete wireless systems to the insertion of component technology into specific
products and networks. SSI's arrangement with the Russian organization TELECOM,
plus those with other international organizations, will make our solutions
49
<PAGE> 50
available to the worldwide marketplace It is anticipated that our marketing
agreement with ViaSat, a manufacturer of satellite communications terminals will
continue with SSI for sales and distribution in the Commonwealth of Independent
States (CIS), which includes Russia.
MARKETS
Emerging countries, such as Russia, South America, Africa, and India, have
telecommunications systems that are inadequate for today's needs. Improving the
telecommunication infrastructure is critical to the future economic development
in these regions. Significant opportunities exist in expanding the equipment
market and developing partnerships with the government and industrial base of
these emerging countries.
Using the Commonwealth of Independent States (CIS, former Soviet Union) as an
example, the telecommunications infrastructure is not to the standard of most
industrialized nations because it is not technologically advanced enough to
handle the demand of the region's population and expanding businesses. The
Russian and CIS regions are booming but their economic growth is being limited
by poor communications.
In a global context, recent market surveys indicate that 75% of the world's
population do not have access to telephones. More important, between now and the
year 2000, it is expected that the equivalent of an additional 500 million
telephone lines will be installed worldwide. The market is ** by whom estimated
at $5 billion to $10 billion.
We believe that there are many telecommunications opportunities that exist in
the near-term. SSI will select opportunities where
o The markets are large and real and where SSI's existing marketing
and sales network currently has access.
o The available Russian and Western telecommunications components have
the greatest applicability.
Through a detailed marketing study performed by GlobalVu in October of 1997,
significant expansion of commercial businesses in the regions of Russia and the
CIS was observed, not just in the Moscow region. Moscow's growth does lead the
nation, but competition is fierce and market saturation is an issue. The study
indicates exponential growth of the Internet and data networking markets in this
region of the world, just as in many others. It is fueled by the what we believe
to be the expansion of commercial businesses. As the regions boom economically,
the existing Soviet-era long haul data and telephone network infrastructure is
being stressed. We believe the opportunity for low cost infrastructure is great
in order to serve the expanding business markets.
Another market consists of current subscribers that need to be connected to the
local public telephone system. There is a very long wait for local telephone
service, up to 2 years in many areas. The market is real, as evident from the
high growth of cellular and wireless local loop services being deployed through
the CIS and other regions of the world. These wireless technologies have become
a replacement to wireline access for consumers and businesses that need
immediate telecommunications services.
50
<PAGE> 51
MARKETING
SSI's initial thrust in telecommunications is the marketing and sales of Russian
technology. SSI plans to serve these markets by allying with key Russian
government agencies and commercial companies in order to provide cost-effective
infrastructure solutions. The system components to be marketed initially will be
those that provide the following solutions:
o Satellite-based trunking of regional traffic to domestic and
international PSTN gateways.
o Satellite or terrestrial wireless connection of subscribers for
local access
o Wireless-based satellite and terrestrial Internet and data networks
for enterprises in the private sector.
The approach will be two-fold:
o To align SSI with the Telecommunications Industry in Russia and the
CIS through TELECOM, JSC, which was a previous Soviet Ministry, but
is now a commercial joint stock company.
o Extend the current relationships and appeal to the needs of these
telephone system integrators and service providers such as
Rostelesat, Crosna Spacecom, ELSOV/ELAS, MIR Teleport, SWEET,
Comstar, Satcom-Tel, Global TeleSystems Group, Transworld
Communications and Newbridge.
SSI's relationship with TELECOM, JSC is significant because they are seeking a
worldwide marketing vehicle for the 150 companies that are a part of their
association. TELECOM, JSC is publishing a catalog in April of products for sale
within Russia, but sees SSI as an opportunity to get worldwide exposure for the
export of its system components and specific products.
SSI's relationships with system integrators and service providers involved in
Russia and the CIS will allow system components and specific products from the
West to be inserted into their current and future networks to make them more
competitive in the marketplace. A February 1998 marketing trip revealed a need
for a transfer and injection of Western know-how and components in the areas of
network system design, integration and deployment.
SALES AND MARKETING
SSI's sales and marketing programs for both remote sensing and
telecommunications shall be the responsibility of the executive management team
of the Company and the 22 independent sales agents covering 22 countries.
The officers of SSI have an average 30-plus years each of experience in high
technology, and management believes it has a commercial advantage due to its
extensive relationships and non-exclusive access to Russian product/system
solutions with its low cost capabilities.
Management believes Russia has plans to participate in the development of the
industry but does not have a world class marketing and sales infrastructure. SSI
plans to be Russia's marketing team and its value added reseller of remote
sensing and telecommunications systems and services.
51
<PAGE> 52
The marketing and sales activity for Russia will be performed through its Moscow
office. It will initially be staffed with 2 marketing representatives in
addition to Dr. Moguchev. SSI may utilize consultants to establish and
coordinate its U.S. and Russian organizations.
Independent sales agents have been established in the following countries:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Saudi Arabia Turkey Greece Israel
Germany Hungary Spain Indonesia
Malaysia Taiwan Thailand Russia
Ukraine Singapore Egypt Argentina
Venezuela United States Canada Kuwait
China Brazil
</TABLE>
SSI's primary thrust is the integration of systems and their sub-components into
an existing customer's infrastructure; for example, making images available for
urban planning and highway development in Thailand. Additionally, SSI shall
provide a potential customer with its capabilities through advertisement,
meetings and attendance at trade fairs and conventions, such as The Paris Air
Show, Singapore Air Show, Farnborough, Dubai, DOKTORI-Turkey, etc.
SSI has contracts and completed projects with the following organizations:
o State ministries that desire private complete satellite systems for
special purposes in remote sensing in Europe and the Far East
o Oil companies that desire private satellite systems for exploration
and pipeline monitoring in remote sensing in the Middle East and
Asia
o State organizations wishing to access space imagery for data base
mapping in Far East and Near East
o Aerospace corporations (ITT, Lockheed Martin, Loral, GDE, QTSI)
consulting and marketing support in the area of remote sensing
systems and data network management design in the United States
o Several state governments that desire high resolution contour maps
for a variety of purposes in the Far East
o Over 200 inquiries from Global Information System companies
regarding availability of 2 meter multi-spectral data in Europe, the
Far East, Latin America and the United States
o Imagery and imaging systems to:
o Countries for defense, border control, natural resource
monitoring, crop forecasting, urban planning and
extraction/exploration
o Oil companies for pipeline monitoring, exploration, competition
assessment and environmental impact monitoring
o State, local governments for urban planning, transportation
infrastructure studies, and building code compliance
o GIS companies for high resolution map production
o Mapping companies for high resolution map production
52
<PAGE> 53
In offering systems, services and products, SSI has formed strategic alliances
with the system and equipment providers:
o Imagery - SOVINFORMSPUTNIK
o Remote Sensing System - SOVINFORMSPUTNIK
o Telecommunications - ROSTELESAT and TELECOM
o Mapping Systems - General Dynamics Electronics (GDE), Tracor Corp
o Imaging Sensors - SADA Pro Corp
o Balloon Platforms - T-COM Corp
CUSTOMERS
In telecommunications, the customer base is large and covers areas of the globe
where public need and commercial enterprises are expanding. The Internet has
fueled a rapid expansion and worldwide need for stable communications networks
We are providing telecommunications engineering support for Globalstar and
Ericsons telecommunications projects in Russia. The contract is for less than
one year and may be terminated with 30-day notice with 3-month termination pay
required under Russian Law.
The structure of the contract calls for SSI to provide support employees to
their Russian projects. The salaries are billed with an overhead rate of 107%
and taxes are covered at costs. Reasonable operating expenses are also covered
at cost.
The contract accounts for 95% of total telecom revenues.
COMPETITION
The competition in our marketplaces is significant. Other products be designed
that would do what ours do. Other companies that are investing billions of
dollars to launch their own satellites and will sell the data/images at as yet
an unknown price.
Management believes that cost and service are the keys to be competitive in this
market sector.
We eliminate the research and development costs by purchasing images from an
existing Russian system and thus our costs are lower than having to amortize a
complete satellite and launch system, which we estimate to cost $500 million.
A customer's alternatives to SSI's planned approach to remote sensing and
telecommunications products is to continue to use the high cost systems that
exist, such as SPOT, Earthwatch, Orbimage and Spaceimage, or reverting to
acquiring data through aerial imagery, sensing and conventional
telecommunication channels. We believe that the industry will not revert back to
an archaic approach to satisfy the requirements for more information. SSI's
solution to this worldwide need for timely information is to access already
developed and proven technology. Management believes this strategy will allow
SSI to sell either our end product or a total system for less than a newly
developed system. Management believes that SSI's success is similar to other
industries in that customer service is paramount. In the remote sensing and
telecommunications industry, it is the end product or service; i.e., the map,
picture, electronic signal or communication channel/service which meets the
needs of the customer.
There are certain barriers to entry into our market, primarily developing
necessary relationships, such as those we already have, and cost of the
infrastructure and reliability, such as that that we already have, are the key
factors in being successful.
53
<PAGE> 54
Management believes its relationships with vendors will offer substantial
benefits to its customers.
REGULATION
The United States government's policy on the sale of imagery is controlled by
the U.S. Department of Commerce and is dictated by the White House. The policy
under which several U.S.-based consortiums, such as Lockheed/Martin, Boeing and
Orbital Sciences, requires the approval of the Department of Commerce to launch
dedicated space-based imaging systems and the sale of imagery to certain
countries currently on the embargo list; i.e., Libya, Iraq, South Africa and
Iran. In addition, these consortiums are restricted to selling imagery to
countries or their representatives of the specific country in which they reside;
for example, images of Saudi Arabia to only Saudi Arabia.
The Russian policy is far less defined but is restricted in that the imagery
must only be used for humanitarian purposes. SSI currently is not limited in its
sale of images except that it must guarantee that the imagery is being used for
humanitarian and peaceful purposes.
Currently only France, with their 'SPOT' imaging system, has a capability to
supply images, but the resolution regime is not less than five meters, and they
have stipulated that better resolution will not be available for sale.. Israel
is developing an imaging capability with commensurate resolution capability, but
is currently not making these images available.
The international capability for lower resolution imagery, or 5 meter, 10-meter,
15-meter, resides in India, Japan, France, Canada, as well as the U.S. and
Russia. SSI's thrust in remote sensing with the image based at 2 meter down to 1
meter can only be satisfied by the U.S. and Russia for the foreseeable future.
In addition, none of the aforementioned countries are currently providing a
dedicated, quasi-real time, turnkey-imaging system at 2 meter resolution.
EMPLOYEES
The company has four employees, 2 in management, 1 in sales and 1
administrative. There is no collective bargaining agreement.
FACILITIES
We lease from HQ Global Workplaces 250 square feet on a month-to-month basis at
a rate of $300 per month.
54
<PAGE> 55
MANAGEMENT
The names and ages of our executive officers and directors as of September 30,
1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ----- --------
<S> <C> <C>
John M. Papazian 65 Chairman, President, CEO, Director, Member of Audit Committee
and Compensation Committee and Director
Dennis G. Appel 48 Sr. V.P. of Technology, Secretary, Director
Brook Watts 60 Vice President, Marketing and Director
Edward F. Daley 40 Vice President, CFO, Treasurer, Member of Audit Committee and
Compensation Committee and Director
Victor Moguchev 60 Vice President, Russian Operations and Director
Martin J. Flaherty 57 Director
Benjamin D. Russo 67 Director
</TABLE>
Mr. John M. Papazian, Chairman, President, Chief Executive Officer, and
Director, joined us in February, 1998. From 1991 to 1998, Mr. Papazian was
President and Owner of Space Liaison and Imaging Corporation. From 1989 to 1991,
Mr. Papazian was Corporate Vice President of S.A.I.C. From 1970 to 1989, Mr.
Papazian held various executive positions with Grumman Aerospace Corporation
including Director-Corporate, Regional and Field Office Integration, and
Director of International Marketing. From 1960 to 1970, Mr. Papazian held
several executive engineering positions with ITEK Corporation. From 1953 to
1960, Mr. Papazian was an engineer with Bellock Instrument Corporation. Mr.
Papazian received a B.S. in Mechanical Engineering from Queens College.
Mr. Dennis G. Appel, Senior Vice President, Technology, Treasurer, and Director
joined us in February, 1998. From 1997 to 1998, Mr. Appel was the President and
principal shareholder of Global Vu Applied Technology, Inc. From 1989 to 1997,
Mr. Appel was a Program Manager for Lockheed Martin Corporation. From 1988 to
1989, Mr. Appel was a Systems Engineering Manager for Alcoa Defense
Systems/McDonnell Douglas Tech., Inc. From 1983 to 1988, Mr. Appel was a Staff
Consultant with Purvis Systems, Inc. From 1972 to 1983, Mr. Appel was a Design
and Test Engineer for Rockwell International. Mr. Appel received a B.S.E.E. from
Loyola Marymount University.
Mr. Brook Watts, Vice President, Marketing joined us in February, 1998. From
1993 to 1997, Mr. Watts was Executive Vice President, Space Liaison and Imaging
Corporation. From 1985 to 1993, Mr. Watts was a Program Manager for TRW Avionics
Surveillance Group. From 19__ to 19__, Mr. Watts managed the Department of
Defense's Tactical Cryptologic Program. Mr. Watts received an M.B.A. from
Syracuse University and a B.A. from the University of Portland.
Mr. Edward F. Daley, Vice President, Chief Financial Officer and Director,
joined us in April, 1998. Since 1994 , Mr. Daley has been President and Chief
Executive Officer of San Diego Firefighters Credit Union. From 1991 to 1994, Mr.
Daley was Chief Financial Officer for Central Credit Union of San Diego. From
1988 to 1991, Mr. Daley was a Controller at First National Bank of North County.
Mr. Daley received an M.B.A. from San Diego State University and a B.A. in
Economics from Brandeis University. Mr. Daley is also an adjunct faculty member
in the Finance Department at National University in San Diego.
Dr. Victor Moguchev, Vice President, Russian Operations joined us in February,
1998. From 1966 to 1998, Mr. Moguchev was an RF Engineer/Specialist for the
Moscow Scientific Research Institute of Radio Communication. Mr. Moguchev
graduated from the Moscow Radio Equipment and Systems College in 1958, and All
Union Energetic Institute in 1964. He received a P.H.D. in Communications
Sciences in 1973.
55
<PAGE> 56
Mr. Martin Flaherty, Director, joined us in February, 1998. From 1983 to 1998,
Mr. Flaherty held various positions with General Dynamics, GDE Systems, Marconi
Integrated Systems, including Program Director and Marketing Director. Mr.
Flaherty received a B.S. and an M.S. from the Industrial College of Armed Forces
(ICAF) and the Air War College.
Mr. Benjamin D. Russo, Director joined us in February, 1998. From 1982 to 1998,
Mr. Russo was a sole practitioner and has been of counsel to Pelletreau &
Pelletreau, LLP. From 1977 to 1982, Mr. Russo was a member of Davidow, Davidow &
Russo. From 1970 to 1977, Mr. Russo was a member of Ashare & Russo and Permut.
From 1963 to 1970, Mr. Russo was a sole practitioner. From 1960 to 1963, Mr.
Russo was a member of Braslow, Russo & D'Amaro. Mr. Russo received a B.B.A. in
Accounting from St. John's University and a LL.B. from St. John's Law School.
Directors serve for one year terms. Our Bylaws currently provide for a Board of
Directors comprised of six directors.
BOARD COMPENSATION AND COMMITTEE
Our directors do not receive cash compensation for their services as directors,
although some directors are reimbursed for reasonable expenses incurred in
attending board or committee meetings.
We have a compensation committee of the board consisting of Messrs. Russo,
Papazian and Daley.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware empowers a
corporation to indemnify it directors and officers and to purchase insurance
with respect to liability arising out of their capacity as directors and
officers. The Act further provides that indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the Corporation's bylaws, any agreement, vote of
the shareholders, or otherwise.
Our bylaws provide that we shall indemnify all persons to the full extent
allowed by law, by reason of the fact that they are or were a director, become a
party or are threatened to be made a party to any indemnifiable action, suit or
proceeding. We shall pay, in advance of the final disposition of any
indemnifiable action, suit or proceeding under this bylaw, all reasonable
expenses incurred by the director, upon receipt of an undertaking by or on
behalf of the director to repay such amount if it is ultimately determined that
he is not entitled to be indemnified by us under law. We may indemnify persons
other than directors, such as officers and employees, as permitted by law. We my
purchase and maintain insurance on behalf of directors, officers and other
persons against any liability asserted against him, whether or not we would have
the power to indemnify such person against such liability, as permitted by law.
Insofar as indemnification for liabilities arising under the securities act may
be permitted to directors, officers or persons controlling the registrant under
the foregoing provisions, the registrant has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against the
public policy and is therefore, unenforceable.
56
<PAGE> 57
RELATED PARTY TRANSACTIONS
During the fiscal year ended February 28, 1998, we issued 7,200,150 shares of
common stock to Space Liaison and Imaging Corporation, a related company, in
exchange for all of the assets and liabilities of Space Liaison and Imaging
Corporation. Space Liaison and Imaging Corporation subsequently exchanged our
shares for its outstanding shares.
During June 1998 our CEO purchased 30,000 shares of common stock via the
issuance of a promissory note in the amount $6,000. The note is secured by the
common stock and bears interest at 8.5% per annum and is due June 26, 1999.
Prior to that due date the note was extended and is due on demand.
During June 1998 our Vice President purchased 20,000 shares of common stock via
the issuance of a promissory note in the amount $4,000. The note is secured by
the common stock and bears interest at 8.5% per annum and is due June 26, 1999.
Prior to that due date the note was extended and is due on demand.
During January 2000, the Company granted 2,982,761 shares of convertible
preferred stock to our CEO. The shares are convertible into shares of common
stock based on the attainment of certain revenue goals of SSI during SSI's
fiscal year. The shares have been valued at par value due to the uncertainty of
the attainment of the revenue goals for conversion into common stock. The
conversion feature expires two years after the grant.
During January 2000, the Company granted 1,350,000 shares of convertible
preferred stock to our Vice President. The shares are convertible into shares of
common stock based on the attainment of certain revenue goals of SSI during
SSI's fiscal year. The shares have been valued at par value due to the
uncertainty of the attainment of the revenue goals for conversion into common
stock. The conversion feature expires two years after the grant.
During January 2000, the Company granted 900,000 shares of convertible preferred
stock to our CFO. The shares are convertible into shares of common stock based
on the attainment of certain revenue goals of SSI during SSI's fiscal year. The
shares have been valued at par value due to the uncertainty of the attainment of
the revenue goals for conversion into common stock. The conversion feature
expires two years after the grant.
+
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of December 31, 1999.
o Each shareholder known by us to own beneficially more than 5% of the
common stock
o Each executive officer
o Each director and all directors and executive officers as a group:
57
<PAGE> 58
<TABLE>
<CAPTION>
------------------------------------------ ----------------------------- ---------------------- ---------------------
NAME NUMBER OF SHARES PERCENTAGE PERCENTAGE
BEFORE MERGER AFTER MERGER
------------------------------------------ ----------------------------- ---------------------- ---------------------
<S> <C> <C> <C>
John Papazian(1)* 6,932,911 37.21 31.50
Dennis Appel(2)* 1,520,000 8.16 6.91
Ed Daley(3)* 1,000,000 5.37 4.54
Martin Flaherty* 50,000 .27 .23
Benjamin Russo* 50,000 .27 .23
Victor Moguchev* 100,000 .54 .45
Brook Watts* 100,000 .54 .45
Ila Berman 1,260,000 6.76 5.73
Sondra Black 1,260,000 6.76 5.73
Lindi Rivers(4) 1,897,959 10.19 8.62
Howard Kerbel(5) 1,300,000 5.90 5.91
Total of officers &
directors as a
group (7 persons) 9,752,911 52.35 44.32
</TABLE>
* Denotes officer and/or director
(1) This table is based upon information derived from our stock records. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, we believe that each of the shareholders named
in this table has sole or shared voting and investment power with respect to the
shares indicated as beneficially owned. Applicable percentages are based upon
10,925,150 shares of Common Stock outstanding and issuable as of December 31,
1999.
- --------
1 Includes 2,982,761 shares of convertible, preferred stock
convertible into a like number of common shares upon the occurrence of
certain events.
2 Includes 10,000 shares owned by each of his daughters; also
includes 1,350,000 shares of convertible, preferred shares convertible
into a like number of common shares upon the occurrence of certain events.
3 Includes 900,000 shares of convertible, preferred shares
convertible into a like number of common shares upon the occurrence of
certain events.
4 Includes 1,887,959 shares of convertible, preferred shares
convertible into a like number of common shares upon the occurrence of
certain events. Ms. Rivers and Dr. Ila Berman are stepsisters.
5 The number of shares beneficially owned by Mr. Kerbel includes
exercisable options to acquire 350,000 shares of common stock at $.0001
per share, exercisable options to acquire 750,000 shares of common stock
at $.50 per share, and options which are to be granted upon the completion
of the merger agreement, described in this registration statement, to
acquire 200,000 shares of common stock at $.0001 per share held by Gritell
International, Ltd., which is under the investment control of Mr. Kerbel.
Mr. Kerbel is the President and sole shareholder of Gritell International,
Ltd. No other offices or directors have any ownership or control of
Gritell International, Ltd.
58
<PAGE> 59
DESCRIPTION OF SSI CAPITAL STOCK
The following information is as of September 30, 1999.
<TABLE>
<CAPTION>
------------------------------------------------ ----------------------------------------------------
<S> <C>
Authorized Capital Stock Under SSI Shares Of Capital Stock Outstanding
Articles Of Incorporation
------------------------------------------------ ----------------------------------------------------
Common Stock 10,925,150
50,000,000
------------------------------------------------ ----------------------------------------------------
Preferred Stock 7,120,720 Class A
25,000,000
------------------------------------------------ ----------------------------------------------------
</TABLE>
Our present management and their affiliates collective owns approximately 60% of
our issued and outstanding common shares.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
PREFERRED STOCK
There are 10,000,00 shares of Class A preferred stock authorized and 7,120,720
shares issued. The Class A preferred stock has the following rights and
preferences.
o DIVIDEND RIGHTS - None
o LIQUIDATION PREFERENCE - An amount equal to the par value per share.
o NO MANDATORY REDEMPTION. - There is no mandatory right of redemption
o VOTING RIGHTS. - Each share of Preferred Stock shall be entitled to
one vote for each share of Common Stock issuable upon conversion of
the Preferred Stock on each matter on which holders of shares of
Common Stock are entitled to vote. The Preferred Stock shall not
vote as a separate class, but shall vote jointly with holders of
Common Stock.
o RIGHT TO CONVERT - Until December 31, 2005, conversion shall be on
the basis of one share of Common Stock for each share of Preferred
Stock. The right to convert shall not commence unless and until SSI
achieves gross annual sales of $1,000,000 over a twelve month
period. The Preferred Stock shall be for no consideration if the
goal is not achieved within two years from the date of issuance of
the Preferred Stock.
In addition, issuance of additional preferred stock with voting and conversion
rights may adversely affect the voting power of the holders of common stock,
including voting rights of the holders of common stock. In certain
circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of the
merger, we currently have no plans to issue any additional shares of preferred
stock.
59
<PAGE> 60
OPTIONS
SSI has the following options outstanding:
o Gritell International Ltd.
o 200,000 options at $.0001 per share
o Granted at the conclusion of this merger - expire with the
expiration of the Gritell Consulting Agreement
o Phoenix Business Consultants
o 500,000 options at $1.00 per share
o Granted during fiscal 1999 - expire five years after they become
exercisable
o Gritell International Ltd.
o 750,000 options at $.50
o Granted 12/10/99 - expires one year after Company becomes
publicly traded
o ITR Marketing Inc.
o 500,000 options at $.50
o Granted 11/20/99 - expires one year after Company becomes
publicly traded
o Evan Capital
o 500,000 options at $.50
o Granted 10/15/99 - expires one year after Company becomes
publicly traded
o Novak Graphics Ltd.
o 500,000 options at $.50
o Granted 11/20/99 - expires one year after Company becomes
publicly traded
o Larix International Ltd.
o 750,000 options at $.50
o Granted 12/10/99 - expires one year after Company becomes
publicly traded
DIVIDENDS
We have never paid any dividends and do not expect to do so after the closing of
the merger and thereafter for the foreseeable future.
TRANSFER AGENT
The transfer agent and registrar for your stock is
Atlas Stock Transfer
5899 South State
Murray, UT 84107
60
<PAGE> 61
FIRST ENTERPRISE SERVICE GROUP'S BUSINESS
HISTORY AND ORGANIZATION
We were organized under the laws of the state of Florida in March, 1999. Since
inception, our primary activity has been directed to organizational efforts. We
were formed as a vehicle to acquire a private company desiring to become an SEC
reporting company in order thereafter to secure a listing on the over the
counter bulletin board.
OPERATIONS
We were organized for the purposes of creating a corporate vehicle to seek,
investigate and, if such investigation warrants, engage in business combinations
presented to us by persons or firms who or which desire to become an SEC
reporting company.
EMPLOYEES
We presently have no employees.
YEAR 2000 ISSUES
Because we currently have no operations, we do not anticipate incurring
significant expense with regard to Year 2000 issues.
SELECTED FINANCIAL DATA
The following information concerning our financial position and operations is
as of and for the period April 6, 1999 (Date of Incorporation) to December 31,
1999.
Total assets $ 0
Total liabilities 0
Equity 79
Sales 0
Net loss 79
Net loss per share 0.00
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
We are a development stage entity, and have neither engaged in any operations
nor generated any revenues to date. We have no assets. Our expenses to date,
all funded by a loan from management, are $79. We have agreed to pay our
management a salary of $60,000 from inception until closing of the merger.
61
<PAGE> 62
Substantially all of our expenses that must be funded by management will be
from our efforts to identify a suitable acquisition candidate and close the
acquisition. Management has orally agreed to fund our cash requirements until
an acquisition is closed. So long as management does so, we will have
sufficient funds to satisfy our cash requirements. This is primarily because we
anticipate incurring no significant expenditures. Before the conclusion of an
acquisition, we anticipate our expenses to be limited to accounting fees, legal
fees, telephone, mailing, filing fees, occupational license fees, and transfer
agent fees.
We do not intend to seek additional financing. At this time we believe that the
funds to be provided by management will be sufficient for funding our operations
until we find an acquisition and therefore do not expect to issue any additional
securities before the closing of a business combination.
We expect no Year 2000 problems, as our business is not dependent upon any
computer. However, the business we acquire could experience interruptions in its
business and significant losses if it or its customers or vendors rely on
computer information systems that are unable to accurately process dates
beginning on January 1, 2000.
PROPERTIES.
We are presently using the office of Michael T. Williams, 2503 W. Gardner Ct.,
Tampa FL, at no cost as our office. Such arrangement is expected to continue
only until a business combination is closed, although there is currently no such
agreement between Mr. Williams and us. We at present own no equipment, and do
not intend to own any.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information about our current shareholders. The
person named below has sole voting and investment power with respect to the
shares. The numbers in the table reflect shares of common stock held as of the
date of this Information Statement/Prospectus:
SHARES OWNED PERCENTAGE
---------------- ------------------
Michael T. Williams(1) 1,000,000 33.3%
2503 W. Gardner Ct.
Tampa FL 33611
Kevin Lovely 1,000,000 33.3
Leonard Aernoff, Esq. 1,000,000 33.3
All directors and officers 1,000,000 33.3
as a group - 1 persons
(1) Owned as Tenants by the Entireties by Michael Williams and Donna Williams,
his wife.
In connection with the merger, we agreed to effect a reverse split such that
Mr. Williams will own 751,603 shares prior to the closing of the merger. In
addition, Mr. Lovely and Mr. Aernoff agreed that prior to the reverse split,
they would return sufficient shares to us for no consideration such that after
the reverse split they will each own 50,000 shares of First Enterprise prior to
the closing of the merger.
62
<PAGE> 63
Mr. Williams may be deemed our promoter, as that term is defined under the
securities act of 1933.
DIRECTORS AND EXECUTIVE OFFICERS.
The following table and subsequent discussion sets forth information about our
director and executive officer, who will resign upon the closing of the
acquisition transaction. Our director and executive officer was elected to his
position in March, 1999.
NAME AGE TITLE
- ------ ----- -------
Michael T. Williams 51 President, Treasurer and Director
Michael T. Williams responsibilities will include management of our operations
as well as our administrative and financial activities. Since 1975 Mr. Williams
has been in the practice of law, initially with the U.S. Securities and
Exchange Commission until 1980, and since then in private practice. He was also
chief executive officer of Florida Community Cancer Centers, Dunedin, FL from
1991-1995. Mr. Williams has President of Williams Financial Consulting Group,
Inc. since its inception in 1998. In that capacity, he has formed in the past
and intends to continue to form in the future for himself and for others
numerous acquisition companies similar to ours. He received a BA from the
University of Kansas and a JD from the University of Pennsylvania.
EXECUTIVE COMPENSATION.
Mr. Williams will receive an aggregate salary of $60,000 from inception of our
business until closing of the merger.
LEGAL PROCEEDINGS.
We are not a party to or aware of any pending or threatened lawsuits or other
legal actions.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our director is bound by the general standards for directors provisions in
Florida law. These provisions allow him in making decisions to consider any
factors as he deems relevant, including our long-term prospects and interests
and the social, economic, legal or other effects of any proposed action on the
employees, suppliers or our customers, the community in which the we operate and
the economy. Florida law limits our director's liability.
We have agreed to indemnify our director, meaning that we will pay for damages
they incur for properly acting as director. The SEC believes that this
indemnification may not be given for violations of the securities act of 1933.
Insofar as indemnification for liabilities arising under the securities act may
be permitted to directors, officers or persons controlling the registrant under
the foregoing provisions, the registrant has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against the
public policy and is therefore, unenforceable.
63
<PAGE> 64
PROVISIONS WITH POSSIBLE ANTI-TAKEOVER EFFECTS
As we will reincorporate in Delaware before the closing of the merger, the
following information about Delaware law is provided:
Section 203 of Delaware law prohibits a corporation from engaging in a business
combination with an interested stockholder for three years following the date
that such person becomes an interested stockholder. With certain exceptions, an
interested stockholder is a person or entity who or which owns 15% or more of
the corporation's outstanding voting stock (including any rights to acquire
stock pursuant to an option, warrant, agreement, arrangement or understanding,
or upon the exercise of conversion or exchange rights, and stock with respect to
which the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner of 15% or more of such voting stock at any time
within the previous three years.
For purposes of Section 203, the term business combination is defined broadly to
include mergers of the corporation or a subsidiary with or caused by the
interested stockholder; sales or other dispositions of the interested
stockholder (except proportionately with the corporation's other stockholders)
of assets of the corporation or a subsidiary equal to ten percent or more of the
aggregate market value of the corporation's consolidated assets or its
outstanding stock; the issuance or transfer by the corporation or a subsidiary
of stock of the corporation or such subsidiary to the interested stockholder
(except for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); or receipt by the interested
stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203 does
not apply if:
(i) prior to the date at which such stockholder becomes an interested
stockholder the board of directors approves either the business combination
or the transaction which resulted in the person becoming an interested
shareholder;
(ii) the interested stockholder owns 85% of the corporation's voting stock
upon consummation of the transaction which made him or her an interested
stockholder (excluding from the number of shares outstanding those shares
owned by directors who are also officers of the target corporation and
shares held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or
(iii) on or after the date such person becomes an interested stockholder,
the board approves the business combination and it is also approved at a
stockholder meeting by 66 2/3% of the voting stock not owned by the
interested stockholder.
Section 203 does not apply if the business combination is proposed prior to
the consummation or abandonment of and subsequent to the earlier of the
public announcement or a 20-day notice required under Section 203 of the
proposed transaction which
o constitutes certain
64
<PAGE> 65
o mergers or consolidations
o sales or other transfers of assets having an aggregate market value
equal to 50% or more of the aggregate market value of all of the
assets of the corporation determined on a consolidated basis or the
aggregate market value of all the outstanding stock of the
corporation
o proposed tender or exchange offer for 50% or more of the
corporation's outstanding voting stock;
o is with or by a person who was either not an interested stockholder
during the last three years or who became an interested stockholder
with the approval of the corporation's board of directors
o is approved or not opposed by a majority of the board members
elected prior to any person becoming an interested stockholder
during the previous three years (or their chosen successors).
Stockholder Voting on Mergers and Similar Transactions. The laws of Delaware
generally require that a majority of the stockholders of both acquiring and
target corporations approve statutory mergers. They do not require a stockholder
vote of the surviving corporation in a merger unless the corporation provides
otherwise in its certificate of incorporation if
o the merger agreement does not amend the existing certificate of
incorporation,
o each share of stock of the surviving corporation outstanding before
the merger is an identical outstanding or treasury share after the
merger, and
o the number of shares to be issued by the surviving corporation in
the merger does not exceed 20% of the shares outstanding immediately
prior to the merger.
The laws of Delaware also generally require that a sale of all or substantially
all of the assets of a corporation be approved by a majority of the voting
shares of the corporation transferring such assets.
Delaware law generally does not require class voting, except for amendments to
the certificate of incorporation that change the number of authorized shares or
the par value of shares of a specific class or that adversely affect such class
of shares.
DESCRIPTION OF FIRST ENTERPRISE SERVICE GROUP'S CAPITAL STOCK
-------------------------------- --------------------------------------------
Authorized Capital Stock Shares Of Capital Stock Outstanding
-------------------------------- --------------------------------------------
50,000,000 3,000,000
-------------------------------- --------------------------------------------
20,000,000 10,000,000 Class A
-------------------------------- --------------------------------------------
Common Stock
We are authorized to issue 50,000,000 shares of no par common stock. As of
December 31, 1999, there were 3,000,000 shares of common stock outstanding held
of record by 3 stockholders. There will be 14,686,753 shares of common stock
outstanding after giving effect to the issuance of the shares of common stock
under this prospectus and the issuance of 1,000,000 shares of restricted stock
to a consultant subsequent to the completion of this registration statement.
65
<PAGE> 66
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
We are authorized to issue 20,000,000 shares of Class A preferred stock. There
are 10,000,000 shares of Class A preferred stock outstanding, with the same
rights and preferences as SSI Class A preferred stock. Issuance of preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of common stock, including voting rights of the holders of common
stock. In certain circumstances, an issuance of preferred stock could have the
effect of decreasing the market price of the common stock. We currently have no
plans to issue any additional shares of preferred stock.
Options
We will issue options with the same terms and conditions as the SSI options
described above in connection with the merger.
Dividends
We have never paid any dividends and do not expect to do so after the closing of
the merger and thereafter for the foreseeable future.
Transfer Agent and Registrar
We are the transfer agent and registrar for our common stock.
COMPARISON OF RIGHTS OF FIRST ENTERPRISE SERVICE GROUP
STOCKHOLDERS AND SSI SHAREHOLDERS
Because First Enterprise Service Group will change its state of incorporation,
articles and bylaws to be the same as those of SSI, the rights of shareholders
of SSI will not change as a result of the merger.
AVAILABLE INFORMATION
SSI is not and until the effectiveness of this registration statement First
Enterprise Service Group was not, subject to the reporting requirements of the
Exchange Act and the rules and regulations promulgated thereunder, and,
therefore, do not file reports, information statements or other information with
the Commission. Under the rules and regulations of the Commission, the
solicitation of proxies from the shareholders of SSI to approve the merger
constitutes an offering of First Enterprise Service Group common stock to be
issued in connection with the merger. Accordingly, First Enterprise Service
Group has filed with the Commission a registration statement on Form S-4 under
66
<PAGE> 67
the Securities Act, with respect to such offering from time to time, the
registration statement. This information statement/prospectus constitutes the
prospectus of First Enterprise Service Group that is filed as part of the
Registration Statement in accordance with the rules and regulations of the
Commission. Copies of the registration statement, including the exhibits to the
Registration Statement and other material that is not included herein, may be
inspected, without charge, at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and
may be available at the following Regional Offices of the Commission:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of
such materials may be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling the Commission at 1-800-SEC-0330. In addition, the
Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, information and information statements and other information
regarding registrants that file electronically with the Commission.
EXPERTS
The financial statements of First Enterprise Service Group, Inc. as of and for
the period April 6, 1999 (Date of Incorporation) through December 31, 1999 also
included in this prospectus and elsewhere in the Registration Statement have
been included herein in reliance on the report of Kingery Crouse & Hohl P.A.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. The financial statements of Space Systems
International Corporation as of February 28, 1998, and 1999 and for the years
ended February 28, 1998, and 1999 also included in this prospectus and
elsewhere in the Registration Statement have been included herein in reliance
on the report of Pannell Kerr Forster, Certified Public Accountants, A
Professional Corporation, San Diego, California, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of First Enterprise Service Group common stock being
offered by this information statement/prospectus and certain federal income tax
matters related to the exchange are being passed upon for First Enterprise
Service Group by Williams Law Group, P.A., Tampa, FL. Mr. Williams is the sole
officer and director of and owns 1,000,000 shares pre merger and 751,603 shares
post merger of the stock of First Enterprise Service Group.
67
<PAGE> 68
SPACE SYSTEMS INTERNATIONAL CORPORATION
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1999
<PAGE> 69
SPACE SYSTEMS INTERNATIONAL CORPORATION
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT.............................................F-1
FINANCIAL STATEMENTS
Balance Sheets as of February 28, 1998 and 1999................F-2
Statements of Operations for the years ended
February 28, 1998 and 1999 ............................F-3
Statements of Changes in Stockholders' (Deficit) Equity
for the years ended February 28, 1998 and 1999 ........F-4
Statements of Cash Flows for the years ended
February 28, 1998 and 1999 ......................F-5 - F-6
NOTES TO THE FINANCIAL STATEMENTS.................................F-7 - F-15
<PAGE> 70
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Space Systems International Corporation
We have audited the accompanying balance sheets of Space Systems International
Corporation (the "Company"), as of February 28, 1998 and 1999 and the related
statements of operations, changes in stockholders' (deficit) equity, and cash
flows for the years then ended. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 presents fairly, in
all material respects, the financial position of Space Systems International
Corporation as of February 28, 1998 and 1999, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses from operations, has
limited operating revenue and limited capital resources. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
San Diego, California PANNELL KERR FORSTER
June 19, 1999 Certified Public Accountants
A Professional Corporation
F-1
<PAGE> 71
SPACE SYSTEMS INTERNATIONAL CORPORATION
BALANCE SHEETS
February 28, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash $ 192 $ 88,093
Accounts receivable -- 19,650
Prepaid expenses -- 21,706
--------- ---------
Total current assets 192 129,449
--------- ---------
Noncurrent assets
Furniture and equipment, net of accumulated depreciation
of $2,094 and $2,893 at February 28, 1998 and 1999,
respectively 3,994 3,196
Other noncurrent assets 7,456 397
--------- ---------
Total noncurrent assets 11,450 3,593
--------- ---------
Total assets $ 11,642 $ 133,042
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 9,856 $ 90,041
Notes payable 21,200 28,300
--------- ---------
Total current liabilities 31,056 118,341
--------- ---------
Commitments and contingencies (Note 8)
Stockholders' (deficit) equity
Preferred stock, $.0001 par value, 25,000,000
shares authorized;-none issued and outstanding -- --
Common stock, $.0001 par value, 50,000,000
shares authorized; issued and outstanding:
8,900,150 and 10,300,150 shares at February 28,
1998 and 1999, respectively 890 1,030
Contributed and paid in capital 115,104 628,974
Common stock subscriptions receivable (170) (25,000)
Accumulated deficit (135,238) (590,303)
--------- ---------
Total stockholders' (deficit) equity (19,414) 14,701
--------- ---------
Total liabilities and stockholders' (deficit) equity $ 11,642 $ 133,042
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-2
<PAGE> 72
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
For the years ended February 28, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revenues
Sales $ 52,713 $ 19,226
Consulting 50,908 39,300
----------- -----------
Total revenues 103,621 58,526
----------- -----------
Cost of revenues 78,665 10,341
----------- -----------
Gross margin 24,956 48,185
----------- -----------
Expenses
Operating expenses 21,032 501,153
Interest expense 3,352 2,097
----------- -----------
Total expenses 24,384 503,250
----------- -----------
Net income (loss) $ 572 $ (455,065)
=========== ===========
Basic and diluted net income (loss) per share $ 0.00 $ (0.05)
=========== ===========
Shares used to compute basic and diluted
net income (loss) per share 7,200,150 9,464,417
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE> 73
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
For the years ended February 28, 1998 and 1999
<TABLE>
<CAPTION>
COMMON CONTRIBUTED
COMMON STOCK STOCK AND TOTAL
-------------------- SUBSCRIPTION PAID IN ACCUMULATED STOCKHOLDERS'
SHARES VALUE RECEIVABLE CAPITAL DEFICIT (DEFICIT) EQUITY
------ ----- ---------- ------------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
February 28, 1997 7,200,150 $ 720 $ -- $ 129,374 $ (135,810) $ (5,716)
Common stock
subscription receivable 1,700,000 170 (170) -- -- --
Capital distributions -- -- -- (21,370) -- (21,370)
Capital contributions -- -- -- 7,100 -- 7,100
Net income -- -- -- -- 572 572
---------- ---------- ---------- ---------- ---------- ----------
Balance at
February 28, 1998 8,900,150 890 (170) 115,104 (135,238) (19,414)
Issuance of common
stock options to
consultants -- -- -- 117,000 -- 117,000
Common stock issued 1,400,000 140 (25,000) 396,870 -- 372,010
Common stock
subscription received -- -- 170 -- -- 170
Net loss -- -- -- -- (455,065) (455,065)
---------- ---------- ---------- ---------- ---------- ----------
Balance at
February 28, 1999 10,300,150 $ 1,030 $ (25,000) $ 628,974 $(590,303) $ 14,701
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE> 74
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
For the years ended February 28, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 572 $(455,065)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 1,117 799
Loss on disposal of furniture and equipment 1,583 --
Common stock options issued to consultants -- 117,000
Changes in operating assets and liabilities:
Increase in accounts receivable -- (19,650)
Increase in other noncurrent assets (6,290) (397)
Decrease in organization expenses 213 7,456
Increase in prepaid expenses -- (21,706)
(Decrease) increase in accounts payable and accrued expenses (526) 80,184
--------- ---------
Net cash used in operating activities (3,331) (291,379)
--------- ---------
Cash flow from investing activities:
Capital expenditures (2,499) --
--------- ---------
Net cash used in investing activities (2,499) --
--------- ---------
Cash flow from financing activities:
Capital contributions 7,100 --
Capital distributions (21,370) --
Issuance of common stock -- 372,180
Borrowings on notes payable 11,200 25,214
Repayments of notes payable -- (18,114)
--------- ---------
Net cash (used in) provided by financing activities (3,070) 379,280
--------- ---------
Net (decrease) increase in cash (8,900) 87,901
Cash at beginning of year 9,092 192
--------- ---------
Cash at end of year $ 192 $ 88,093
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE> 75
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
For the years ended February 28, 1998 and 1999
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1998 1999
-------------- --------------
Cash paid during the period for:
Income taxes $ -- $ --
============== ==============
Interest $ 3,352 $ 2,097
============== ==============
Supplemental disclosure of noncash investing and financing activities:
Effective March 1, 1998, the Company exchanged 7,200,150 shares of common
stock for all of the assets and liabilities of Space Liaison and Imaging
Corporation. The value of the assets and liabilities acquired were $4,303
and $31,056, respectively.
The accompanying notes are an integral part of the financial statements
F-6
<PAGE> 76
SPACE SYSTEMS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended February 28, 1998 and 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Space Systems International Corporation (the "Company") was incorporated in
Delaware on February 19, 1998. The Company provides technology and consulting to
corporations and governments requiring solutions to telecommunications and
remote sensing of the environment. The Company provides an integrated system
approach to the problem by utilizing existing capabilities among sub
contractors.
Effective March 1, 1998, the Company acquired all of the assets and liabilities
of Space Liaison and Imaging Corporation in exchange for the issuance of
7,200,150 shares of common stock of the Company. The transaction has been
accounted for as an exchange between entities under common control and was
accounted for at historical cost. Accordingly, the accompanying financial
statements have been presented as if Space Liaison and Imaging Corporation and
Space Systems International Corporation were one company.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including instruments embedded
in other contracts and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities in the balance sheet, and measure
those instruments at fair value. The new standard becomes effective for fiscal
years beginning after June 15, 2000. Management does not expect this statement
to have a material effect on the Company's financial statements.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from two to five years.
LONG LIVED ASSETS
The Company applies the provisions of SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
periodically evaluates whether events or circumstances have occurred that may
affect the estimated useful life or the recoverability of long-lived assets. The
Company performs this evaluation for each individual long lived asset.
Impairment is triggered when the estimated future cash flows do not exceed the
carrying amount. Impairment will be measured on the difference between the
carrying amount and the fair value of such asset determined using the future
cash flows. No impairment of long lived assets has been recognized as of
February 28, 1999.
F-7
<PAGE> 77
SPACE SYSTEMS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended February 28, 1998 and 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 related disclosures at
the date of the financial statements, and the amounts of revenues and expenses
reported during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share excludes dilution and is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the reported periods. Diluted net income (loss per share)
reflects the potential dilution that could occur if stock options and other
commitments to issue common stock were exercised. For the year ended February
28, 1999, the effects of stock options and other commitments to issue common
stock are not considered in the calculation as they are anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the recorded values of its financial instruments
approximates their fair value at the balance sheet date due to their immediate
short-term maturity.
STOCK BASED COMPENSATION
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options, and other
equity instruments based on a fair-value method of accounting.
Companies that do not choose to adopt the expense recognition rules of SFAS No.
123 will continue to apply the existing accounting rules contained in Accounting
Principles Board Opinion ("APBO") No. 25, but will be required to provide
proforma disclosures of the compensation expense determined under the fair-value
provisions of SFAS No. 123. APBO No. 25 requires no recognition of compensation
expense for most of the stock-based compensation arrangements provided by the
Company, namely, option grants where the exercise price is equal to the market
price at the date of the grant.
F-8
<PAGE> 78
SPACE SYSTEMS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended February 28, 1998 and 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK BASED COMPENSATION (Continued)
The Company has opted to follow the accounting provisions of APBO No. 25 for
stock-based compensation and to furnish the pro forma disclosures required under
SFAS No. 123. During the year ended February 28, 1999, the Company did not have
any options which required the pro forma disclosures under SFAS No. 123.
GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses from operations, has
limited operating revenue and limited capital resources. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
raise capital from outside sources, generate sufficient cash flow from
operations, and ultimately to attain profitability.
NOTE 2 - PREPAID EXPENSES
Prepaid expenses at February 28, 1999, represents the remaining amount of costs
incurred for insurance policies covering directors and officers and general
liability. The policies were financed by a finance company.
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at February 28 consist of:
1998 1999
------- -------
Accounts payable trade $ 4,856 $22,541
Accrued professional fees 5,000 --
Accrued salaries -- 67,500
------- -------
$ 9,856 $90,041
======= =======
F-9
<PAGE> 79
SPACE SYSTEMS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended February 28, 1998 and 1999
NOTE 4 - NOTES PAYABLE
Notes payable at February 28 consists of:
1998 1999
------- -------
Note payable to a bank, interest payable
monthly at 13.25% and 13.50% per annum,
respectively, principal amount due on demand $21,200 $13,149
Note payable to a finance company,
interest payable monthly at 12.38%
per annum -- 15,151
------- -------
$21,200 $28,300
======= =======
NOTE 5 - INCOME TAXES
Deferred income taxes reflect the net tax effects of the temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. The tax effect of temporary
differences consisted of the following as of February 28:
1998 1999
--------- ---------
Deferred tax assets:
Net operating loss carry forwards $ 34,000 $ 90,000
Compensation element of stock options issued -- 66,000
Cash basis accounting for tax purposes -- 19,000
Other -- 11,000
--------- ---------
Gross deferred tax assets 34,000 186,000
Less valuation allowance (34,000) (186,000)
--------- ---------
$ -- $ --
========= =========
Realization of deferred tax assets is dependant upon sufficient future taxable
income during the period that deductible temporary differences and carryforward
are expected to be available to reduce taxable income. As the achievement of
required future taxable income is uncertain, the Company recorded a valuation
allowance. The Company's valuation allowance increased by $186,000 from 1998.
F-10
<PAGE> 80
SPACE SYSTEMS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended February 28, 1998 and 1999
NOTE 5 - INCOME TAXES (Continued)
As of February 28, 1999, the Company has net operating loss carry forwards for
both federal and state income tax purposes. Federal and state net operating loss
carry forwards totaling approximately $226,000 expire in 2019 and 2004,
respectively. Due to federal and state laws, the availability of the operating
loss carry forwards may be limited if a cumulative change in the Company's
ownership results in a change in control. The Company believes such a change has
not taken place during the years ended February 28, 1998 and 1999. Due to
federal and state tax rules the net operating losses of Space Liaison and
Imaging Corporation are not transferrable to the Company.
A reconciliation of the effective tax rates with the federal statutory rate is
as follows for the years ended February 28:
1998 1999
------------ ---------
Income tax benefit at 35% statutory rate $ -- $(159,000)
Change in valuation allowance -- 186,000
Non deductible expenses -- 3,000
State income taxes, net -- (27,000)
Other -- (3,000)
------------ ---------
$ -- $ --
============ =========
NOTE 6 - STOCKHOLDERS' EQUITY
During fiscal 1999, the Company granted options to acquire common stock to a
consultant. The consulting agreement called for options to be granted as
follows: options to purchase 150,000 shares of common stock at an exercise price
of $.0001 per share upon execution of the consulting agreement, options to
acquire 200,000 shares of common stock at an exercise price of $.0001 per share
upon the introduction and successful acquisition of a public shell (this event
has not occurred as of February 28, 1999), and options to acquire 200,000 shares
of common stock at an exercise price of $.0001 per share upon the entry into any
contractual relationship with a specified company. The consulting agreement is
effective for a period which extends for twenty-four months from the date of the
agreement (See Note 8).
The options expire with the expiration of the consulting agreement.
During February 1998, the Company granted an option to acquire 100,000 shares of
common stock to a consultant. The option was exercisable at $.0001 per share and
was immediately exercised.
During May 1998, the Company granted an option to acquire 235,000 shares of
common stock to a consultant at an exercise price of $.0001 per share
exercisable January 1, 1999 through June 30, 2000.
F-11
<PAGE> 81
SPACE SYSTEMS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended February 28, 1998 and 1999
NOTE 6 - STOCKHOLDERS' EQUITY (Continued)
During fiscal 1999 the Company entered into a consulting agreement which granted
the consultant options to acquire 500,000 shares of common stock at an exercise
price of $1.00 per share. The options become exercisable upon the Securities and
Exchange Commission effecting a Registration Statement submitted by the Company
and the Company's common stock quoted average closing bid being at least $5.00
per share for ten trading days. If both conditions have not been met within
twelve months of an effective Form 10-SB the options to purchase common stock
are cancellable by the Company. These options expire five years after they
become exercisable. These options are not exercisable as of February 28, 1999.
STOCK OPTION PLANS
The Company has elected to account for incentive grants and grants under its
Plan following APB No. 25 and related interpretations. Accordingly, no
compensation costs have been recognized for incentive options for the years
ended February 28, 1998 and 1999. The Company has adopted the disclosure
provisions of SFAS No. 123 effective March 1, 1997. Under SFAS No. 123, the fair
value of each option granted during the years ended February 28, 1998 and 1999
was estimated on the measurement date utilizing the then current fair value of
the underlying shares, as estimated by management, less the exercise price
discounted over the average expected life of the options of 10 years, with an
average risk free interest rate ranging between 5.82% and 6%, price volatility
of .1 and no dividends.
Had compensation cost for all awards been determined based on the fair value
method as prescribed by SFAS No. 123, reported net income (loss) and net income
(loss) per common share would have been as follows:
February 28, February 28,
1998 1999
------------ ------------
Net income (loss):
As reported $ 572 $(455,065)
Pro forma $ 572 $(455,065)
Basic and diluted net (loss) per share:
As reported $ .00 $ (.05)
Pro forma $ .00 $ (.05)
F-12
<PAGE> 82
SPACE SYSTEMS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended February 28, 1998 and 1999
NOTE 6 - STOCKHOLDERS' EQUITY (Continued)
STOCK OPTION PLANS (Continued)
A summary of the activity of the stock options for the years ended February 28,
1998 and 1999 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1999
-------------------------------- --------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
period -- $ -- 500,000 $ 1.00
Granted 600,000 .83 585,000 .0001
Exercised (100,000) .0001 -- --
Forfeited -- -- -- --
Expired -- -- -- --
-------------------------------- --------------------------------------
Outstanding at end of period 500,000 $ 1.00 1,085,000 $ .46
================================ ======================================
Exercisable at end of period -- $ -- 585,000 $ .0001
================================ ======================================
Weighted-average fair value
of options granted during
the period $ .17 $ .20
================== ======================
Weighted-average remaining
contractual life of options
outstanding at end of period 5.0 years 3.2 years
================== ======================
</TABLE>
NOTE 7 - RELATED PARTY TRANSACTIONS
During the fiscal year ended February 28, 1998, the Company issued 7,200,150
shares of common stock to Space Liaison and Imaging Corporation, a related
company, in exchange for all of the assets and liabilities of Space Liaison and
Imaging Corporation. Space Liaison and Imaging Corporation subsequently
exchanged the shares of the Company for its outstanding shares.
During February 1998, the Company subscribed to issue 1,700,000 shares of common
stock to consultants in conjunction with the formation of the Company. All of
these consultants were affiliates of the Company at February 28, 1999.
F-13
<PAGE> 83
SPACE SYSTEMS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended February 28, 1998 and 1999
NOTE 7 - RELATED PARTY TRANSACTIONS (Continued)
During June 1998, the Company's CEO purchased 30,000 shares of common stock via
the issuance of a promissory note in the amount $6,000. The note is secured by
the common stock and bears interest at 8.5% per annum and is due June 26, 1999.
Subsequent to year end the note was extended and is due on demand.
During June 1998, the Company's Vice President purchased 20,000 shares of common
stock via the issuance of a promissory note in the amount $4,000. The note is
secured by the common stock and bears interest at 8.5% per annum and is due June
26, 1999. Subsequent to year end the note was extended and is due on demand.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
During fiscal 1999, the Company entered into a consulting agreement which calls
for payment of $150,000 per year for two years for services to be rendered. This
payment of these fees is contingent upon and begins with the Company's
commencement of trading on any publicly traded market and is payable in a lump
sum at the end of the end of the two year term. In addition the agreement calls
for a payment of $60,000 upon the commencement of the Company's stock trading on
any public market. The agreement also provides for the granting of up to 550,000
options to purchase the Company's common stock at an exercise price of $.0001
per share. (See Note 6.)
During May 1998, the Company entered into a consulting agreement which calls for
payment of consulting fees totaling $30,000 for consulting services rendered
prior to January 1, 1999.
In conjunction with the acquisition of the assets and liabilities of Space
Liaison and Imaging Corporation, a dissolved corporation which had common
ownership with the Company, the Company obtained the rights to certain
outstanding contract proposals which were initiated by Space Liaison and Imaging
Corporation. The Company has not assigned any value to these rights as of
February 28, 1999.
The Company has adopted the Incentive Compensation Plan and the Equity Incentive
Plan. The Incentive Compensation Plan covers all employees, is determined by
measured performance and is based on a percentage of annual salary. The Equity
Incentive Plan covers directors, officers, and certain key employees of the
Company. Under the Equity Incentive Plan participants may be granted Incentive
Stock Options or Non-Qualified incentive stock options. In no case may options
be granted at less than fair market value of the underlying common stock. The
Company has reserved 1,000,000 common shares for issuance under the Equity
Incentive Plan. There was no activity under this Plan during 1998 or 1999.
The Company leases its office facility on a one year term with monthly lease
payments of $300. This lease expires April, 2000.
F-14
<PAGE> 84
SPACE SYSTEMS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended February 28, 1998 and 1999
NOTE 9 - SUBSEQUENT EVENTS
During May, 1999, the Company entered into a contractual agreement with a
"Fortune 500 Company" to provide consulting services in Russia via Company
employees located in Russia. This contract expires December 31, 1999.
The Company also entered into a financing agreement with a financing company
whereby the financing company will make short term advances to the Company for
foreign payroll needs. These advances are secured by specific billings of the
Company related to the above contractual agreement.
F-15
<PAGE> 85
First Enterprise Service Group, Inc.
(A Development Stage Enterprise)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report F-17
Financial Statements as of and for the period April 6, 1999 (date of
incorporation) to December 31, 1999:
Balance Sheet F-18
Statement of Operations F-19
Statement of Stockholders' Equity F-20
Statement of Cash Flows F-21
Notes to Financial Statements F-22
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 86
[LETTERHEAD OF KINGERY CROUSE & HOHL P.A.]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of First Enterprise Service Group, Inc.:
We have audited the accompanying balance sheet of First Enterprise Service
Group, Inc. (the "Company"), a development stage enterprise, as of December 31,
1999, and the related statements of operations, stockholders' equity and cash
flows for the period April 6, 1999 (date of incorporation) to December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and the significant estimates
made by management, as well as the overall financial statement presentation. We
believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1999, and the results of its operations and its cash flows for the period April
6, 1999 (date of incorporation) to December 31, 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 Notes A and B to the
financial statements, the Company is in the development stage and will require a
significant amount of capital to commence its planned principal operations and
proceed with its business plan. As of the date of these financial statements, an
insignificant amount of capital has been raised, and as such there is no
assurance that the Company will be successful in its efforts to raise the
necessary capital to commence its planned principal operations and/or implement
its business plan. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to this
matter are described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Kingery Crouse & Hohl P.A.
February 21, 2000
Tampa, FL.
F-17
<PAGE> 87
FIRST ENTERPRISE SERVICE GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
TOTAL ASSETS $ 0
====
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY:
Preferred stock - no par value - 20,000,000
shares authorized; 0 shares issued and outstanding $ 0
Common stock - no par value - 50,000,000 shares
authorized; 3,000,000 shares issued and outstanding 79
Deficit accumulated during the development stage (79)
----
Total stockholders' equity 0
----
TOTAL $ 0
====
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-18
<PAGE> 88
FIRST ENTERPRISE SERVICE GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 6, 1999 (DATE OF INCORPORATION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
EXPENSES -
Organizational costs $ 79
----------
NET LOSS $ 79
==========
NET LOSS PER SHARE:
Basic $ 0
==========
Weighted average number of shares - basic 3,000,000
==========
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-19
<PAGE> 89
FIRST ENTERPRISE SERVICE GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD APRIL 6, 1999 (DATE OF INCORPORATION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
During the
Common Preferred Development
Shares Value Shares Value Stage Total
------------- ----------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, April 6, 1999 (date of 0 $ 0 0 $ 0 $ 0 $ 0
incorporation)
Proceeds from the issuance
of common stock 3,000,000 79 79
Net loss for the period,
April 6, 1999
(date of incorporation)
to December 31, 1999 (79) (79)
------------- ------------ ------------ ---------- ---------- -----------
Balances December 31, 1999 3,000,000 $ 79 0 $ 0 $ (79) 0
============= ============ ============ ========= ========= ===========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-20
<PAGE> 90
FIRST ENTERPRISE SERVICE GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD APRIL 6, 1999 (DATE OF INCORPORATION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (79)
--------
NET CASH USED IN OPERATING ACTIVITIES (79)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 79
--------
NET CHANGE IN CASH AND CASH EQUIVALENTS 0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0
--------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0
========
Interest paid $ 0
========
Taxes paid $ 0
========
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-21
<PAGE> 91
FIRST ENTERPRISE SERVICE GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE A - FORMATION AND OPERATIONS OF THE COMPANY
First Enterprise Service Group, Inc. (the "Company") was incorporated under the
laws of the state of Florida on April 6, 1999. The Company, which is considered
to be in the development stage as defined in Financial Accounting Standards
Board Statement No. 7, intends to investigate and, if such investigation
warrants, engage in business combinations. The planned principal operations of
the Company have not commenced, therefore accounting policies and procedures
have not yet been established.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements. The
reported amounts of revenues and expenses during the reporting period may be
affected by the estimates and assumptions management is required to make. Actual
results could differ from those estimates.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company will require a
significant amount of capital to commence its planned principal operations and
proceed with its business plan. Accordingly, the Company's ability to continue
as a going concern is dependent upon its ability to secure an adequate amount of
capital to finance its planned principal operations and/or implement its
business plan. The Company's plans include a merger and a subsequent public
offering of its common stock, however there is no assurance that they will be
successful in their efforts to raise capital. This factor, among others, may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time.
F-22
<PAGE> 92
NOTE C - INCOME TAXES
During the period April 6, 1999 (date of incorporation) to December 31, 1999,
the Company recognized losses for both financial and tax reporting purposes.
Accordingly, no deferred taxes have been provided for in the accompanying
statement of operations.
NOTE D - RELATED PARTY TRANSACTIONS
During the period April 6, 1999 (date of incorporation) to December 31, 1999,
the Company's president provided start-up services and a portion of his home for
office space for no consideration. The value of such services and office space
provided are not considered significant and as such no expenses have been
recorded.
NOTE E - COMMITMENTS
The Company agreed orally to pay Michael T. Williams $60,000 for all services
rendered through the closing of an acquisition or merger. This debt will be
assumed and paid by the acquisition or merger candidate or its agent.
NOTE F - PROPOSED MERGER
The Company has entered into a merger agreement with Space Systems
International Corporation which it anticipates will close in the year 2000. In
conjunction with the merger the Company has agreed to effect a reverse split
whereby the number of shares outstanding prior to the closing will be 851,603.
- -------------------------------------------------------------------------------
F-23
<PAGE> 93
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- -------------------------------------------------------------------------------
Delaware
- -------------------------------------------------------------------------------
Under Section 145 of the Delaware General Corporation Law, the Registrant has
broad powers to indemnify its Directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
Under Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are
or are threatened to be made a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability (i) for breach of the
Directors' duty of loyalty to the Registrant 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 the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived an
improper personal benefit. The provisions also does not affect a Directors'
responsibilities under any other law, such as the federal securities law or
state or federal environmental laws.
- -------------------------------------------------------------------------------
Florida
- -------------------------------------------------------------------------------
Florida Business Corporation Act. Section 607.0850(1) of the Florida Business
Corporation Act (the "FBCA") provides that a Florida corporation, such as the
Company, shall have the power to indemnify any person who was or is a party to
any proceeding (other than an action by, or in the right of, the corporation),
by reason of the fact that he is or was a director, officer, employee, or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against liability incurred in connection with such proceeding, including any
appeal thereof, if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida corporation shall have
the power to indemnify any person, who was or is a party to any proceeding by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
II-1
<PAGE> 94
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 607.850 of the FBCA further provides that: (i) to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any claim, issue, or matter therein, he
shall be indemnified against expense actually and reasonably incurred by him in
connection therewith; (ii) indemnification provided pursuant to Section 607.0850
is not exclusive; and (iii) the corporation may purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida corporation
is not personally liable for monetary damages to the corporation or any other
person for any statement, vote, decision, or failure to act, regarding corporate
management or policy, by a director, unless: (i) the director breached or failed
to perform his duties as a director; and (ii) the director's breach of, or
failure to perform, those duties constitutes: (A) a violation of criminal law,
unless the director had reasonable cause to believe his conduct was lawful or
had no reasonable cause to believe his conduct was unlawful; (B) a transaction
from which the director derived an improper personal benefit, either directly or
indirectly; (C) a circumstance under which the liability provisions regarding
unlawful distributions are applicable; (D) in a proceeding by or in the right of
the corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation, or
willful misconduct; or (E) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property.
II-2
<PAGE> 95
Articles and Bylaws. The Company's Articles of Incorporation and the Company's
Bylaws provide that the Company shall, to the fullest extent permitted by law,
indemnify all directors of the Company, as well as any officers or employees of
the Company to whom the Company has agreed to grant indemnification.
At present, there is no pending litigation or proceeding involving a Director,
officer or key employee of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Numbers
Exhibit 2.1 Agreement and Plan of Merger and Reorganization*
Exhibit 3.1 Articles of Incorporation of the Registrant.*
Exhibit 3.2 Bylaws of the Registrant*
Exhibit 3.3 Amended and Restated Articles of Incorporation of Registrant,
to be effective after consummation of the proposed Merger.*
Exhibit 3.4 Amended and Restated Bylaws of the Registrant, to be effective
after consummation of the proposed Merger.*
Exhibit 4.1 Form of Common Stock Certificate of the Registrant.*
Exhibit 5.1 Legal Opinion of Williams Law Group, P.A.
Exhibit 8.1 Tax Opinion of Williams Law Group, P.A.*
Exhibit 10.1 Option Agreement with Gritell International Ltd.*
Exhibit 10.2 Option Agreement with ITR Marketing Inc.*
Exhibit 10.3 Option Agreement with Evan Capital*
Exhibit 10.4 Option Agreement with Novak Graphics Ltd.*
Exhibit 10.5 Option Agreement with Larix International Ltd.*
Exhibit 10.6 Contract with Globalstar
Exhibit 10.7 Contract with Ericsson*
Exhibit 10.8 Promissory note from John Papazian
Exhibit 10.9 Promissory note from Dennis Appel
Exhibit 10.10.1 Promissory notes from Barry Berman dated September 24, 1998
Exhibit 10.10.2 Promissory notes from Barry Berman dated October 6, 1998
Exhibit 10.11 Letter from MGM to Williams Law Group
Exhibit 10.12 Letter from Williams Law Group to MGM
Exhibit 10.13 Letter from MGM to SSI Board*
II-3
<PAGE> 96
Exhibit 11.1 Statement of computation of per share earnings.*
Exhibit 23.1 Consent of KINGERY, CROUSE & HOHL, P.A.
Exhibit 23.2 Consent of PANNELL KERR FORSTER, CPAs.
Exhibit 23.3 Consent of WILLIAMS LAW GROUP, P.A. (to be included in
Exhibits 5.1 and 8.1).
Exhibit 27. Financial Data Schedule (for SEC use only)
*To be filed by amendment
All other Exhibits called for by Rule 601 of Regulation S-1 are not applicable
to this filing.
Information pertaining to our Common Stock is contained in our Articles of
Incorporation and By-Laws.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request;
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective;
(3) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
II-4
<PAGE> 97
(4) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of , State of , on .
FIRST ENTERPRISE SERVICE GROUP, INC.
By: /s/ MICHAEL T. WILLIAMS.
------------------------------------
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
- ---------------------- ---------------------------- --------------------------
SIGNATURE TITLE DATE
- ---------------------- ---------------------------- --------------------------
President and Treasurer
- ---------------------- ---------------------------- --------------------------
II-5
<PAGE> 1
Exhibit 5.1
WILLIAMS LAW GROUP, P.A.
2503 West Gardner Court
Tampa, FL 33611
February 21, 2000
First Enterprise Service Group, Inc.
2503 West Gardner Court
Tampa, FL 33611
RE: Registration Statement on Form S-4
Gentlemen:
I have acted as your counsel in the preparation on a Registration
Statement on S-4 (the "Registration Statement") filed by you with the
Securities and Exchange Commission covering shares of Common Stock of First
Business Service Group, Inc. (the "Stock").
In so acting, I have examined and relied upon such records, documents
and other instruments as in our judgment are necessary or appropriate in order
to express the opinion hereinafter set forth and have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us certified or photostatic copies.
Based on the foregoing, I am of the opinion that:
The Stock, when issued and delivered in the manner and/or the terms
described in the Registration Statement (after it is declared effective), will
duly and validly issued, fully paid and nonassessable;
I hereby consent to the reference to my name in the Registration
Statement and to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Michael T. Williams
- -----------------------------------------
Michael T. Williams
<PAGE> 1
Exhibit 10.6
INDEPENDENT CONTRACTOR AGREEMENT
This Independent Contractor Agreement ("Agreement") is entered into as of
June 9, 1999 ("Effective Date") between QUALCOMM International Wireless
Technology Incorporated ("QIWTI"), a Delaware corporation, with its principle
office located at 6455 Lusk Boulevard, San Diego, California 92121-2779, and
Space Systems International Corporation, ("Independent Contractor"), a Delaware
corporation, with its principle office located at 11440 W. Bernardo Court, Suite
300, San Diego, California 92127-9788 with regard to the following facts:
A. WHEREAS, QUALCOMM and the Globalstar Limited Partnership, a Delaware
limited partnership ("Globalstar") have entered into an agreement to
develop and deploy the ground segment for a worldwide satellite-based
wireless telecommunications services system ("Globalstar System"), and
pursuant to such agreement, QUALCOMM has agreed to develop and
construct the Gateways which will link the Globalstar System to the
telecommunication systems of various Service Providers located around
the world ("Gateway Sites"), and to procure and integrate into the
Globalstar System, the RF subsystem equipment and services and the GSM
MSC equipment and services.
B. WHEREAS, QUALCOMM has assigned certain services to QUALCOMM
International Wireless Technology, Incorporated ("QIWTI"). WHEREAS
QIWTI reserves the right to further assign this Subcontract to a QIWTI
affiliate upon written notice to Subcontractor;
C. WHEREAS QIWTI desires to retain Independent Contractor to perform
Logistics Management Services in Russia ("Services") as described in
Exhibit A;
D. WHEREAS Independent Contractor desires to perform such Services for
QIWTI; and
E. WHEREAS QIWTI has relied, and is relying, upon Independent
Contractor's stated expertise and experience in performing the
Services as described in Exhibit A.
In consideration of the promises and mutual covenants hereinafter set forth,
QIWTI and Independent Contractor hereby agree as follows:
1. Services
Independent Contractor shall perform Services described in Exhibit A.
The Services shall be performed with promptness and diligence in a
thorough, workmanlike manner to the satisfaction of QIWTI.
-1-
<PAGE> 2
2. Compensation.
a. Payment. QIWTI shall compensate Independent Contractor for
the Services satisfactorily performed by Independent
Contractor and accepted by QIWTI in accordance with Exhibit
B; provided, however, that QIWTI total payments to
Independent Contractor under this Agreement shall not exceed
THIRTY SEVEN THOUSAND FOUR HUNDRED FORTY AND NO/100 DOLLARS
($37,440.00) unless QIWTI so agrees in writing. Independent
Contractor must advise QIWTI's Subcontracts Manager in
writing upon reaching seventy-five percent (75%) expenditure.
Should Independent Contractor exceed the not-to-exceed value
of this Agreement without QIWTI's prior written
authorization, all such exceeded costs will be borne at
Independent Contractor's sole expense.
b. Invoices. Independent Contractor shall submit invoices to
QIWTI on the 1st and the 15th of each month, and such
invoices will be paid by QIWTI within 30 days of receipt of
invoice. Invoices shall clearly state the number of hours
worked by Independent Contractor and work performed for that
period. Independent Contractor shall provide invoice back-up
as reasonably requested by QIWTI to justify costs invoiced.
3. Confidentiality.
a. Use of Confidential Information Received. QIWTI may from time
to time communicate to Independent Contractor, or Independent
Contractor may otherwise gain access to, certain confidential
business and/or technical information with respect to QIWTI's
operations, business plans and/or intellectual property or
QIWTI's customer's information (the "Information").
Independent Contractor shall treat all Information as
confidential, whether or not so identified, and shall not
disclose, or permit the disclosure of, any Information
without the prior written consent of QIWTI. Independent
Contractor shall limit the use and disclosure of the
Information within its organization to the extent necessary
to perform the Services and by agreement, instruction or
otherwise, Independent Contractor shall ensure that any of
its employees or others to whom it gives access to the
Information under the terms of this Agreement shall strictly
comply with the obligations of confidentiality set forth in
this Paragraph 3. The foregoing obligations of this Paragraph
3 shall not apply to any Information which has been or is
through no fault of Independent Contractor hereafter
disclosed in publicly available sources of information. The
terms of this Agreement are in addition to the terms of any
nondisclosure agreement currently in effect between QIWTI and
Independent Contractor, and in the event of any inconsistency
-2-
<PAGE> 3
between the terms of such agreements, those terms which are
most protective of the Information shall prevail.
b. Confidentiality of Work Product. Independent Contractor shall
not disclose to any party, including but not limited to any
subcontractor, without the prior written consent of QIWTI any
of (i) Independent Contractor's works of authorship,
discoveries, inventions and innovations resulting from the
Services, (ii) any proposals, research, records, reports,
recommendations, manuals, findings, evaluations, forms,
reviews, information, data, computer programs and software
originated or prepared by Independent Contractor for or in
the performance of the Services (the items listed in clauses
(i) and (ii) above being hereinafter referred to collectively
and severally as "Work Product") or (iii) the existence or
the subject matter of this Agreement.
4. Proprietary Rights.
a. Rights to Information. Independent Contractor acknowledges
and agrees that all Information shall remain the property of
QIWTI or QIWTI's customer as applicable, and no license,
express or implied, to use any of QIWTI's intellectual
property is granted under this Agreement, except as
specifically required to perform the Services.
b. Works Made for Hire. Independent Contractor and QIWTI agree
that any Work Product which is a work of authorship,
including but not limited to any computer program or
software, is a "work made for hire" within the meaning of 17
United States Code Section 101 in that it is a work that has
been specially ordered or commissioned by QIWTI for use as a
contribution to a collective work, as part of an audiovisual
work, as a translation, as a supplementary work, as a
compilation and/or as an instructional text.
c. Assignment of Work Product. All Work Product shall be promptly
communicated to QIWTI. As additional consideration for the
compensation to be paid to Independent Contractor under this
Agreement, Independent Contractor hereby assigns to QIWTI all
of Independent Contractor's rights, title and interest in and
to all Work Product, and to any and all intellectual property
rights, including but not limited to, patents, copyrights or
trademarks which have been or may be obtained with respect to
such Work Product, effective immediately upon origination,
creation, preparation or discovery thereof and regardless of
the medium of expression thereof. Independent Contractor
shall communicate to QIWTI or its representatives all facts
known to it respecting such Work Product. Further, whenever
requested, Independent Contractor immediately shall execute a
confirmatory assignment of any particular items(s) of Work
Product in a form satisfactory to QIWTI, shall testify in all
legal proceedings, sign all lawful papers and otherwise
perform all acts necessary or appropriate to enable QIWTI and
its successors and assigns to obtain and enforce
-3-
<PAGE> 4
all available legal protections for all such Work Product in
all countries, for which QIWTI will reimburse Independent
Contractor's reasonable out-of pocket expenses. All Work
Product shall become the exclusive property of QIWTI, and
Independent Contractor shall be deemed to have assigned and
relinquished all rights, title and interest in and to such
Work Product by virtue of this Section 4(c).
d. Representations, and Warranties Regarding Intellectual
Property Rights. Independent Contractor represents and
warrants that performance and provision of the Services
and/or furnishing of Work Product will not violate the
intellectual property rights of any third party, that
Independent Contractor has not transferred or assigned to any
third party any intellectual property rights in the Services
or Work Product, and that Independent Contractor has the
unencumbered right to perform the Services and to assign Work
Product to QIWTI.
5. Communications.
This Agreement and all documents or correspondence exchanged between
the Parties hereunder shall be in the English language. All
contractual and technical matters concerning this Agreement shall only
be directed to QIWTI. Independent Contractor shall not contact
representatives of Globalstar, any Service Provider or other third
party either directly or indirectly, without prior written
authorization from QIWTI's Program Manager.
6. Term and Termination.
a. TERM. The Term of this Agreement shall begin as of the
Effective Date and shall remain effect for one (1) year from
Effective Date. All Services rendered during the Term shall
be subject to the terms and conditions of this Agreement.
b. TERMINATION FOR CONVENIENCE. QIWTI may terminate this
Agreement for any reason and at any time, effective upon
delivery of five (5) business days prior written notice
thereof ("Termination Notice") to Independent Contractor.
Upon any such termination, Independent Contractor's sole and
exclusive remedy shall be payment by QIWTI to Independent
Contractor for Services accepted by QIWTI to the termination
date based on Independent Contractor's pricing in Exhibit A.
c. TERMINATION FOR DEFAULT. QIWTI may terminate this Agreement
upon five (5) business days prior written notice to
Independent Contractor, if Independent Contractor fails to
make adequate progress to timely complete the Services.
Independent Contractor or QIWTI may terminate this Agreement
upon thirty (30) business days written notice to the other
party if
-4-
<PAGE> 5
(a) the other party files or has filed against it any
proceeding in bankruptcy or insolvency; or, (b) makes a
general assignment for the benefit of creditors; or, (c) any
other material breach of this Agreement.
Independent Contractor shall be entitled to payment for work
accepted by QIWTI and not considered related to the
termination or basis of the default. Notwithstanding, in the
event of any such termination, in whole or in part, QIWTI may
choose to complete the Services, or retain the services of a
Third Party to complete the Services, and Independent
Contractor shall be liable to QIWTI for all reasonable
additional costs incurred by QIWTI arising from, or related
to the completion of those unsatisfactory Services. QIWTI
will reconcile amounts due to each Party, as applicable, and
all such amounts to be paid in full by the appropriate Party
within thirty (30) days of receipt of said reconciliation and
an invoice.
d. RIGHTS UPON TERMINATION. Any and all Services to be performed
pursuant to this Agreement shall cease immediately upon any
termination of this Agreement in accordance with this
Agreement. Independent Contractor shall mitigate its damages
upon receipt of any Termination Notice. In addition, upon
termination or expiration of the Agreement, Independent
Contractor shall return to QIWTI, or destroy and provide
written certification of its destruction to QIWTI, all
proprietary and confidential Information.
7. Written Assurance. Independent Contractor hereby expressly
acknowledges that any products and/or technical data received from
QIWTI, or any products directly derived from any such technical data,
may be subject to U.S. export and re-export controls, and Independent
Contractor hereby gives its assurance to QIWTI that it will not
knowingly, unless prior written authorization is obtained from QIWTI
and the U.S. Commerce Department, export, re-export or otherwise
disclose, directly or indirectly, any such product or technical data
to any of the following countries (as such list of countries may be
amended from time to time by the U.S. Department of Commerce and/or
the U.S. Treasury Department):
Albania Libya
Armenia Lithuania
Azerbaijan Moldova
Belarus Mongolia
Bulgaria North Korea
Cambodia People's Republic of China
Cuba Romania
Estonia Russia
Georgia Sudan
-5-
<PAGE> 6
Iran Syria
Iraq Tajikistan
Kazakhstan Turkmenistan
Kyrgystan Ukraine
Laos Uzbekistan
Latvia Vietnam
8. Independent Contractor.
The parties expressly intend and agree that Independent Contractor is
acting as an Independent Contractor and not as an agent or employee of
QIWTI. Independent Contractor retains sole and absolute discretion,
control and judgment regarding the manner and means of performing the
Services, except as to the policies and procedures set forth herein.
Independent Contractor understands and agrees that it shall not be
entitled to any of the rights and privileges established for
QUALCOMM's QIWTI's employees, including but not limited to retirement
benefits; medical, life insurance or disability coverage; severance
pay; and paid vacation or sick pay. Independent Contractor understands
and agrees that QIWTI will not pay or withhold from the compensation
paid to Independent Contractor any sums customarily paid or withheld
for or on behalf of employees for income tax, unemployment insurance,
social security, workers compensation or any other withholding tax,
insurance or payment, and all such payments as may be required by law
are the sole responsibility of Independent Contractor. Specifically
Independent Contractor is required to declare revenue received and pay
taxes required under law. Independent Contractor agrees to hold
QUALCOMM, QIWTI and its affiliates, customers, officers, directors,
employees, agents, representatives, successors and assigns, harmless
against and indemnify QIWTI for any of such payments of liabilities
for which Company may become liable with respect to such matters. This
Agreement shall not be construed as a partnership agreement. QIWTI
shall have no responsibility for any of Independent Contractor's
debts, liabilities or other obligations or for the intentional,
reckless or negligent acts or omissions of Independent Contractor or
Independent Contractor's employees or agents.
9. Intellectual Property Indemnification.
Independent Contractor, at its sole expense, shall indemnify, defend
and hold QUALCOMM, QIWTI and its affiliates, customers, officers,
directors, employees, agents, representatives, successors and assigns,
harmless against any and all claims or actions brought against any of
them to the extent such claim or action is based on a claim that any
of the Services or any Work Product infringes a patent, copyright,
trademark, service mark, trade secret, trade name or other legally
protected proprietary right of any party. Independent Contractor shall
pay all
-6-
<PAGE> 7
costs, fees (including reasonable attorneys' fees) and damages which
may be incurred by QUALCOMM, QIWTI and its affiliates, customers,
officers, directors, employees, agents, representatives, successors,
and assigns in connection with any such claim or action, including
but not limited to the settlement thereof.
10. Warranty.
Independent Contractor warrants to QIWTI that the Services delivered
hereunder will be as specified and will be performed by qualified
personnel in a professional and workmanlike manner. Independent
Contractor further warrants that any such services provided by
Independent Contractor shall be free from defects in material and
workmanship and in accordance with the current industry standards of
care and diligence normally practiced by recognized firms in
performing services of a similar nature. If, during the one (1) year
period following the completion of the Services it is shown that there
is an error or defect in the Services, and QIWTI has notified
Independent Contractor in writing of any such error or defect within
that one (1) year period, Independent Contractor shall promptly
perform such corrective services, at the sole expense of Independent
Contractor, within the original scope of Services as may be necessary
to remedy such error.
11. Indemnity.
Independent Contractor shall indemnify, defend and hold harmless
QUALCOMM, QIWTI and its affiliates, customers, officers, directors,
employees, agents, representatives, successors, and assigns from and
against any and all claims, costs, liabilities, losses, damages, and
expenses (including reasonable attorney's fees) and causes of action
for injury or death to any person, or for damage to, or destruction
of, property (individually and collectively "Liabilities"), arising
out of or in connection with (i) any breach of any warranty,
representation, covenant, or obligation contained in this Agreement,
(ii) any action or conduct by Independent Contractor against or with
respect to Independent Contractor personnel, or (iii) any claim
against QIWTI by or on behalf of any Independent Contractor personnel.
Such claims shall include, but are not limited to charges of
discrimination, actions and lawsuits alleging failure to comply with
applicable local labor and wage laws, wrongful termination,
discrimination, denial of due process, or other labor-related causes
of action resulting from Independent Contractor personnel's
discipline, termination or conduct. Independent Contractor shall
afford QIWTI the right to approve any and all legal counsel used in
the defense of, and to approve the settlement of any such Liabilities,
which approval shall not be unreasonably withheld.
Independent Contractor shall indemnify and hold QIWTI harmless from
all costs, fees, damages and expenses resulting from any charge or
encumbrance in
-7-
<PAGE> 8
the nature of a laborer's, mechanic's or material man's lien asserted
by any Independent Contractor's employees or subcontractors in
connection with the performance of the Services.
Except to the extent that such damages arise out of breach of the
provisions of the Confidentiality section hereof, neither Party shall
be liable to the other Party or to any other company or entity for any
incidental, consequential, special, exemplary or any other indirect
loss or damage, including but not limited to lost profits arising out
of this Agreement, whether in an action for or arising out of breach of
contract, tort, or other cause of action.
Except for any liability of Independent Contractor arising under
Sections 4, 9 and 12 of this Agreement, in no event will either Party
be liable to the other for any special, incidental, indirect or
consequential damages (including without limitation lost profits or
revenues) arising out of this Agreement regardless of whether such
liability arises in contract, tort, strict liability tort, even if
such party was or should have been aware or advised of the possibility
thereof. Notwithstanding any other provisions of this Agreement, each
Party's liability for any damages to the other under this Agreement is
not to exceed the total price paid to Independent Contractor under
this Agreement.
12. Insurance.
Independent Contractor shall maintain at its sole expense insurance
coverage in accordance with the type of coverage and the limits set
forth in "Exhibit C" at all times during the term of this Agreement.
Independent Contractor shall provide certificate(s) of insurance(s)
(the "Insurance Certificates"), which evidence such insurance
coverage, to QIWTI prior to the commencement of any Services and as
requested from time to time by QIWTI. Such insurance coverage shall be
provided by an "A" rated insurer.
13. Compliance with Laws.
Independent Contractor covenants, represents and warrants to QIWTI
that, at all times during the term of this Agreement, Independent
Contractor will comply and will not violate any U.S. laws, in
connection with the Services it has agreed upon to perform under this
Agreement. At QIWTI's request from time to time, in writing,
Independent Contractor will represent and warrant to QIWTI in writing
that it has not, in connection with the Services being provided
hereunder, including those Services which may be provided to other
companies cooperating with QIWTI and/or its affiliates, violated any
U.S. laws.
14. Notices.
-8-
<PAGE> 9
All notices and billings shall be in writing and sent by registered or
certified mail, postage prepaid, or via facsimile with confirmation to
the following addresses:
To QIWTI: To Independent Contractor:
QIWTI Incorporated Space Systems International Corporation
5775 Morehouse Dr. 11440 W. Bernardo Court, Suite 300
San Diego, CA 92121 San Diego, CA 92127-9788
ATTN. Stephanie Bates Ed Daley
Fax Number. (619) 658-1560 Fax Number: (760) 634-2483
with a copy to.
Legal Department
Invoices shall be sent to:
QIWTI Incorporated
5775 Morehouse Dr.
San Diego, CA 92121
ATTN: Stephanie Bates
Subcontracts Manager
15. Publicity.
Independent Contractor shall not nor authorize others to issue any
news release, advertisement, publicity, or promotional material
regarding this Agreement or Independent Contractor's relationship with
QIWTI without QIWTI's prior review and written consent.
16. Dispute Resolution.
In the event of a dispute arising between the Parties with respect to
performance of obligations or interpretation of this Agreement, the
Parties shall first attempt to resolve any dispute by good faith
negotiation, including escalation to senior management of the Parties.
Thereafter, Section 18.c shall be observed.
17. Force Majeure.
Neither Party shall be liable under this Agreement if and so far and
so long as either or both of them are prevented from carrying out the
same by Force Majeure, that is to say acts of God, acts of war,
warlike operations, civil commotion, strikes or any industrial action
whatsoever, fire, tempest or any other cause or happening beyond its
control. Should a delay occur, the Party
-9-
<PAGE> 10
claiming Force Majeure shall notify the other Party in writing,
specifying the nature and anticipated duration of the delay. Should
any Force Majeure event last more than sixty (60) consecutive days, or
such longer period as the Parties may mutually agree upon, the
non-delaying Party shall have the right to terminate this Agreement in
accordance with Section 5, by written notice without penalty to the
other party.
18. General Provisions.
a. Survivability. The terms and conditions of this Agreement
that by their sense and context are intended to survive after
performance of the Services hereunder shall survive the
termination or expiration of this Agreement, including but
not limited to Sections 3, 4, 6, 9, 10, 11, and 18 a, f and
h.
b. Assignment. Independent Contractor shall not assign any of
its rights or obligations under this Agreement and shall not
subcontract any of the Services to be performed hereunder
without the prior written consent of QIWTI. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto, their successors and permitted assigns.
c. Applicable Law. This Agreement shall be governed by the laws
of the State of California, without regard to conflicts of
laws principles, and any action arising under or relating to
this Agreement or the rights and obligations of the parties
hereunder shall be maintained only in the courts of San Diego
County, California.
d. Entire Agreement Modification. This Agreement, together with
the exhibits attached hereto, which are incorporated herein
by this reference, constitutes the entire agreement between
the parties and supersedes all prior oral or written
negotiations and agreements between the parties with respect
to the subject matter hereof. No modification, variation or
amendment of this Agreement (including any exhibit hereto)
shall be effective unless made in writing and signed by both
Parties.
e. Severability; Non-Waiver. In the event that any of the
terms, conditions or provisions of this Agreement are held to
be illegal, unenforceable or invalid by any court of
competent jurisdiction, the remaining terms, conditions or
provisions hereof shall remain in full force and effect. The
failure or delay of either Party to enforce at any time any
provision of this Agreement shall not constitute a waiver of
such Party's right thereafter to enforce each and every
provision of this Agreement.
f. Limitation of Liability. This provision shall survive the
failure of exclusive remedy.
-10-
<PAGE> 11
g. Changes. QIWTI reserves the right to make changes from time
to time in the Scope of Work of this Agreement or the
manner of its performance in QIWTI's sole discretion. No
change shall be made by Independent Contractor in the work or
the time or the manner of its performance, without prior
written instructions by the QIWTI Subcontracts Manager in
writing specifying the changes in the Scope of Work, plans,
specifications, procedures, performance period, sequence or
other requirements of this Agreement and specifying whether
there is to be an adjustment in the compensation or time for
performance and how any such adjustment shall be determined.
An equitable adjustment will be made in the compensation or
time of performance, or both, if the changes ordered by QIWTI
substantially increases or decreases the cost to Independent
Contractor of the work to be performed. The method of
determining the equitable adjustment shall be based upon
Independent Contractor's proposal and by mutual agreement of
the Parties hereto. In the event Independent Contractor
contends that QIWTI has taken action which constitutes a
change in the Work or in the manner of its performance or
there is a change in conditions and Independent Contractor
contends that they are entitled to an adjustment in
compensation or in the time of performance, Independent
Contractor shall submit a change proposal claim with
sufficient information for QIWTI to determine the merits of
the claim within thirty (30) days of notification to QIWTI of
their claim for consideration. The Parties agree to perform
best efforts to settle any such claim within a reasonable
period of time.
h. Records and Right to Audit. Independent Contractor shall keep
and maintain accurate and complete records concerning
personnel assigned to this Agreement for five (5) years after
termination/expiration of this Agreement, and shall furnish
to QIWTI such information concerning the work records, hours
of Service, performance and other information with respect to
personnel. Independent Contractor shall provide copies of any
such records or documentation it has in its possession which
QIWTI may reasonably require.
i. Limited Exclusivity. This Agreement is entered into by QIWTI
for the exclusive purpose of obtaining Services as described
hereunder and shall not be used or disclosed by Independent
Contractor for any other purpose.
j. Authority. Independent Contractor and QIWTI warrants and
represents it has full power and authority to enter into and
perform this Agreement,
-11-
<PAGE> 12
h. Records and Right to Audit. Independent Contractor shall keep
and maintain accurate and complete records concerning
personnel assigned to this Agreement for five (5) years after
termination/expiration of this Agreement, and shall furnish to
QIWTI such information concerning the work records, hours of
Service, performance and other information with respect to
personnel. Independent Contractor shall provide copies of any
such records or documentation it has in its possession which
QIWTI may reasonably require.
i. Limited Exclusivity. This Agreement is entered into by QIWTI
for the exclusive purpose of obtaining Services as described
hereunder and shall not be used or disclosed by Contractor
for any other purpose.
j. Authority. Independent Contractor and QIWTI warrants and
represents it has full power and authority to enter into and
perform this Agreement, and the person signing this
Agreement has been properly authorized to enter into this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
QIWTI Incorporated INDEPENDENT CONTRACTOR
By: /s/ [signature is illegible] By:
---------------------------------- ---------------------------------
/s/ Ed Daley
- ------------------------------------- ---------------------------------
Ed Daley
Title: EVP & CFO Title: CFO
- ------------------------------------- -------------------------------
Date: 6/9/99 Date: 5/26/99
-------------------------------- --------------------------------
-12-
<PAGE> 13
VENDOR/INDEPENDENT CONTRACTOR INFORMATION
For Tax Purposes:
Vendor/Independent Contractor Name: SPACE SYSTEMS INTERNATIONAL CORPORATION
Corporation: YES
Tax ID Number: 911898116
Social Security Number:
-13-
<PAGE> 14
Exhibit A
Independent Contractor Services
Statement of Work
The Services shall be provided by Kseniya Kochemasova, (SSI) or a designated
alternate upon written approval by QIWTI's Subcontracts Manager, under the
guidance of Mr. George Melious (for QIWTI).
Logistics Management Services may include but are not limited to:
o Translation of Commercial Invoice generated by QIWTI into Cyrillic and a
determination of which items require a license to be imported into Russia.
o Commercial Invoice is returned to QIWTI with the above information within
three (3) business days after receipt by Independent Contractor.
o Independent Contractor acts as QIWTI's consignee in Russia.
o Consignee and freight forwarder work together to clear freight through
customs.
o Assist in posting temporary importation bonds with freight forwarder.
o Consignee delivers freight to QIWTI jobsite.
o The reverse of the above process for export of the equipment back to the
United States will be required.
Communications: Independent Contractor shall be available to exchange
information to QIWTI and for telephone conferences during the entire workweek,
and non-working hours to the extent required by QIWTI.
In no event shall Independent Contractor make any commitments or otherwise incur
any obligations for or on behalf of QIWTI to any third party during performance
of these Services.
QIWTI will provide office space in QUALCOMM's Moscow office for Ms. Kochemasova.
-14-
<PAGE> 15
Exhibit B
COMPENSATION AND REIMBURSEMENT
QIWTI agrees to retain the services of the Independent Contractor at an hourly
rate of $36.00. The Independent Contractor shall provide up to twenty (20) hours
of services per week. Any hours to be worked over twenty (20) per week where
the Independent Contractor expects compensation will require prior written
authorization from QIWTI's Subcontracts Manager.
QIWTI will pay to Independent Contractor the applicable hourly rate specified
above for each hour of labor expended in performing the Services under the
Agreement. The above specified hourly rate is all inclusive and includes, but is
not limited to, labor, supervision, office space, foreign and domestic taxes,
VAT, fees, duties, applicable laws, overhead, general and administrative costs,
profit and all items associated with payment to Independent Contractor under the
Agreement. All rates are in U.S. Dollars ($).
The contract not-to-exceed amount is calculated as follows:
o Labor cost for 1 year: 1040 hrs x $36.00/hr. = $37,440.00
QIWTI will reimburse Independent Contractor for reasonable and necessary out of
pocket expenses incurred in connection with its performance of the Services,
authorized in advance by QIWTI Subcontracts Manager and supported by reasonably
detailed documentation. All such out of pocket expenses shall be itemized on
each invoice submitted to QIWTI and shall be accompanied by the appropriate
supporting documentation. The following costs shall not be charged to QIWTI: (a)
transportation costs of travel to and from QIWTI's offices, (b) local telephone
service and calls; And (c) office staff and supplies used in the normal course
of performing the Services.
To support payment for the Services, each invoice submitted therefor shall
include 1) a summary of work performed and 2) certification by Independent
Contractor stating that the number of hours set forth therein was the actual
number of hours worked by Independent Contractor during the period for which the
invoice is submitted and that all out of pocket expenses for which reimbursement
is requested were properly incurred in the performance of the Services.
In no event shall the total payments made under this Agreement exceed the
maximum amount specified in Section 2(a) of the Agreement without execution of
a written amendment to this Agreement by duly authorized representatives of
QIWTI and Independent Contractor.
-15-
<PAGE> 16
Exhibit "C"
Insurance Requirements
While Independent Contractor is performing work pursuant to this Agreement,
Independent Contractor shall maintain the following insurance coverage:
<TABLE>
<CAPTION>
COVERAGE TYPE LIMIT OF LIABILITY LIMIT
- ------------- ------------------ -----
<S> <C> <C>
1) COMMERCIAL GENERAL Per Occurrence and in the Aggregate $ 2,000,000
LIABILITY
o Should be in Occurrence Format Includes following coverage:
Blanket Contractual Liability
Products/Completed Operations
Premises/Operations
Personal/Bodily/Advertising Injury
Broad Form Property Damage
2) WORKERS' COMPENSATION Employers Liability $ 1,000,000
o Required by law for all employers with more Workers' Compensation Statutory
than one (1) employee.
o Shall be in accordance with the provisions
of the applicable worker's compensation law
or similar law of each state or other
political subdivision with jurisdiction
applicable to Independent Contractors
respective personnel.
o Shall include "All States Endorsement" and
the "Voluntary Compensation Endorsement."
o It shall be the Primary insurance and
QIWTI's insurance shall be noncontributing
with respect to persons directly engaged in
the performance of services.
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
COVERAGE TYPE LIMIT OF LIABILITY LIMIT
- ------------- ------------------ -----
<S> <C> <C>
6) PROFESSIONAL LIABILITY/ Aggregate Limit $ 1,000,000
ERRORS & OMISSIONS Each Occurrence
</TABLE>
OTHER REQUIREMENTS:
1) ADDITIONAL COVERAGE. Independent Contractor shall maintain, all other
insurance required by law or regulation in the jurisdiction where the Services
are performed. Additionally, limits of liability may be increased depending upon
size and scope of the Agreement. Independent Contractor shall be responsible for
insurance coverage, including medical coverage, accident insurance, legal and
repatriation costs, for its employees who are providing services. In addition,
in the event that Independent Contractor employs the services of subcontractors,
then Independent Contractor shall ensure that its subcontractors obtain and
keep in effect such insurance coverage for its employees.
2) ADDITIONAL INSURED. Independent Contractor shall maintain commercial general
liability, excess liability, and comprehensive automobile liability coverage as
specified in this Exhibit, which includes QIWTI as an additional insured with
respect to the activities of the Independent Contractor. These policies shall
contain a "cross-liability" or "severability of interest" clause or endorsement.
QIWTI shall not by reason of its inclusion under these policies incur liability
to the insurance company for payment of premium for these policies.
3) NOTICE OF CANCELLATION: At least 30 days advance notice (10 days for non-pay
Nonrenewal or material change is acceptable) in writing, to QIWTI prior to
cancellation, termination, or alteration of said policies of insurance listed
in this Exhibit.
4) WAIVER OF SUBROGATION. Independent Contractor and QIWTI shall waive all
rights
-17-
<PAGE> 18
against each other and their respective directors, officers, partners,
commissioners, officials, agents, subcontractors, consultants, and employees for
damages covered under the insurance coverages listed in this Exhibit during
and after the completion of the Services.
5) PRIMARY INSURANCE: The required insurance pursuant to this Agreement and the
fidelity bond are to be primary. Any insurance or self-insurance maintained by
QIWTI shall be excess of the Independent Contractor's insurance and thus shall
not contribute to it.
6) USE OF SUBCONTRACTORS - Independent Contractor shall include all
subcontractors, who are utilized for the Services specified in this Agreement,
as additional insureds under its policies or shall furnish separate certificate
of insurance(s) and/or endorsements for each subcontractor. All insurance
policies for the Independent Contractor's subcontractors shall be subject to all
of the insurance requirements stated herein.
-18-
<PAGE> 19
AMENDMENT NO. ONE (1)
INDEPENDENT CONTRACTOR AGREEMENT
This Amendment to the Independent Contractor Agreement (the "Amendment") is
entered into as of May 6, 1999 (the "Effective Date") by and between QUALCOMM
Global Services, Inc., a California corporation, with a place of business at San
Diego, California (hereinafter "QUALCOMM") and Space Systems International
Corporation, a Delaware corporation with a place of business at 11440 W.
Bernardo Court, Suite 300, San Diego, California 92127-9788 (hereinafter
"Independent Contractor"), amends certain provisions of the Independent
Contractor Agreement (the "Agreement") dated January 5, 1999 with regard to the
following facts:
A. Independent Contractor and QUALCOMM have begun performance under the
Agreement and its Exhibits.
B. QUALCOMM Incorporated has sold, assigned, transferred, conveyed and set over
to QUALCOMM Global Services, Inc. all of QUALCOMM Incorporated's right,
title and interest in and to, and QUALCOMM Global Services, Inc. assumes all
of QUALCOMM Incorporated's obligations under the Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein contained, the
receipt and sufficiency of which is hereby acknowledged, QUALCOMM and
Independent Contractor agree as follows:
1. QUALCOMM Global Services, Inc. shall assume the rights and obligations
currently under QUALCOMM Incorporated. Where "QUALCOMM" had previously been
designated in the Agreement to mean QUALCOMM, Incorporated, shall, now be
designated to mean QUALCOMM Global Services, Inc.
All other terms and conditions of the Agreement which are not expressly
modified or amended by this Amendment remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be duly
executed as of the day and year first above written.
QUALCOMM GLOBAL SERVICES, INC. SPACE SYSTEMS INTERNATIONAL CORPORATION
By: /s/ M. Terrell Colvin By: /s/ Ed Daley
- ------------------------------ ---------------------------------------
Name: M. Terrell Colvin Name: Ed Daley
- ------------------------------ ---------------------------------------
Title: Subcontractors Manager Title: Chief Financial Officer
- ------------------------------ ---------------------------------------
<PAGE> 20
AMENDMENT NO. TWO (2)
INDEPENDENT CONTRACTOR AGREEMENT
This Amendment to the Independent Contractor Agreement (the "Amendment") is
entered into as of May 7, 1999 between QUALCOMM Global Services, Inc., a
California corporation with a place of business at San Diego, California
(hereinafter "QUALCOMM"), and Space Systems International Corporation, a
Delaware corporation, with a place of business at 11440 W. Bernardo Court, Suite
300, San Diego, California 92127-9788 (hereinafter "Independent Contractor"),
amends certain provisions of the Independent Contractor (the "Agreement") dated
January 5, 1999 with regard to the following facts:
1. Section 2. Compensation, a. Payment, is modified to read:
a. PAYMENT. QUALCOMM shall compensate Independent Contractor for the
Services in accordance with Exhibit B. All pricing items are "Not-To-Exceed"
in value. Independent Contractor must advise QUALCOMM's Subcontracts Manager
upon reaching seventy-five percent (75%) expenditure. Should Independent
Contractor exceed the Not-To-Exceed value, such costs will be borne at
Independent Contractor's sole expense.
2. Section 5. Term, is modified as follows
a. Delete the title "Term" and substitute "Term and Termination" in lieu
thereof.
b. Designate the first paragraph as paragraph "a. Term".
c. Add paragraphs 5b. Termination for Convenience, 5c. Termination for
Default, 5d. Rights Upon Termination and 5e. Stop Work Order as
follows:
5b. TERMINATION FOR CONVENIENCE. QUALCOMM may terminate this Agreement or
any portion of this Agreement at any time, effective upon delivery of
written notice thereof (the "Termination Notice") to Independent
Contractor. Upon any such termination QUALCOMM's sole and exclusive
liability to Independent Contractor shall be to pay to Independent
Contractor the prices specified in this Agreement for any Services which
have been performed for QUALCOMM, to the extent not previously paid. Any
request by Independent Contractor for termination charges shall be deemed
waived if not asserted within twenty (20) business days after the date of
the Termination Notice.
5c. TERMINATION FOR DEFAULT. QUALCOMM may terminate this Agreement or any
portion of this Agreement immediately upon written notice to Independent
Contractor, if Independent Contractor: (i) fails to make adequate
progress to complete the Services required in accordance with Exhibit A
or does not complete the Services in accordance with the documentation
applicable to such Services, (ii) fails to act promptly upon receipt of
QUALCOMM's request for Services, (iii)
AMENDMENT NO. 2
P.O. J800013
-1-
<PAGE> 21
fails to utilize QUALCOMM approved personnel. Independent Contractor or
QUALCOMM may terminate this Agreement upon written notice to the other
party if (a) the other party files or has filed against it any proceeding
in bankruptcy or insolvency, (b) makes a general assignment for the
benefit of creditors, or (c) otherwise fails to comply in any other
respect, other than (i)-(iii), with the terms and conditions of this
Agreement within thirty (30) days after the date of written notice of
such non-compliance.
5d. RIGHTS UPON TERMINATION. Any and all Services to be performed
pursuant to this Agreement shall cease immediately upon any expiration or
termination of this Agreement. Independent Contractor shall mitigate its
damages upon receipt of any termination notice. QUALCOMM shall be liable
to independent Contractor for equitable and mutually agreeable
compensation for Independent Contractor's direct and indirect cost of
labor, materials and expenses which Independent Contractor shall not have
been able to reasonably mitigate. Upon any such expiration or termination
of this Agreement, Supplier shall immediately deliver to QUALCOMM all
Deliverables as described in the SOW in whatever their current state of
production. In addition, upon termination or expiration, Independent
Contractor shall return to QUALCOMM, or destroy and provide written
certification of its destruction to QUALCOMM, all proprietary and
confidential information received from QUALCOMM.
5e. STOP WORK ORDER. QUALCOMM shall have the right, at any time during
the performance of Services to direct Independent Contractor, in writing,
to temporarily stop all or portions of the Services covered by this
Agreement (such direction is referred to herein as a "Stop Work Order").
Upon receipt of any Stop Work Order Independent Contractor will
immediately stop all activities to the extent specified in the Stop Work
Order and will take all reasonable steps to minimize the occurrence of
costs allocable to the Services covered by the Stop Work Order. If
QUALCOMM exercises this right, the length of a Stop Work Order shall be
for a maximum duration of twenty-six (26) weeks (the "Stop Work Period").
Prior to the conclusion of the Stop Work Period, QUALCOMM may either (1)
direct Independent Contractor to resume all or part of the Services to
which the Stop Work Order applied or (2) terminate the whole Agreement,
or the portion of the Services to which the Stop Work Order applied
pursuant to Termination for Convenience, or (3) request Independent
Contractor to accept a further delay in the performance of the Services
to which the Stop Work Order applied. In the event of a Stop Work Order,
QUALCOMM shall be liable to Independent Contractor for equitable and
mutually agreeable compensation for independent Contractor's direct and
indirect cost of labor, materials and expenses which Independent
Contractor shall not have been able to reasonably mitigate. QUALCOMM
shall have the right to direct Independent Contractor to resume Services
at any time during the Stop Work Period. In the event QUALCOMM
AMENDMENT NO. 2
P.O. J800013
-2-
<PAGE> 22
orders Independent Contractor, in writing, to resume Services,
Independent Contractor shall receive an equitable adjustment in the
price, delivery schedule and other affected provisions of this Agreement.
3. Add Section 14.h, Responsibility for QUALCOMM Equipment as follows:
h. RESPONSIBILITY FOR QUALCOMM EQUIPMENT. All property and equipment,
including software, which is furnished to Independent Contractor by QUALCOMM
for performance of Services under this Agreement shall be and remain the
property of QUALCOMM, and title to such property shall not be affected by
incorporation or attachment to any other property. All property and
equipment furnished or consigned to Independent Contractor by QUALCOMM under
this Agreement, shall be kept and maintained in first class condition and
replaced to the extent necessary for performance under this Agreement. Such
property shall be used by Independent Contractor only in the performance of
this Agreement or as may otherwise be authorized in writing by QUALCOMM, and
shall remain the property of QUALCOMM. When instructed by instructed by
QUALCOMM, Independent Contractor shall hand deliver the property covered by
this Section to QUALCOMM, at the completion or termination of this
Agreement, or shall make such other disposition F.O.B. destination as
QUALCOMM may direct. Independent Contractor shall bear the risk of loss or
destruction of and damage to property covered by this Section until
delivered or returned to QUALCOMM. Independent Contractor shall deliver or
return such property in the same condition as when manufactured, acquired or
received, except for reasonable wear for utilization thereof in accordance
with the terms of this Agreement.
4. Modify Exhibit A, Independent Contractor Services of Work as attached.
5. Modify Exhibit B, Compensation and Reimbursement as attached.
All other terms and conditions of the Agreement which are not expressly
modified or amended by this Amendment remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of
the date first above written.
QUALCOMM GLOBAL SERVICES SPACE SYSTEMS INTERNATIONAL CORPORATION
By: /s/ M. Terrell Colvin By: /s/ Ed Daley
- ------------------------------------ ---------------------------------------
Name: M. Terrell Colvin Name: Ed Daley
- ------------------------------------ ---------------------------------------
Title: Subcontractors Manager Title: Chief Financial Officer
- ------------------------------------ ---------------------------------------
AMENDMENT NO. 2
P.O. J800013
-3-
<PAGE> 23
Exhibit A
INDEPENDENT CONTRACTOR SERVICES
STATEMENT OF WORK
Les Bender, John Castro or their appointee of QUALCOMM will be Independent
Contractor's Point of Contact (POC) and will provide all technical direction
under the Agreement. Best commercial practices will be used.
Such tasks may include but are not limited to:
1.0 Independent Contractor shall provide Management and System Integration
services for the deployment of QUALCOMM's wireless infrastructure
products. These services include but not limited to:
1.1 Coordinate with the Business Development and Project
Management Departments to generate project plans, schedules
and cost estimates for assigned markets.
1.2 Perform and lead system level network design activities and
complete product questionnaires for the purpose of
configuring QUALCOMM's wireless infrastructure for assigned
markets.
1.3 Manage deployment teams in San Diego and at QUALCOMM's
customer/partner locations as directed by the POC.
1.4 Coordinate with logistics teams for the delivery of equipment
and documentation as specified by the POC.
1.5 Travel to customer/partner locations as agreed to with the
POC.
1.6 RF Network Planning and System Design.
1.7 Network hardware installation.
1.8 Hardware/software commissioning.
1.9 Acceptance testing and commercial launch of deployed
networks.
1.10 Network operations and maintenance support.
1.11 Hotline support and technical interface to San Diego.
1.12 Deployment coordination and customer interface.
2.0 Communications: Independent Contractor shall be available for
discussions and meetings at QUALCOMM's principle place of work as
required. Independent Contractor shall be available to exchange
information and for telephone conferences during the entire workweek
if not physically at QUALCOMM facilities.
-4-
<PAGE> 24
3.0 Deliverables: Independent Contractor shall generate documents as
required by the POC. The documents shall be informally submitted and
include but not limited to:
3.1 Project Plans
3.2 Project Schedules
3.3 Manpower estimates and project loading
3.4 BSC and BTS configuration questionnaires
3.5 Letters to customers/partners
3.6 A report submitted with the invoice summarizing activities
performed during the previous month
-5-
<PAGE> 25
EXHIBIT B
COMPENSATION AND REIMBURSEMENT
Independent Contractor will provide personnel to support the project, upon
prior written approval from QUALCOMM, in accordance with the following personnel
categories and rates. Independent Contractor personnel will support the project
as necessary and not less than 40 hours of Services per week, with the
exception that driver and translator personnel are on an "as require" basis
only. All rates are all inclusive and include, but are not limited to, labor
supervision, office space, foreign and domestic taxes, fees, duties, applicable
laws, overhead, general and administrative costs, profit and all items
associated with payment to Independent Contractor under the Agreement. All
rates are in U.S. dollars ($).
1. PROJECT MANAGER:
Labor cost for 1 year: 2080 hrs x $75.00/hr. = $156,000.00
Travel Expenses: 6 trips x $10,000.00/trip = $ 60,000.00
- -------------------------------------------------------------------------------
TOTAL NOT-TO-EXCEED $216,000.00
2. RUSSIAN LABOR:
Category Hourly Rate Weekly Rate
- -------------------------------------------------------------------------------
Lead Field Engineer-LFE $72.18 $ 2887.20
Site Manager-SM1 $59.54 $ 2381.60
Site Manager-SM2 $30.70 $ 1228.00
Network Planner-NP $36.10 $ 1444.60
Field Engineer 1-FE1 $50.04 $ 2001.60
Field Engineer 2-FE2 $30.93 $ 1237.20
Driver w/Foreign Car-DRF* $19.04 $ 761.60
Driver w/Russian Car-DRR* $16.99 $ 679.60
Translator-TR* $ 8.58 $ 343.20
- -------------------------------------------------------------------------------
TOTAL NOT-TO-EXCEED $900,000.00
===========
(Weekly Rates shall apply with the exception of *Category Personnel)
-6-
<PAGE> 26
3. EXPENSES:
o Prior written approve from QUALCOMM is mandatory for all travel or
other expenses required in performance of Services by Independent
Contractor personnel. Travel and associated expenses are only
applicable for Independent Contractor personnel traveling outside
of Contractor personnel's assigned location. Should prior written
approval not be obtained, such cost may be borne by Independent
Contractor. Travel expenses will be reimbursed to Independent
Contractor at actual costs. Expenses must be confirmed by original
receipts, or legible copies, attached to each invoice.
o Lodging will be reimbursed to Independent Contractor at actual
costs not to exceed the US State Department Lodging Rate schedule
for the month and city in which the expense occurs. Expenses must
be confirmed by original receipts, or legible copies, attached to
each invoice.
o Meals and Incidental Expenses (M&IEs) will be reimbursed to
Independent Contractor at actual costs not to exceed the US State
Department M&IEs Rate for the month and city in which the expense
occurs. Expenses must be confirmed by original receipts, or legible
copies, attached to each invoice.
o Expenses, incurred other than in U.S. Dollars ($) will be converted
to US dollars ($) at the exchange rate in effect on the date of
each invoice period incurring such expense. The exchange rate used
will be the published rate of Citibank.
-7-
<PAGE> 27
[ERICSSON LOGO] 6455 Lusk Boulevard Purchase Order # J800042
San Diego, CA 92121 PURCHASE ORDER Ver. 1 P. 2
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE MPN MFR NAME MFR FSCM ACCT RESALE
ITEM ------------------------------------------------------------------------ ORDER U/M UNIT PRICE TOTAL PRICE
NO. EWC MCN/LBL DESCRIPTION JOB TAX QTY DELIVERY SHIP METHOD FREIGHT TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TECHNICAL DIRECTION FROM ERICSSON SHALL BE PROVIDED BY ERICCON'S PROJECT
MANAGER LESTER BENDER. ALL CONTRACTUAL MATTERS MUST BE DIRECTED TO
ERICSSON'S SUBCONTRACTS MANAGER, TC COLVIN.
52203 Yes 99,100 EACH $ 1.0000 $ 99,100.0
1 DEPLOYMENT SERVICES CIS REGION 61060 No 06-04-99
52203 Yes 44,290 EACH $ 1.0000 $ 44,290.0
2 (NON-LOCAL) TRAVEL EXPENSES IN SUPPORT
OF SERVICES 61060 No 06-04-99
52203 Yes 806,944 EACH $ 1.0000 $ 806,984.1
3 DEPLOYMENT SERVICES PERSONNEL IN RUSSIA 61060 No 06-04-99
Total Cost: $ 950,331.1
/s/ [ILLEGIBLE]
-------------------------------
Subcontracts Manager
/s/ [ILLEGIBLE]
-------------------------------
SSI, Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
ALL DELIVERIES AND PERFORMANCE UNDER THIS PURCHASE ORDER SHALL BE GOVERNED BY ERICSSON WIRELESS COMMUNICATIONS STANDARD PURCHASE
ORDER TERMS AND CONDITIONS AND PURCHASE ORDER QUALITY ASSURANCE REQUIREMENTS (DWG. NO. 80-3530) ATTACHED AND INCORPORATED HEREIN BY
REFERENCE.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
[ERICSSON LOGO] 6455 Lusk Boulevard Purchase Order # J800042
San Diego, CA 92121 PURCHASE ORDER Ver. 1 P. 1
<TABLE>
<CAPTION>
<S> <C> <C>
SHIP TO:
ERICSSON WIRELESS COMMUNICATIONS INC.
ORDER DATE: 06-11-99 6455 LUSK BLVD.
VERSION DATE: 06-11-99 SAN DIEGO, CA 92121-2779
SUPPLIER: ID: 227690 CONTACT: JOHN PAPAZIAN
SPACE SYSTEMS INTERNATIONAL CORP. TERMS: 0.00-15 NET 15
11440 W. BERNARDO COURT SUITE 300 FOB: FOB ERICSSON
SAN DIEGO, CAL 92127-1644 CARRIER: UPS ATTN: RECEIVING
METHOD:
ATTN: JOHN PAPAZIAN FREIGHT TERMS:
BUYER: COLVIN, M. TERRELL BILL TO:
COMMENTS: ERICSSON WIRELESS COMMUNICATIONS INC.
ATTN: ACCOUNTS PAYABLE
749 EAST CAMPBELL RD.
RICHARDSON, TX 75081
ATTN: ACCOUNTS PAYABLE
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE MPN MFR NAME MFR FSCM ACCT RESALE
ITEM ------------------------------------------------------------------------ ORDER U/M UNIT PRICE TOTAL PRICE
NO. EWC MCN/LBL DESCRIPTION JOB TAX QTY DELIVERY SHIP METHOD FREIGHT TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THIS COPY CONFIRMS A PRIOR VERBAL AWARD. DO NOT
DUPLICATE
YOU MUST HAVE CURRENT (WITHIN 6 MONTHS)
CERTIFICATES OR ORIGIN ON FILE WITH ERICSSON
FOR ALL PRODUCTION MATERIAL ON THIS PO. SEND
WITH SHIPMENT OR CALL ERICCSON EXPORT
COMPLIANCE AT 619.655.3441
ELECTRONIC SUBMISSION OF THIS PURCHASE ORDER
CONSTITUTES ERICSSON'S OFFER TO PURCHASE
GOODS AND/OR SERVICES FROM SUPPLIER BASED ON
THE ERICSSON STANDARD PURCHASE ORDER TERMS AND
CONDITIONS. BY PERFORMANCE AGAINST THIS
PURCHASE ORDER, SUPPLIER ACKNOWLEDGES THAT
ERICSSON STANDARD PURCHASE ORDER TERMS AND
CONDITIONS SHALL GOVERN THIS TRANSACTION. IN
THE EVENT OF ANY CONFLICT BETWEEN THE TERMS AND
CONDITIONS CONTAINED IN THE DOCUMENTS GOVERNING
THIS TRANSACTION, THE FOLLOWING ORDER OF
PRECEDENCE SHALL APPLY:
A MASTER AGREEMENT SIGNED BY BOTH ERICSSON AND
SUPPLIER.
ERICSSON'S STANDARD TERMS AND CONDITIONS.
THE QUALITY ASSURANCE REQUIREMENTS CONTAINED IN
DWG. NO. 80-3530.
THE SPECIFICATION FOR THE PART BEING PURCHASED.
THIS PURCHASE ORDER REPLACES P.O. J800032 IN ITS
ENTIRETY. LINE ITEM VALUES HAVE BEEN MODIFIED TO
REFLECT THE BALANCE OF FUNDING.
P.O. LINE ITEMS ARE "NOT-TO-EXCEED" IN VALUE.
SPACE SYSTEMS MUST ADVISE ERICSSON'S SUBCONTRACTS
MANAGER (TC COLVIN) UPON REACHING THE 75%
EXPENDITURE FOR EACH LINE ITEM. SHOULD SPACE
SYSTEMS EXCEED THE "NOT-TO-EXCEED" VALUES, SUCH
COSTS WILL BE BORNE AT SPACE SYSTEMS' SOLE
EXPENSE.
ALL TERMS AND CONDITIONS OF THE INDEPENDENT
CONTRACTOR AGREEMENT DATED 1/5/99 ARE INCORPORATED
BY REFERENCE HEREIN.
- ------------------------------------------------------------------------------------------------------------------------------------
ALL DELIVERIES AND PERFORMANCE UNDER THIS PURCHASE ORDER SHALL BE GOVERNED BY ERICSSON WIRELESS COMMUNICATIONS STANDARD PURCHASE
ORDER TERMS AND CONDITIONS AND PURCHASE ORDER QUALITY ASSURANCE REQUIREMENTS (DWG. NO. 80-3530) ATTACHED AND INCORPORATED HEREIN BY
REFERENCE.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 29
[QUALCOMM LOGO] 6455 Lusk Boulevard Purchase Order # J80001
San Diego, CA 92121 PURCHASE ORDER Ver. 2 I. 20F
(819) 587-1121
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE MPN MFR NAME MFR FSCM ACCT RESALE
ITEM ------------------------------------------------------------------------ ORDER U/M UNIT PRICE TOTAL PRICE
NO. OGS MCN/LBL DESCRIPTION JOB TAX QTY DELIVERY SHIP METHOD FREIGHT TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
52203 Yes 160,000 EACH $ 1.0000 $ 160,000.0
1 DEPLOYMENT SERVICES CIS REGION 61060 No 01-15-99
52203 Yes 60,000 EACH $ 1.0000 $ 60,000.0
2 (NON-LOCAL) TRAVEL EXPENSES IN SUPPORT
OF SERVICES 61060 No 01-15-99
52203 Yes 900,000 EACH $ 1.0000 $ 900,000.0
3 DEPLOYMENT SERVICES PERSONNEL IN RUSSIA 61060 No 05-06-99
Total Cost: $1,120,000.0
/s/ [ILLEGIBLE]
-------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ALL DELIVERIES AND PERFORMANCE UNDER THIS PURCHASE ORDER SHALL BE GOVERNED BY QUALCOMM GLOBAL SERVICES STANDARD
PURCHASE ORDER TERMS AND CONDITIONS (FORM 76-34902-4) AND PURCHASE ORDER QUALITY ASSURANCE
REQUIREMENTS (DWG. NO. 80-3530) ATTACHED AND INCORPORATED HEREIN BY REFERENCE.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.8
PROMISSORY NOTE & SECURITY AGREEMENT
- -------------------------------------------------------------------------------
PROMISSORY NOTE -- STRAIGHT
$6,000.00 San Diego , CA June 26th, 1998
- ------------ ----------------------------- ----------- ------------------
(City) (State) (Date)
12 months after date, for value received, the
- ------------------------------------- undersigned maker(s) promise(s) to pay to
(Number of Days, Months and/or Years)
SPACE SYSTEMS INTERNATIONAL CORPORATION
- -------------------------------------------------------------------------------
11440 W. Bernardo Court, San Diego, CA 92127 , or order
- ---------------------------------------------------------------------
at
-----------------------------------------------------------------------------
the sum of Six Thousand and 00/100 DOLLARS,
----------------------------------------------------------
with interest from N/A on the unpaid principal at the rate of
-----------------------
--- per cent per annum, payable ANNUALLY .
- ----------- ---------------------------------------
Should interest not be paid when due, it sha11 thereafter bear like
interest as the principal. Should default be made in payment of interest when
due, the whole sum of principal and accrued interest shall become immediately
due, without notice, at the option of the holder of this note. Interest after
maturity will accrue at the rate indicated above. Principal and interest are
payable in lawful money of the United States. Each maker will be jointly and
severally liable, and consents to renewals, replacements and extensions of time
for payment hereof, and at or after maturity, consents to the acceptance of
security or substituted security for this note, and waives presentment, demand
and protest and the right to assert any statute of limitations. A married person
who signs this note agrees that recourse may be had against his/her separate
property for any obligation contained herein. If any action be instituted on
this note, the Undersigned promise(s) to pay such sum as the Court may fix as
attorney's fees. This Note is secured by a Security Agreement (Personal
Property) of even date herewith.
John Papazian
- ----------------------------------- ------------------------------------
16325 Roca Dr.
San Diego, CA 92128
- ----------------------------------- ------------------------------------
- -------------------------------------------------------------------------------
SECURITY AGREEMENT
(PERSONAL PROPERTY)
THIS SECURITY AGREEMENT is made this 26th day of June, 1998
-------- -----------------
by and between John Papazian of 16325 Roca Dr., San Diego ,
-------------------- ----------------------------------------
County of San Diego , State of California 92128, (hereinafter "Debtor")
----------------- -----------------
and Space Systems Int'l Corp. of 11440 W. Bernardo Court, San Diego
------------------------------- ----------------------------------------
County of San Diego , State of California 92127, (hereinafter "Secured Party").
------------- ----------------
Debtor hereby grants to Secured Party a security interest in all that certain
personal property (hereinafter "Security"), now owned or hereafter acquired
(except consumer goods acquired more than ten (10) days after the Secured Party
gives value, unless those goods are installed in or affixed to such property),
and the proceeds and products thereof, described and situated as follows:
30,000 (thirty-thousand) shares of stock or units of Space Systems
Int'l purchased at $0.20 each on behalf of Ruth Ann Papazian and Renee' Watkins
(@15,000 units).
as security for the payment to Secured Party of Space Systems Int'l Corp
-------------------------------
($6000.00) Dollars.
according to the terms and conditions of the above Promissory Note, of even
date herewith.
(IMPORTANT: SECURITY AGREEMENT CONTINUED ON REVERSE SIDE)
Page 1 of 2
<PAGE> 2
This Security Agreement also secures: (a) any and all extensions on
renewals of said promissory note; (b) the repayment of all sums, including but
not limited to legal expenses, that may be advanced or incurred by Secured Party
for the maintenance, protection or preservation of the Security, or any part
thereof; (c) any and all other sums that may hereafter be advanced by Secured
Party to or for the benefit of Debtor; (d) any and all other expenditures that
may hereafter be made by Secured Party pursuant to the provisions hereof; and
(e) any and all other debts and obligations of Debtor to Secured Party that may
hereafter be incurred.
Debtor shall execute such Financing Statements and other documents and
do such other acts and things as Secured Party may from time to time require to
establish and maintain a valid, perfected security interest in the Security; and
Debtor shall permit Secured Party and Secured Party's representatives to inspect
the Security and/or the records pertaining thereto from time to time at any
reasonable time.
Debtor shall keep the Security in good condition and repair, and shall
not use it for any unlawful purpose; and shall not remove, nor permit to be
removed, any part of the Security from the above premises without the prior
written consent of Secured party, which shall not be unreasonably withheld; and
shall provide, maintain and deliver to Secured Party physical damage and loss
insurance policies covering the Security in amounts and with insurance companies
satisfactory to Secured Party, naming Secured Party as loss payee, as required
Party's interest may appear.
Debtor hereby declares and warrants to Secured Party that Debtor is the
absolute and sole owner, and is in possession of all of the Security, and that
the same is free and clear of all liens, encumbrances, adverse claims, and any
other security interests. Debtor shall not sell or offer to sell or otherwise
transfer the Security or any interest therein without the prior written consent
of Secured Party; nor shall Debtor sell, assign or create or permit to exist any
lien on or security interest in the Security in favor of anyone other than
Secured Party, unless Secured Party consents thereto in writing. Debtor shall,
upon Secured Party's request, remove any unauthorized lien or security Interest
on the Security, and defend any claim affecting the Security; and Debtor shall
pay all charges against the Security, including but not limited to taxes,
assessment, encumbrances and insurance, and upon Debtor's failure to do so,
Secured Party may pay any such charge as it deems necessary and add the amount
paid to the Indebtedness of Debtor secured hereunder.
If Debtor fails to make payment of any part of the principal or
interest as provided in said promissory note at the time and in the manner
therein specified, or if any breach be made of any obligation, promise or
warranty of Debtor herein contained, then the whole principal sum unpaid on said
promissory note, with accrued interest thereon, shall immediately become due and
payable, without notice, at the option of Secured Party, and Secured Party, at
its option, may: (a) sell, lease or otherwise dispose of the Security at public
or private sale; unless the Security is perishable and threatens to decline
speedily in value or is a type customarily sold on a recognized market, Secured
Party will give Debtor at least five (5) days prior written notice of the time
and place of any public sale or of the time after which any private sole or any
other intended disposition may be made; (b) retain the Security in satisfaction
of the obligations secured hereby, with notice of such retention sent to Debtor
as required by law; (c) notify any parties obligated on any of the Security
consisting of accounts, instruments, chattel paper, choses in action or the like
to make payment to Secured Party and enforce collection of any of the Security
herein; (d) require Debtor to assemble and deliver any of the Security to
Secured Party at a reasonably convenient place designated by Secured Party; (e)
apply all sums received or collected from or on account of the Security,
including the proceeds of any sales thereof, to the payment of the costs and
expenses incurred in preserving and enforcing the rights of Secured Party,
including but not limited to reasonable attorney's fees, and the Indebtedness
secured hereby in such order and manner as Secured Party in its sole discretion
determines; Secured Party shall account to Debtor for any surplus remaining
thereafter, and shall pay such surplus to the party entitled thereto, including
any second secured party who has made a proper demand upon Secured Party and has
furnished proof to Secured Party as requested in the manner provided by law; in
like manner, Debtor agrees to pay to Secured Party without demand any deficiency
after any Security has been disposed of and proceeds applied as aforesaid.
Secured Party shall have all the rights and remedies of a secured party under
the Uniform Commercial Code in any jurisdiction where enforcement is sought.
Debtor agrees to pay all costs incurred by Secured Party in enforcing its rights
under this Security Agreement, including but not limited to reasonable
attorneys' fees. All rights, powers and remedies of Secured Party hereunder
shall be cumulative and not alternative. No delay on the part of Secured Party
in the exercise of any right or remedy shall constitute a waiver thereof, and no
exercise by Secured Party of any right or remedy shall preclude the exercise of
any other right or remedy or further exercise of the same remedy.
It is further agreed, subject to applicable law, that upon any sale of
the Security according to law, or under the power herein given, that Secured
Party may bid at said sale, or purchase the Security, or any part thereof at
said sale.
Debtor warrants that if Debtor is a business entity, the execution,
delivery and performance of the aforesaid promissory note and this Security
Agreement are within its powers and have bean duly authorized.
If more then one Debtor executes this Security Agreement, the
obligations hereunder are joint and several. All words used herein in the
singular shall be deemed to have been used in the plural when the context and
construction so require. Any married person who signs this Security Agreement
expressly agrees that recourse may be had against his/her separate property for
all of his/her obligations to Secured Party.
This Security Agreement shall inure to the benefit of and bind Secured
Party, its successors and assigns, and each of the undersigned, their respective
heirs, executors, administrators and successors in interest. Upon transfer by
Secured Party of any part of the obligations secured hereby, Secured Party shall
be fully discharged from all liability with respect to the Security transferred
herewith.
Whenever possible each provision of this Security Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but, if any provision of this Security Agreement shall be prohibited or invalid
under applicable law, such provisions shall be ineffective only if the extent of
such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Security Agreement.
IN WITNESS WHEREOF, Secured Party and Debtor have executed this instrument.
SPACE SYSTEMS INT'L CORP. JOHN PAPAZIAN
- ------------------------------------- ---------------------------------------
E. DALEY C.F.O. /s/ John Papazian
- ------------------------------------- ---------------------------------------
Secured Party Debtor
Before you use this form, fill in all blanks, and make whatever changes are
appropriate and necessary to your particular transaction. Consult a lawyer if
form's fitness for your purpose and use. Wolcotts makes not representation or
warranty, express or implied, with respect to the merchantability or fitness of
this form for an intended use or purpose.
<PAGE> 1
Exhibit 10.9
PROMISSORY NOTE & SECURITY AGREEMENT
- -------------------------------------------------------------------------------
PROMISSORY NOTE -- STRAIGHT
$4000.00 Del Mar , CA June 29th, 1998
- ------------ ----------------------------- ----------- ------------------
(City) (State) (Date)
12 months after date, for value received, the
- ------------------------------------- undersigned maker(s) promise(s) to pay to
(Number of Days, Months and/or Years)
SPACE SYSTEMS INTERNATIONAL CORPORATION
- -------------------------------------------------------------------------------
11440 W. Bernardo Court, San Diego, CA 92127 , or order
- ---------------------------------------------------------------------
at
-----------------------------------------------------------------------------
the sum of Four Thousand DOLLARS,
----------------------------------------------------------
with interest from N/A on the unpaid principal at the rate of
-----------------------
8.5 per cent per annum, payable ANNUALLY .
- ----------- ---------------------------------------
Should interest not be paid when due, it shall thereafter bear like
interest as the principal. Should default be made in payment of interest when
due, the whole sum of principal and accrued interest shall become immediately
due, without notice, at the option of the holder of this note. Interest after
maturity will accrue at the rate indicated above. Principal and interest are
payable in lawful money of the United States. Each maker will be jointly and
severally liable, and consents to renewals, replacements and extensions of time
for payment hereof, and at or after maturity, consents to the acceptance of
security or substituted security for this note, and waives presentment, demand
and protest and the right to assert any statute of limitations. A married person
who signs this note agrees that recourse may be had against his/her separate
property for any obligation contained herein. If any action be instituted on
this note, the Undersigned promise(s) to pay such sum as the Court may fix as
attorney's fees. This Note is secured by a Security Agreement (Personal
Property) of even date herewith.
Dennis Appel
- ----------------------------------- ------------------------------------
14102 Recuenda Dr.
Del Mar, CA 92014
- ----------------------------------- ------------------------------------
- -------------------------------------------------------------------------------
SECURITY AGREEMENT
(PERSONAL PROPERTY)
THIS SECURITY AGREEMENT is made this 29th day of June, 1998
-------- -----------------
by and between Dennis G. Appel of 14102 Recuenda Dr., Del Mar, CA 92014,
-------------------- ----------------------------------------
County of San Diego , State of California , (hereinafter "Debtor")
----------------- -----------------
and Space Systems Int'l Corp. of 11440 W. Bernardo Court, San Diego
------------------------------- ----------------------------------------
County of San Diego , State of California , (hereinafter "Secured Party").
------------- --------------
Debtor hereby grants to Secured Party a security interest in all that certain
personal property (hereinafter "Security"), now owned or hereafter acquired
(except consumer goods acquired more than ten (10) days after the Secured Party
gives value, unless those goods are installed in or affixed to such property),
and the proceeds and products thereof, described and situated as follows:
20,000 (twenty-thousand) shares of stock or units of Space Systems
Int'l purchased at $0.20 each on behalf of Jessica and Jacequline Appel
(@10,000 (ten thousand) units each).
as security for the payment to Secured Party of Space Systems Int'l Corp
-------------------------------
($4000.00) Dollars.
according to the terms and conditions of the above Promissory Note, of even
date herewith.
(IMPORTANT: SECURITY AGREEMENT CONTINUED ON REVERSE SIDE)
Page 1 of 2
<PAGE> 2
This Security Agreement also secures: (a) any and all extensions on
renewals of said promissory note; (b) the repayment of all sums, including but
not limited to legal expenses, that may be advanced or incurred by Secured Party
for the maintenance, protection or preservation of the Security, or any part
thereof; (c) any and all other sums that may hereafter be advanced by Secured
Party to or for the benefit of Debtor; (d) any and all other expenditures that
may hereafter be made by Secured Party pursuant to the provisions hereof; and
(e) any and all other debts and obligations of Debtor to Secured Party that may
hereafter be incurred.
Debtor shall execute such Financing Statements and other documents and
do such other acts and things as Secured Party may from time to time require to
establish and maintain a valid, perfected security interest in the Security; and
Debtor shall permit Secured Party and Secured Party's representatives to inspect
the Security and/or the records pertaining thereto from time to time at any
reasonable time.
Debtor shall keep the Security in good condition and repair, and shall
not use it for any unlawful purpose; and shall not remove, nor permit to be
removed, any part of the Security from the above premises without the prior
written consent of Secured party, which shall not be unreasonably withheld; and
shall provide, maintain and deliver to Secured Party physical damage and loss
insurance policies covering the Security in amounts and with insurance companies
satisfactory to Secured Party, naming Secured Party as loss payee, as required
Party's interest may appear.
Debtor hereby declares and warrants to Secured Party that Debtor is the
absolute and sole owner, and is in possession of all of the Security, and that
the same is free and clear of all liens, encumbrances, adverse claims, and any
other security interests. Debtor shall not sell or offer to sell or otherwise
transfer the Security or any interest therein without the prior written consent
of Secured Party; nor shall Debtor sell, assign or create or permit to exist any
lien on or security interest in the Security in favor of anyone other than
Secured Party, unless Secured Party consents thereto in writing. Debtor shall,
upon Secured Party's request, remove any unauthorized lien or security Interest
on the Security, and defend any claim affecting the Security; and Debtor shall
pay all charges against the Security, including but not limited to taxes,
assessment, encumbrances and insurance, and upon Debtor's failure to do so,
Secured Party may pay any such charge as it deems necessary and add the amount
paid to the Indebtedness of Debtor secured hereunder.
If Debtor fails to make payment of any part of the principal or
interest as provided in said promissory note at the time and in the manner
therein specified, or if any breach be made of any obligation, promise or
warranty of Debtor herein contained, then the whole principal sum unpaid on said
promissory note, with accrued interest thereon, shall immediately become due and
payable, without notice, at the option of Secured Party, and Secured Party, at
its option, may: (a) sell, lease or otherwise dispose of the Security at public
or private sale; unless the Security is perishable and threatens to decline
speedily in value or is a type customarily sold on a recognized market, Secured
Party will give Debtor at least five (5) days prior written notice of the time
and place of any public sale or of the time after which any private sole or any
other intended disposition may be made; (b) retain the Security in satisfaction
of the obligations secured hereby, with notice of such retention sent to Debtor
as required by law; (c) notify any parties obligated on any of the Security
consisting of accounts, instruments, chattel paper, choses in action or the like
to make payment to Secured Party and enforce collection of any of the Security
herein; (d) require Debtor to assemble and deliver any of the Security to
Secured Party at a reasonably convenient place designated by Secured Party; (e)
apply all sums received or collected from or on account of the Security,
including the proceeds of any sales thereof, to the payment of the costs and
expenses incurred in preserving and enforcing the rights of Secured Party,
including but not limited to reasonable attorney's fees, and the Indebtedness
secured hereby in such order and manner as Secured Party in its sole discretion
determines; Secured Party shall account to Debtor for any surplus remaining
thereafter, and shall pay such surplus to the party entitled thereto, including
any second secured party who has made a proper demand upon Secured Party and has
furnished proof to Secured Party as requested in the manner provided by law; in
like manner, Debtor agrees to pay to Secured Party without demand any deficiency
after any Security has been disposed of and proceeds applied as aforesaid.
Secured Party shall have all the rights and remedies of a secured party under
the Uniform Commercial Code in any jurisdiction where enforcement is sought.
Debtor agrees to pay all costs incurred by Secured Party in enforcing its rights
under this Security Agreement, including but not limited to reasonable
attorneys' fees. All rights, powers and remedies of Secured Party hereunder
shall be cumulative and not alternative. No delay on the part of Secured Party
in the exercise of any right or remedy shall constitute a waiver thereof, and no
exercise by Secured Party of any right or remedy shall preclude the exercise of
any other right or remedy or further exercise of the same remedy.
It is further agreed, subject to applicable law, that upon any sale of
the Security according to law, or under the power herein given, that Secured
Party may bid at said sale, or purchase the Security, or any part thereof at
said sale.
Debtor warrants that if Debtor is a business entity, the execution,
delivery and performance of the aforesaid promissory note and this Security
Agreement are within its powers and have bean duly authorized.
If more then one Debtor executes this Security Agreement, the
obligations hereunder are joint and several. All words used herein in the
singular shall be deemed to have been used in the plural when the context and
construction so require. Any married person who signs this Security Agreement
expressly agrees that recourse may be had against his/her separate property for
all of his/her obligations to Secured Party.
This Security Agreement shall inure to the benefit of and bind Secured
Party, its successors and assigns, and each of the undersigned, their respective
heirs, executors, administrators and successors in interest. Upon transfer by
Secured Party of any part of the obligations secured hereby, Secured Party shall
be fully discharged from all liability with respect to the Security transferred
herewith.
Whenever possible each provision of this Security Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but, if any provision of this Security Agreement shall be prohibited or invalid
under applicable law, such provisions shall be ineffective only if the extent of
such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Security Agreement.
IN WITNESS WHEREOF, Secured Party and Debtor have executed this instrument.
SPACE SYSTEM, INT'L CORP. /s/ DENNIS G. APPEL
- ------------------------------------- ---------------------------------------
E. DALEY C.F.O. /s/ Dennis G. Appel
- ------------------------------------- ---------------------------------------
Secured Party Debtor
Before you use this form, fill in all blanks, and make whatever changes are
appropriate and necessary to your particular transaction. Consult a lawyer if
form's fitness for your purpose and use. Wolcotts makes not representation or
warranty, express or implied, with respect to the merchantability or fitness of
this form for an intended use or purpose.
Page 2 of 2
<PAGE> 1
Exhibit 10.10.1
Promissory Note
---------------
$10,000 Toronto, Ontario September 24th 1998
- ------------------ ---------------------------- -----------------------
One-year after date, for value received, the undersigned promises to pay to
Space Systems International Corp, the sum of 10,000 dollars U.S.
This is for Payment of 50,000 Shares Valued at .20 Dollars per Share for the
Following Receipts: Sondra Black [10,000], Lorne Berman [10,000], Ila Berman
[10,000], Lindi Rivers [10,000], Laurie Slater [10,000].
/s/ Barry Berman
-------------------------------------
DR. BARRY BERMAN
1131 STEELES AVE. W. PH 104
TORONTO ONT. M2R3W8
<PAGE> 1
Exhibit 10.10.2
Promissory Note
---------------
$5,000 Toronto, Ontario October 6th 1998
- ------------------ ---------------------------- -----------------------
One-year after date, for value received, the undersigned promises to pay to
Space Systems International Corp, the sum of 5,000 dollars U.S.
This is for Payment of 25,000 Shares Valued at .20 Dollars per Share for the
Following Receipts: Howard Gotlib [15,000] & Francis/Herb Steiner [10,000].
/s/ Barry Berman
---------------------------------
DR. BARRY BERMAN
1131 STEELES AVE. W. PH 104
TORONTO ONT. M2R3W8
<PAGE> 1
Exhibit 10.11
WILLIAMS LAW GROUP
2503 W. GARDNER CT.
TAMPA FL 33611
Gerhard Melnyk
MGM Group
2505 Lake Jackson Circle
Orlando FL
Re: Response to your questions concerning SSI
Dear Gerhard,
You have recently asked us to respond to the following questions:
o How does your process differ from most public shell/reverse merger
transactions?
o Does your company have stockholders with fully free trading stock that they
can sell immediately after the merger closes?
o What information is furnished to shareholders of SSI?
o Are there alternatives to the structure you utilize?
o Will the SEC's concerns about shell merger transactions make your process
more difficult?
o In that connection, we understand that the SEC permits shell merger
transactions under Rule 419. Is there any difference between your
transaction structure and a transaction done under Rule 419?
In response your questions, we submit the following:
We believe our transactions differ from the typical public shell/reverse merger
transactions in that our transactions are structured to fully comply with the
registration provisions of federal securities laws. In our transaction, our
shares are transferred to shareholders of the private company from our treasury
stock under an SEC registration statement. Many typical public shell transaction
do not utilize unissued treasury stock but instead involve the transfer of
issued and outstanding shares from existing insider and non-insider
shareholders, allegedly in compliance with Rule 144(k) but actually in violation
of the registration provisions of the 1933 Act. Although our process may take a
little longer to accomplish, it is accomplished without violating federal
securities laws.
You then asked us why it was that everyone buying trading shells was engaged in
transactions violating federal securities laws without getting caught. We don't
know. We pointed out to you that the law in this area was clear. In that
connection, we told you the following:
With respect to the transfer of non-insider shares, in an SEC Administrative
Proceeding found in Securities Exchange Act of 1934 Rel. No. 41123 / March 1,
1999, Admin. Proc. File No. 3-8584, In the Matter of Jacob Wonsover, concerning
the fraudulent sale of shares under SEC Rule 144(k), the SEC held that:
Even if the Seven Shareholders had held their shares for the three years
mandated by Rule 144(k), their sales still would not be covered by the safe
harbor. As Wonsover knew: (1) Gibori actively managed each of the accounts
at issue, (2) six of the Seven Shareholders' accounts were opened using
Gil-Med's address, and (3) two accounts were opened on behalf of relatives
of Gibori. The Division introduced evidence, uncontradicted by Wonsover,
that nearly all of the proceeds from
<PAGE> 2
sales for the Nineteen Shareholders were deposited in bank accounts owned
or controlled by Gibori. Because the accounts of the Seven Shareholders
(and, indeed, the accounts of all Nineteen Shareholders) were nominee
accounts controlled by Gibori, the Seven Shareholders were "affiliates" of
Gil-Med whose stock sales could not qualify under Rule 144(k).
This means that the transfer of what would otherwise be non-insider 144(k)
shares in a controlled transaction violates the registration provisions of the
1933 Act.
We also told you that there were problems with the transfer of shares by former
insiders of the shell 91 days after they are no longer insiders. The position of
the SEC is that the date of transfer for the purposes of Rule 144(k) by a person
who is an insider or affiliate is the date a binding contract is entered into to
acquire the shares, not the date the share certificates are transferred, even if
the transfer occurs more than 90 days after the insider or affiliate ceases to
be an insider or affiliate. See Division Of Corporation Finance Manual of
Publicly Available Telephone Interpretations, Compiled by: The Office of Chief
Counsel, July 1997, Answer 104: "A person who enters into a binding contract for
the sale of restricted securities within three months after ceasing to be an
affiliate of the issuer of such securities may not utilize Rule 144(k), even
though the delivery of the securities takes place more than three months after
such person loses affiliate status."
This means that the transfer of what would otherwise be former insider 144(k)
shares in a transaction agreed upon when that person was an insider violates the
registration provisions of the 1933 Act.
We also told you that under SEC Rule 145, unregistered shares issued in a merger
are not free trading, and the minimum one-year holding period for such shares
starts all over again as of the date the merger is closed.
So our conclusion that attempting to do this transaction by merger with a
trading shell without filing a registration statement violates the 1933 and 1934
Acts is clearly supported.
You then asked us to explain if it were so obvious that these transactions
violated the law, why is everyone doing it this way and getting away with it?
This is not an easy question to answer. We know that the SEC has scarce
enforcement resources, which means that even if there are violations, they won't
necessarily be prosecuted. Or perhaps it's just that the SEC has not gotten the
word out. Through the exchange of letters between Mr. Ken Worm of the NASD and
Mr. Richard Wulff of the SEC discussed below, everyone now knows that trying to
create blank check shell companies and get them listed without registration is
illegal. But apparently everyone doesn't yet know that acquiring free trading
shares in a currently trading shell through Rule 144(k) rather than through
registration is just as illegal. We expect one day soon to see another exchange
of letters between the NASD and the SEC on this subject. And we also expect that
the SEC will put all Transfer Agents on notice of this position.
We also told you that we believed that if the SEC investigated all trading shell
mergers done in period since last July when free trading 504 stock ended, and
probably prior to that time as well, they would find that the overwhelming
majority of them violated federal securities laws. And we told you we though it
would be a relatively easy investigation to undertake. All the SEC would have to
do is obtain a list of these transactions from the NASD. They could then obtain
the stock transfer records on these companies from the Transfer Agents. They
would only need to look for blocks of non-insider shares transferred at or about
the time of the merger by multiple non-insider stockholders of the shell and for
blocks of insider shares transferred at or about 91 days after the merger by
former insider stockholders of the shell. When they found this activity, it
seems to us that the violations would be obvious.
<PAGE> 3
As to the next issue, we told you that our shareholders do not own fully free
trading stock, and our stock is not being registered for resale, such that it
can only be transferred under the provisions of Rule 144 for a period of two
years from date of issuance, which period expires in March, 2001. In addition,
my shares are being placed in a blind trust under which all sales decisions will
be made exclusively by the trustee and no details of the trust's holdings or
sales will be disclosed to me. In many typical public shell transactions,
existing stockholders of the public shell hold fully free trading stock that can
be resold anytime and in any amount they want after the merger closes.
We make full disclosure about our company and our process of going public to
shareholders of the private company because our registration statement is
declared effective by the SEC and delivered to those stockholders before the
merger closes. We also make sure the merger is then closed in full compliance
with relevant state law before trading begins.
We also explained that we could accomplish SSI's objectives without a reverse
merger through the registration of shares of SSI non-insider shareholders for
resale on form SB-2. Both our process and the selling stockholder SB-2 have the
same result: A company becomes an SEC reporting company with all free-trading
shares obtained utilizing an SEC registration statement. The only substantive
difference is the form of registration statement used. Even though SB-2 is
available, you indicated that SSI was only interested in going public through
the reverse merger process. This is consistent with our experience with other
private companies desiring to go public in today's market.
Concerning the inquiry as to whether we felt that this registration statement
would be adversely affected because a blank check merger was involved, we
pointed out that in adopting Rule 419, the SEC expressly authorized blank check
acquisitions if done under a registration statement in the manner prescribed by
the rule. In fact, we believe our transaction could be called a "Cashless Rule
419 Offering." We are technically not required to comply with Rule 419 because
the rule is designed for situations in which an acquisition company such as ours
wants to raise money before making an acquisition. We are not in the business of
raising money. But we are complying with the intent of Rule 419 in that the rule
does require the filing and dissemination before the merger closes of a
post-effective amendment containing the same disclosure as in this registration
statement.
Recent developments in this area confirm our conclusion. On January 21, 2000,
Richard K. Wulff, Chief of the Office of Small Business of the SEC wrote to Mr.
Ken Worm, Assistant Director of the OTC Compliance Unit of NASD Regulation
concerning blank check companies. The letter outlines a series of concerns about
resales of securities when a Rule 145 or Rule 419 type transaction is done
without registration. In Footnote 7 on page 2 of the letter, the SEC indicates
that in general it does not object to resales in a Rule 145 transaction such as
ours or in a Rule 419 to which our transaction is analogous if such transactions
are done "in a registered transaction such as one offered in compliance with
Rule 419." As noted above, this is just what we are doing. A copy of these
letters are attached.
We also note that in a Rule 419 merger, if the private company requires fully
registered stock as a condition of the merger, then the exact same registration
statement as we are filing in this transaction is required. Our transaction is
structured to comply in all relevant respects with the process the SEC has
prescribed for blank check company reverse merger transactions.
Sincerely,
Michael T. Williams, Esq.
<PAGE> 1
Exhibit 10.12
MGM GROUP
2505 LAKE JACKSON CIR.
ORLANDO FL
Michael T. Williams, Esq.
Williams Law Group
2503 W. Gardner Ct.
Tampa FL 33611
Re: Questions concerning SSI
As you know, SSI has retained MGM Group as financial advisor to the SSI board in
connection with a contemplated merger transaction with First Enterprise Service
Group, Inc. As financial advisor to the board of SSI, we have agreed to advise
SSI's board as to whether MGM believes the merger will accomplish SSI's
objectives.
We have the following questions about the transaction:
o How does your process differ from most public shell/reverse merger
transactions?
o Does your company have stockholders with fully free trading stock that they
can sell immediately after the merger closes?
o What information is furnished to shareholders of SSI?
o Are there alternatives to the structure you utilize?
o Will the SEC's concerns about shell merger transactions make your process
more difficult?
o In that connection, we understand that the SEC permits shell merger
transactions under Rule 419. Is there any difference between your
transaction structure and a transaction done under Rule 419?
We look forward to your prompt response.
Sincerely,
Gerhard Melnyk
MGM Group
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Form S-4 of First Enterprise Service Group,
Inc. of our report dated February 21, 2000 relating to the financial statements
of First Enterprise Service Group, Inc., as of and for the period ended December
31, 1999. We also consent to the reference to us under the headings "Experts" in
such registration statement.
Kingery, Crouse & Hohl, P.A.
Tampa, Florida
February 24, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in the Form S-4 of First Enterprise Service Group, Inc. of
our report dated June 19, 1999, relating to the financial statements of Space
Systems International Corporation, and to the reference to us under the heading
"Experts" in such registration statement.
San Diego, California PANNELL KERR FORSTER
February 22, 2000 Certified Public Accountants
A Professional Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS 6-MOS
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1999 AUG-31-1998 AUG-31-1999
<PERIOD-START> MAR-01-1997 MAR-01-1998 MAR-11-1998 MAR-01-1999
<PERIOD-END> FEB-28-1998 FEB-28-1999 AUG-31-1998 AUG-31-1999
<CASH> 192 88,093 0 251,764
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 19,650 0 85,168
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 192 129,449 0 342,102
<PP&E> 6,088 6,089 0 6,089
<DEPRECIATION> (2,094) (2,893) 0 (3,293)
<TOTAL-ASSETS> 11,642 133,042 0 345,295
<CURRENT-LIABILITIES> (31,056) (118,341) 0 (264,403)
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> (890) (1,030) 0 (1,093)
<OTHER-SE> 20,304 (13,671) 0 (79,799)
<TOTAL-LIABILITY-AND-EQUITY> (11,642) (133,042) 0 (345,295)
<SALES> 52,713 19,226 7,023 461,876
<TOTAL-REVENUES> 103,621 58,526 7,023 513,363
<CGS> 78,665 10,341 2,500 291,315
<TOTAL-COSTS> 78,665 10,341 2,500 231,215
<OTHER-EXPENSES> 21,032 501,153 192,987 457,091
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 3,352 2,097 1,580 11,266
<INCOME-PRETAX> 572 (455,065) (190,044) (246,309)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 572 (455,065) (190,044) (246,309)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 572 (455,065) (190,044) (246,309)
<EPS-BASIC> 0.00 (0.05) (0.02) (0.02)
<EPS-DILUTED> 0.00 (0.05) (0.02) (0.02)
</TABLE>
