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REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
DDR Systems, Inc.
(Exact name of registrant as specified in its charter)
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Washington 4822 52-2219677
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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3650 West 30/th/ Ave
Vancouver, British Columbia V6S 1W8, CANADA
(604) 224-3306
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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Agent for Service: With a Copy to:
Glenn Jones, President James L. Vandeberg
DDR Systems, Inc. Vandeberg Johnson & Gandara
3650 West 30/th/ Ave 600 University Street, Suite 2424
Vancouver, British Columbia V6S 1W8, CANADA Seattle, Washington 98101
(604) 224-3306 (604) 224-3310 (206) 386-8080
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 1.
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [x]
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. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) 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. [ ]
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of each Proposed Proposed
class of Amount maximum maximum Amount of
securities to to be offering price aggregate registration
be registered registered per unit offering price fee
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Common stock 2,300,000 shares $0.045 per share/1/ $103,500.00 $27.33
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(1) No exchange or over-the-counter market exists for DDR Systems, Inc.'s
common stock. No sale of DDR Systems, Inc.'s common stock has ever been
sold from one investor to another and the last issue of stock from treasury
occurred on December 5, 1999, when a total of 2,300,000 shares of DDR
Systems, Inc. common stock were sold at a price of $0.045 per share. DDR
Systems, Inc. believes this transaction supports a bona fide estimate of
$0.045 per share as the maximum offering price solely for the purpose of
calculating the amount of the registration fee pursuant to Rule 457(a)
under the Securities Act of 1933.
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 which 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 Securities and Exchange Commission, acting
pursuant to such section 8(a), may determine.
<PAGE>
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION - February 28, 2000
Prospectus
February 28, 2000
DDR SYSTEMS, INC.
3650 West 30/th/ Ave
Vancouver, British Columbia V6S 1W8, CANADA
(604) 224-3306
2,300,000 Shares of Common Stock
to be sold by current shareholders
This is the initial public offering of common stock of DDR Systems, Inc., and no
public market currently exists for shares of DDR Systems, Inc.'s common stock.
None of the proceeds from the sale of stock in this offering will be available
to DDR Systems, Inc. This prospectus is part of a registration statement that
permits selling shareholders to sell their shares on a continuous or delayed
basis in the future. Selling shareholders may sell their shares to the public
immediately upon the effectiveness of the registration statement, or they may
elect to sell some or all of their shares at a later date. As a result, it is
impracticable to state either the number of shares that will be available to the
public or their price. No sale of DDR Systems, Inc.'s common stock has ever been
sold from one investor to another and the last issue of stock from treasury
occurred on December 5, 1999, when a total of 2,300,000 shares of DDR Systems,
Inc. common stock were sold at a price of $0.045 per share. The principal
operations of DDR Systems, Inc. have not yet commenced.
This is not an underwritten offering, and DDR Systems, Inc.'s stock is not
listed on any national securities exchange or the NASDAQ Stock Market. DDR
Systems, Inc. intends to apply to have its shares traded on the OTC bulletin
board under the symbol:
"DDRS"
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 1.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY DETERMINATION AS TO WHETHER ANYONE
SHOULD BUY THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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TABLE OF CONTENTS
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Risk Factors............................................................................ 1
Use of Proceeds......................................................................... 6
Determination of Offering Price......................................................... 6
Dilution................................................................................ 6
Selling Shareholders.................................................................... 6
Plan of Distribution.................................................................... 7
Description of Capital Stock............................................................ 7
Interests of Named Experts and Counsel.................................................. 8
Description of Business................................................................. 8
Description of Property................................................................. 12
Legal Proceedings....................................................................... 12
Market Price of and Dividends on Capital Stock and Related Stockholder Matters.......... 12
Selected Financial Data................................................................. 13
Management's Discussion and Analysis of Financial Condition and Results of Operations... 13
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 14
Directors and Executive Officers........................................................ 15
Executive Compensation.................................................................. 15
Security Ownership of Certain Beneficial Owners and Management.......................... 15
Certain Relationships and Related Transactions.......................................... 16
Disclosure of Commission Position on Indemnification for Securities Act Liabilities..... 16
Index to Financial Statements........................................................... F-1
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing the common stock of
DDR Systems, Inc. Investing in DDR Systems, Inc.'s common stock involves a high
degree of risk. Any of the following risks could adversely affect DDR Systems,
Inc.'s business, financial condition and results of operations and could result
in a complete loss of your investment.
You Should Not Rely on Forward-Looking Statements Because They Are Inherently
Uncertain
This prospectus contains forward-looking statements that involve risks and
uncertainties. DDR Systems, Inc.'s actual results could differ materially from
those anticipated in these forward-looking statements for many reasons,
including the risks faced by DDR Systems, Inc. described in "Risk Factors" and
elsewhere in this prospectus. We use words such as "anticipates", "believes",
"plans", "expects", "future", "intends" and similar expressions to identify
these forward-looking statements. Prospective investors should not place undue
reliance on these forward-looking statements, which apply only as of the date of
this prospectus.
Risks Related to DDR Systems, Inc.'s Business
DDR Systems, Inc.'s success is dependent on a number of factors that should be
considered by prospective investors. There is no assurance that DDR Systems,
Inc. will provide a return on investment in the future. DDR Systems, Inc. has
only recently acquired its principal asset. It is a relatively young company
and has no history of earnings or profit and there is no assurance that it will
operate profitably in the future.
DDR Is In Its Earliest Stages Of Development And May Never Become Profitable
DDR is in the extreme early stages of development and could fail before
implementing its business plan. It must be regarded as a "start up" venture
that will incur net losses for the foreseeable future. DDR has no operating
history or revenues from operations, and it faces unforeseen costs, expenses,
problems and difficulties that could easily prevent it from ever becoming
profitable.
Sufficient Penetration Of Digital Data Recorder Technology To The Existing
Telemetry And Remote Sensing Marketplace May Not Be Possible
DDR Systems, Inc. has licensed a digital data recorder product line, which
simply put is a high speed digital tape recorder that is capable of recording
information relayed by several types of satellites and aircraft. The recorder
operates basically the same as a VCR with all the same play, fast forward,
rewind, etc. functions. (See "Description of Business - The License") Once
marketing begins there is no guarantee that the telemetry and remote sensing
marketplace, DDR Systems, Inc.'s primary target market, will be sufficiently
penetrated so that DDR Systems, Inc. will become profitable. Any failure to
establish sufficient market penetration of the digital data recording technology
application would prevent DDR Systems, Inc. from implementing its business plan,
and could cause its stock to be worthless.
DDR Systems, Inc. May Lose Its Reach Technologies Inc. License If It Fails to
Meet Its Minimum Purchase Requirements
DDR Systems, Inc. may be unable to meet the minimum purchase requirements under
its license with Reach Technologies Inc., which could result in the loss of its
license. This could prevent DDR Systems, Inc. from implementing its business
plan, and could cause its stock to be worthless. DDR Systems, Inc. currently has
no prospective purchasers lined up, it does not intend to meet its minimum
purchase requirement simply by stockpiling an inventory of the Reach
Technologies Inc. licensed product line. If DDR Systems, Inc. does not meet its
minimum purchase requirement it would be deemed to be in default under its
License Agreement with Reach Technologies Inc.. Reach Technologies Inc. would
then be able to terminate DDR Systems, Inc.'s license rights to the Reach
Technologies Inc. licensed product line.
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Increases In The Reach Technologies Inc. Licensed Product Line Prices Could
Destroy DDR Systems, Inc.'s Potential For Future Profitability
Any material price increases by Reach Technologies Inc. could decrease or
eliminate DDR Systems, Inc.'s potential profitability. Reach Technologies Inc.
has the right to increase the Reach Technologies Inc. licensed product line
prices on 30 days notice by revising its published pricing schedule.
DDR Systems, Inc. May Compensate Service Providers By Issuing Stock
DDR Systems, Inc. might seek to compensate providers of services by issuance of
stock in lieu of cash. Any such stock issuance would dilute ownership interests
of shareholders. For example, it is possible that DDR Systems, Inc. would grant
stock to compensate its marketing and sales personnel with stock options.
Irrespective of whether DDR Systems, Inc.'s cash assets prove to be inadequate
to meet its operational needs, DDR Systems, Inc. might seek to compensate
providers of services by issuance of stock in lieu of cash, which again would
dilute ownership interests of shareholders.
Competitors Could Develop Alternative And More Cost-Effective Data Recorder
Products To Compete Directly In The Telemetry And Remote Sensing Marketplace
DDR Systems, Inc.'s products compete against those of other established
companies, some of which have greater financial, marketing and other resources
than those of DDR Systems, Inc. These competitors may be able to institute and
sustain price wars, or develop products that could perform similar to or better
than the Reach Technologies Inc. licensed product line, resulting in a reduction
of DDR Systems, Inc.'s share of the market and limiting or eliminating the
profitability. In addition, there are no significant barriers to new
competitors entering the market place.
DDR Systems, Inc.'s Significant Shareholder Could Sell His Control Block To An
Outside Party.
DDR Systems, Inc.'s significant shareholder could sell his control block to an
outside party resulting in a majority of the voting power being transferred to
the purchaser(s). The result could be that new shareholder(s) would control DDR
Systems, Inc. and persons unknown could replace DDR Systems, Inc.'s management.
It is uncertain whether any such replacements would continue to implement DDR
Systems, Inc.'s current business plan.
Heavy Dependence on One Individual Who Will Not Devote His Full Time and
Attention to DDR Systems, Inc.'s Affairs Could Result in Delays or Business
Failure
Glenn Jones is serving as President and a Director. Loss of Mr. Jones's
services may hamper DDR Systems, Inc.'s ability to implement its business plan,
and could cause its stock to be worthless. DDR Systems, Inc. has found that Mr.
Jones's inability to devote his full time and attention to DDR Systems, Inc.'s
affairs has resulted in delays in progress towards the implementation of its
business plan. Mr. Jones's inability to devote his full time and attention to
DDR Systems, Inc.'s affairs may also result in a failure to implement its
business plan. DDR Systems, Inc. is heavily dependent upon the skills, talents
and abilities of Mr. Jones to implement its business plan. Because investors
will not be able to evaluate the merits of DDR Systems, Inc.'s business
decisions, they should carefully and critically assess Mr. Jones's background.
See "Directors and Executive Officers".
Heavy Dependence on One Individual Who Has Little Marketing Experience
Because of lack of marketing experience, DDR Systems, Inc. may overestimate the
marketability of the Reach Technologies Inc. licensed product line and may
underestimate the costs and difficulties associated with selling and
distributing the Reach Technologies Inc. licensed product line. Any such
unanticipated costs or difficulties could prevent DDR Systems, Inc. from
implementing its business plan, thereby limiting its profitability and
decreasing the value of its stock. Mr. Jones has no experience in implementing
an extensive sales campaign for the Reach Technologies Inc. licensed product
line. Mr. Jones is not a sales or marketing professional by trade.
2
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DDR Systems, Inc. Does Not Have Any Employment Agreements With Its Officers And
Directors
If DDR Systems, Inc. loses the services of its president, Mr. Jones or its Chief
Financial Officer, Ms. Finnigan, or if one or both should decide to join a
competitor or otherwise compete directly or indirectly with DDR Systems, Inc.,
technical or financial information could be used or provided to a competitor
causing DDR Systems, Inc.'s stock to be worthless. DDR Systems, Inc. does not
have an employment agreement with Mr. Jones or Ms. Finnigan. As a result, there
is no assurance that they will continue to manage DDR Systems, Inc.'s affairs in
the future.
DDR Systems, Inc. Has Not Obtained Key Man Life Insurance For Its Officers And
Directors
DDR Systems, Inc. has not obtained a key man life insurance policy on either its
president, Mr. Jones or its Chief Financial Officer, Ms. Finnigan. As a result,
DDR Systems, Inc. may not be able to replace either Mr. Jones or Ms. Finnigan
should a serious accident befall one or both of them.
DDR Systems, Inc. May Consider Business Combinations
DDR Systems, Inc. may make investments in or acquire complementary products,
technologies and businesses, or a business completely unrelated to DDR Systems,
Inc.'s current business plan. DDR Systems, Inc. may consider a future financing
or business combination that, because of the size of the related stock issuance,
would result in a majority of the voting power being transferred to the
investor(s). The result could be that new shareholder(s) would control DDR
Systems, Inc. and persons unknown could replace DDR Systems, Inc.'s management.
It is uncertain whether any such replacements would continue to implement DDR
Systems, Inc.'s current business plan. DDR Systems, Inc. has had no discussions
with third parties regarding business opportunities and there currently are no
business acquisitions that are probable.
DDR May Enter In To New Line of Business Which Investors Could Not Evaluate
In the event of a business combination, acquisition, or change in shareholder
control, DDR may enter in to a new line of business which an investor did not
anticipate and in which that investor may not want to participate. DDR may make
investments in or acquire complementary products, technologies and businesses,
or businesses completely unrelated to DDR's current business plan. Similarly,
an asset acquisition or business combination would likely include the issuance
of a significant amount of DDR's common stock, which may result in a majority of
the voting power being transferred to new investors. New investors may replace
DDR's management. New management may decide not to continue to implement DDR's
current business plan, and may decide to enter into a business completely
unrelated to DDR's current business plan which an investor did not anticipate
and in which that investor may not want to participate. In such case, an
investor could not only lose its entire investment, but could lose its entire
investment on a business decision it did not get to evaluate at the time of
investing in DDR.
Potential Business Combinations Could Be Difficult to Integrate and Disrupt
Business.
If DDR Systems, Inc. acquires a company, it could face difficulties in
assimilating that company's personnel and operations. Acquisitions also involve
the need for integration into existing administration, services marketing, and
support efforts. These acquisitions and investments could disrupt its ongoing
business, distract management and employees and increase its expenses. In
addition, the key personnel of the acquired company may decide not to work for
DDR Systems, Inc. Any amortization of goodwill or other assets, or other charges
resulting from the costs of these acquisitions, could increase DDR Systems,
Inc.'s operating costs.
Potential Business Combinations Could Increase Operating Costs.
DDR Systems, Inc. cannot predict the extent to which its liquidity and capital
resources will be diminished prior to consummation of a business combination or
whether its capital will be further depleted by the operation losses (if any) of
a business entity that is acquired.
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DDR Systems, Inc. May Undertake Investment Risks That Are Dilutive
Any asset acquisition or business combination would likely include the issuance
of a significant amount of DDR Systems, Inc.'s common stock, which would dilute
the ownership interest of holders of existing shares of DDR Systems, Inc.'s
common stock.
DDR Systems, Inc. May Undertake Investment Risks That Shareholders Might Not
Otherwise Accept
DDR Systems, Inc.'s stockholders could lose their entire investment on a
business decision they did not get to evaluate at the time of investing in DDR
Systems, Inc.. Depending on the nature of the transaction, DDR Systems, Inc.'s
stockholders may not have an opportunity to vote on whether to approve it. As a
result, DDR Systems, Inc.'s management could enter into a transaction that an
investor would not want to invest in.
Financial Risks
DDR Systems, Inc. Has No Operating History and Financial Results Are Uncertain
There is no assurance that DDR Systems, Inc. will provide a return on investment
in the future. DDR Systems, Inc. has not achieved profitability, and expects to
incur net losses for the foreseeable future. As a result of DDR Systems, Inc.'s
limited operating history, it is difficult to accurately forecast its potential
revenue, and there is no meaningful historical financial data upon which to base
planned operating expenses. DDR Systems, Inc. is a relatively young company with
no history of earnings or profits, its revenue and income potential is unproved
and its business model is still emerging.
DDR Systems, Inc.'s May Not Achieve And Then Sustain Favorable Operating Results
If DDR Systems, Inc. does not become profitable, it may be unable to maintain
its Reach Technologies Inc. License, which would eliminate its sole product
line. If DDR Systems, Inc. does achieve profitability, it cannot be certain
that it will sustain or increase it. An investor in DDR Systems, Inc.'s common
stock must consider the risks and difficulties frequently encountered by early
stage companies in new and rapidly evolving markets. DDR Systems, Inc.'s
ability to achieve and then sustain favorable operating results will depend on a
number of factors, including costs related to identifying and marketing to
prospective purchasers and expense of entering into a new business opportunity.
Significant Operation Expenditures May Prevent DDR Systems, Inc. From Achieving
Profitability.
DDR Systems, Inc. expects to significantly increase its operating expenses in
order to market and distribute the Reach Technologies Inc. licensed product
line. In addition, Reach Technologies Inc. has the right to increase its prices
to DDR Systems, Inc. on 30 days notice. As a result it may not generate enough
revenue to achieve profitability.
DDR Systems, Inc. Will Need Additional Financing Which Rank Ahead Of
Shareholder's Interests.
DDR Systems, Inc. has very limited funds, and its funds are inadequate to
implement its business plan. DDR Systems, Inc. will require substantial working
capital to fund its business. If DDR Systems, Inc. raises additional funds
through the issuance of equity, equity-related or convertible debt securities,
these securities may have rights, preferences or privileges senior to those of
the rights of its common stock and its stockholders may experience additional
dilution.
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DDR Systems, Inc. May Not Be Able To Raise Additional Financing Needed For Its
Business.
DDR Systems, Inc.'s ultimate success will depend on its ability to raise
additional capital. Failure to raise the necessary funds in a timely fashion
will severely limit DDR Systems, Inc.'s operations and it would be unable to
implement its business plan. No commitments to provide additional funds have
been made by management or other shareholders. DDR Systems, Inc. has not
investigated the availability, source or terms that might govern the acquisition
of additional financing. When additional capital is needed, there is no
assurance that funds will be available from any source or, if available, that
they can be obtained on terms acceptable to DDR Systems, Inc.
Risks Related to the Securities Market
DDR Systems, Inc. Common Stock Has No Prior Market, And Prices May Decline After
The Offering
There is no public market for DDR Systems, Inc.'s common stock and no assurance
can be given that a market will develop or that any shareholder will be able to
liquidate his investment without considerable delay, if at all. The trading
market price of DDR Systems, Inc.'s common stock may decline below the offering
price. If a market should develop, the price may be highly volatile. In
addition, an active public market for DDR Systems, Inc.'s common stock may not
develop or be sustained. All of DDR Systems, Inc.'s outstanding shares, except
for those of Glenn Jones's, are being registered for sale pursuant to this
offering. If DDR Systems, Inc.'s selling stockholders sell substantial amounts
of common stock in the public market, the market price of DDR Systems, Inc.'s
common stock could fall. Factors such as those discussed in this "Risk Factors"
section may have a significant impact on the market price of DDR Systems, Inc.'s
securities. Owing to the low price of the securities many brokerage firms may
not be willing to effect transactions in the securities. Even if a purchaser
finds a broker willing to effect a transaction in DDR Systems, Inc.'s common
stock, the combination of brokerage commissions, state transfer taxes, if any,
and other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of such securities as collateral for loans.
Thus, a purchaser may be unable to sell or otherwise realize the value invested
in DDR Systems, Inc. stock.
Investors May Face Significant Restrictions on the Resale of DDR Systems, Inc.
Stock Due to State Blue Sky
Because DDR Systems, Inc.'s securities have not been registered for resale under
the blue sky laws of any state, the holders of such shares and those persons
desiring to purchase them in any trading market that may develop in the future
should be aware that there may be significant state blue sky law restrictions on
the ability of investors to sell and on purchasers to buy DDR Systems, Inc.'s
securities. Investors may be unable to sell their stock in DDR Systems, Inc.
Accordingly, investors should consider the secondary market for DDR Systems,
Inc.'s securities to be a limited one. Investors may be unable to resell their
stock without the significant expense of state registration or qualification.
Investors May Face Significant Restrictions on the Resale of DDR Systems, Inc.
Stock Due to Federal Penny Stock Regulations
The Securities and Exchange Commission has adopted a number of rules to regulate
"penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4,
15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934.
The rules require broker-dealers to make certain disclosures regarding penny
stocks to potential buyers, and make a determination based upon information
provided by the potential buyer about such buyer's suitability for investing in
penny stocks. Because DDR Systems, Inc.'s securities will constitute "penny
stock" within the meaning of the rules, the rules would apply to DDR Systems,
Inc. and its securities. The rules may further affect the ability of owners of
DDR Systems, Inc.'s shares to sell their securities in any market that may
develop for them. There may be a limited market for penny stocks, due to the
regulatory burdens on broker-dealers. The market among dealers may not be
active. Investors in penny stock often are unable to sell stock back to the
dealer that sold them the stock. The mark ups or commissions charged by the
broker-dealers may be greater than any profit a seller may make. Because of
large dealer spreads, investors may be unable to sell the stock immediately back
to the dealer at the same price the dealer sold the stock to the investor. In
some cases, the stock
5
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may fall quickly in value. Investors may be unable to reap any profit from any
sale of the stock, if they can sell it at all.
Shareholders should be aware that, according to the Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include:
. control of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer;
. manipulation of prices through prearranged matching of purchases and sales
and false and misleading press releases;
. "boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
. excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
. the wholesale dumping of the same securities by promoters and broker-
dealers after prices have been manipulated to a desired level, along with the
inevitable collapse of those prices with consequent investor losses.
USE OF PROCEEDS
This prospectus is part of a registration statement that permits selling
shareholders to sell their shares on a continuous or delayed basis in the
future. Because this prospectus is solely for the purpose of selling
shareholders, DDR Systems, Inc. will not receive any proceeds from the sale of
stock being offered.
DETERMINATION OF OFFERING PRICE
This offering is solely for the purpose of allowing DDR Systems, Inc.'s
shareholders to sell their stock. The selling shareholders may sell their
shares when the registration statement becomes effective, or they may elect to
sell some or all of their shares at a later date. As the market develops, the
selling shareholders will determine the price for the stock. DDR Systems, Inc.
has 12,300,000 shares of common stock issued and outstanding, of which
10,000,000 shares were issued on June 3, 1999 at $0.001 per share, and 2,300,000
shares were issued on December 5, 1999. All stock was issued based on a
valuation by the Board of Directors. No sale of DDR Systems, Inc.'s common
stock has ever been sold from one investor to another and the last issue of
stock from treasury occurred on December 5, 1999, when a total of 2,300,000
shares of DDR Systems, Inc. common stock were sold at a price of $0.045 per
share.
DILUTION
This offering is for sales of stock by existing DDR Systems, Inc. shareholders
on a continuous or delayed basis in the future. Sales of common stock by
shareholders will not result in any substantial change to the net tangible book
value per share before and after the distribution of shares by the selling
shareholders. There will be no change in net tangible book value per share
attributable to cash payments made by purchasers of the shares being offered.
Prospective investors should be aware, however, that the price of DDR Systems,
Inc.'s shares may not bear any rational relationship to net tangible book value
per share.
SELLING SHAREHOLDERS
The following are the shareholders for whose accounts the shares are being
offered; the amount of securities owned by such shareholder prior to this
offering; the amount to be offered for such shareholder's account; and the
amount to be owned by such shareholder following completion of the offering.
Other than as disclosed below, no selling
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shareholder holds or has held during the past three years any position, office,
or other material relationship with DDR Systems, Inc.
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Number of
Position with Number of Number of Shares After
Name Company Shares Owned Shares Offered Sale/1/
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Green Grove Trading Limited None 575,000 575,000 0
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World Wise Traders Limited None 575,000 575,000 0
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Gauntlett Limited None 575,000 575,000 0
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Valonia Limited None 575,000 575,000 0
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/1/ This table assumes that each of the above named shareholders will sell
all of its shares available for sale during the effectiveness of the
registration statement that includes this prospectus. Shareholders are not
required to sell their shares. See "Plan of Distribution."
PLAN OF DISTRIBUTION
This is not an underwritten offering. This prospectus is part of a registration
statement that permits selling shareholders to sell their shares on a continuous
or delayed basis in the future. Selling shareholders may sell their shares to
the public when the registration statement becomes effective, or they may elect
to sell some or all of their shares at a later date. DDR Systems, Inc. has not
committed to keep the registration statement effective for any set period of
time.
While the registration statement is effective, selling shareholders may sell
their shares directly to the public, without the aid of a broker or dealer, or
they may sell their shares through a broker or dealer if DDR Systems, Inc.'s
stock is authorized for inclusion on the OTC bulletin board. Any commission,
fee or other compensation of a broker or dealer would depend on the brokers or
dealers involved in the transaction. The selling shareholders have not entered
into any arrangements, or understandings with any brokers or dealers to
facilitate the sale of DDR Systems, Inc.'s stock.
No public market currently exists for shares of DDR Systems, Inc.'s common
stock. DDR Systems, Inc. intends to apply to have its shares traded on the OTC
bulletin board under the symbol "DDRS". DDR Systems, Inc. has not taken any
actions to have its shares traded on the OTC bulletin board.
DESCRIPTION OF CAPITAL STOCK
The following description of DDR Systems, Inc.'s capital stock is a summary of
the material terms of DDR Systems, Inc.'s capital stock and does not purport to
be complete. This summary is subject to and qualified in its entirety by DDR
Systems, Inc.'s articles of incorporation and bylaws, which are included as
exhibits to the registration statement of which this prospectus forms a part,
and by the applicable provisions of Washington State law.
DDR Systems, Inc.'s authorized capital consists of 100,000,000 shares of common
stock, par value $.001 per share and 20,000,000 of preferred stock, par value
$.001 per share. Immediately prior to this offering, 12,300,000 common shares
were issued and outstanding. Each record holder of common stock is entitled to
one vote for each share held on all matters properly submitted to the
shareholders for their vote. The articles of incorporation do not permit
cumulative voting for the election of directors, and shareholders do not have
any preemptive rights to purchase shares in any future issuance of DDR Systems,
Inc.'s common stock.
Because the holders of shares of DDR Systems, Inc.'s common stock do not have
cumulative voting rights, the holders of more than 50% of DDR Systems, Inc.'s
outstanding shares, voting for the election of directors, can elect
7
<PAGE>
all of the directors to be elected, if they so choose. In such event, the
holders of the remaining shares will not be able to elect any of DDR Systems,
Inc.'s directors.
The holders of shares of common stock are entitled to dividends, out of funds
legally available therefor, when and as declared by the Board of Directors. The
Board of Directors has never declared a dividend and does not anticipate
declaring a dividend in the future. In the event of liquidation, dissolution or
winding up of the affairs of DDR Systems, Inc., holders are entitled to receive,
ratably, the net assets of DDR Systems, Inc. available to shareholders after
payment of all creditors.
All of the issued and outstanding shares of common stock are duly authorized,
validly issued, fully paid, and non-assessable. To the extent that additional
shares of DDR Systems, Inc.'s common stock are issued, the relative interests of
existing shareholders may be diluted.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Neither Bedinger & Co (Auditors) or Vandeberg Johnson & Gandara (Legal Counsel)
was employed on a contingent basis in connection with the registration or
offering of DDR Systems, Inc.'s common stock.
DESCRIPTION OF BUSINESS
General
DDR Systems, Inc. was incorporated under the laws of the State of Washington on
June 3, 1999, and is in its early developmental and promotional stages. To
date, DDR Systems, Inc.'s only activities have been organizational, directed at
acquiring its principal asset, raising its initial capital and developing its
business plan. DDR Systems, Inc. has not commenced commercial operations. DDR
Systems, Inc. has no full time employees and owns no real estate.
Product Description
DDR Systems, Inc.'s principal asset is a licensed Digital Data Recorder product
line. Simply put the Digital Data Recorders are high speed digital tape
recorders that are capable of recording information relayed by several types of
satellites and aircraft. The recorder operates basically the same as a VCR with
all the same play, fast forward, rewind, record, scheduled operation, etc.
functions. The product line is unique in that it can record information from
satellites at speeds required by those satellites. The licensed product line
consists of Digital Data Recorders capable of recording at speeds up to 40
Megabits per second. The Digital Data Recorders that are configured for
laboratory and onsite use. Models consist of laboratory, rack mount and
portable versions. These products provide low cost portable digital data
recording and playback to the satellite and aircraft telemetry industries.
The License
On June 3, 1999, DDR Systems, Inc. acquired from Reach Technologies Inc. the
rights to distribute the Reach Technologies Inc. Digital Data Recorder product
line for the purpose of selling the product in the telemetry and remote sensing
marketplace. DDR Systems, Inc., which at the time was owned by a one third
shareholder in Reach Technologies Inc., paid for the license by issuing stock to
the shareholder in Reach Technologies Inc. There were no negotiations between
the parties with regard to the acquisition.
DDR Systems, Inc.'s business plan is to conduct a market analysis, and then hire
sales staff to begin marketing the Digital Data Recorder product line.
Under its license with Reach Technologies Inc., DDR Systems, Inc. has the
exclusive right to distribute and market the Reach Technologies Inc. licensed
product line in Washington DC, Virginia, West Virginia, Maryland, Pennsylvania,
New York, Connecticut, Massachusetts, Vermont, New Hampshire, Maine, Ohio,
Kentucky and Tennessee for an initial period beginning June 3, 1999, expiring
January 31, 2003. To retain this right, DDR Systems, Inc. must purchase a
minimum amount of product based on pricing established in the license agreement
during each
8
<PAGE>
of the three years of its license, beginning February 1, 2000. DDR Systems, Inc.
is required to purchase $50,000 of the product by January 31, 2001, and a
further $100,000 by January 31, 2002, and a further $100,000 by 2003 to retain
its license. The current price to DDR Systems, Inc. for the product line is as
follows:
<TABLE>
<CAPTION>
Product Model Number Wholesale Price
(US Dollars)
<S> <C> <C>
Digital Data Recorder (benchtop)
DAT based recorder DDR-4mm 12,170
Exabyte based recorder DDR-8mm 13,650
DLT based recorder DDR-DLT 16,700
Digital Data Recorder (portable)
(PRICE DOES NOT INCLUDE IBM LAPTOP PC)
DAT based recorder DDR-P-4mm 12,170
Exabyte based portable DDR-P-8mm 13,220
Digital Data Recorder (options)
RS-422 I/O option (2 channels) DDR-RS422 870
Differential ECL I/O option DDR-ECL 870
Additional PCM Channel DDR-PCM 3,480
IRIG Time Code input option DDR-IRIG 1,740
GPS Time input option DDR-GPS 2,610
2 GB High Speed Disk option DDR-Disk-2GB 870
4 GB High Speed Disk option DDR-Disk-4GB 1,300
Shipping case for portable DDR-Case 390
</TABLE>
Reach Technologies Inc. may change the price on 30 days' notice.
The license agreement expires January 30, 2003, and may be renewed by DDR
Systems, Inc. for additional three year periods so long as DDR Systems, Inc. is
not in default. Any renewal agreement will be subject to the same minimum
purchase requirement structure except that the minimum purchase amount in each
year would be calculated as the greater of $120,000 and 65% of DDR Systems,
Inc.'s prior years audited revenue. The agreement may be terminated by DDR
Systems, Inc. at any time upon notice to Reach Technologies Inc., and by Reach
Technologies Inc. for cause, which includes breach of the agreement; the
bankruptcy or insolvency of DDR Systems, Inc.; or the conviction of DDR Systems,
Inc., its officers or directors, of any crime involving moral turpitude.
Background To Development Of The Product
Reach Technologies Inc. began developing its Data Recorder product line in 1993.
These Digital Data Recorders are used in satellite ground station development
and operations as well as aircraft testing. The licensed product line consists
of a Digital Data Recorder that can record radio telemetry data, from satellites
or aircraft, onto magnetic recording tape or disk at serial data rates up to 40
Megabits per second. The recorded information can be played back using the same
unit. This products support several digital tape formats for low data rates as
well as fixed and removable hard disks.
These products, to be sold by DDR Systems, Inc. provide low cost portable
digital data recording and playback to the satellite and aircraft telemetry
industries. The products do this by relying on high performance personal
computers, advanced digital tape and modern hard disk technology, custom
hardware developments and innovative ways to provide real-time data handling
capabilities to the non real-time Microsoft Windows 98 environment and in
9
<PAGE>
the Windows NT environment. The fastest product is in a range that satisfies the
needs of many existing satellite systems.
The fields of science and technology that are involved in the technology
include:
. Digital data recording devices;
. computer software (real-time systems and graphical user interfaces); and
. custom and off-the-shelf computer hardware.
The technology is proprietary and not patented. The technology behind the
licensed product line was developed when Reach Technologies realized that many
data recorder products were not user friendly and did not support commercial-
off-the-shelf (COTS) disk and tape transports. This meant that competitors had
high life cycle costs as a result of expensive media, increased maintenance, and
calibration requirements. By supporting COTS the product line was able to gain a
competitive edge against long established competitors in the industry. All the
Digital Data Recorders share the same architecture and support the same
transport devices. The difference between models is in the supported telemetry
interfaces and the maximum sustained serial data rates for recording and
playback.
Reach Technologies Inc. has successfully sold and installed its Digital Data
Recorder with sixteen companies, many of which are fortune 500.
About The Product
DDR Systems, Inc.'s Digital Data Recorders are designed and manufactured for the
aerospace market. These recorders are designed for use in both operational
telemetry systems and for the development of telemetry systems. They are
suitable for spacecraft to ground telemetry recording and aircraft to ground
telemetry recording.
The Digital Data Recorders are designed for recording synchronous serial
telemetry data with data rates from 0 to 40 Mbps.
The Digital Data Recorders are used to record and play serial telemetry data to
and from magnetic media. Both tape and disk media are supported. The many
features, including scheduled operation, flexible Input/Output, and data
manipulation, make the recorder ideal for operational data collection systems
and for telemetry system development.
The Digital Data Recorders have a system architecture that provides support for
multiple recording devices and external interfaces. This architecture supports
the generation, manipulation, and analysis of telemetry data by the recorder.
These features make the recorder a powerful tool in telemetry applications. The
recorder consists of transport applications that control the recording media,
interface applications that control the external interfaces, and a Connection
Manager that controls the inter-connection and communication between these
devices. The Digital Data Recorder is based on the standard Intel PC platform
running either Windows 98 or Windows NT.
The Digital Data Recorder supports commercial-off-the-shelf (COTS) disk and tape
transports with SCSI interfaces. The use of COTS components provides low life
cycle costs as a result of inexpensive media, reduced maintenance, and no
calibration requirements. Selection of the recording media is based on the
maximum data rate, recording duration, and cost considerations.
Application Of Product To The Telemetry And Remote Sensing Marketplace
DDR Systems, Inc. believes that the Digital Data Recorder product can be
successfully sold into the telemetry and remote sensing marketplace. In general
competitors do not support COTS and as a result their products are expensive to
manufacture and support. Reach Technologies (the Licenser) has, with little or
no marketing budget, successfully installed several data recorders with major
companies in the telemetry and remote sensing marketplace, effectively
establishing a small presence in the industry. DDR Systems, Inc. believes that
with a marketing budget and with quality product and people it will be able to
successfully compete with larger more established companies.
10
<PAGE>
Short-Term Plan of Operation For the Period Ending January 31, 2001
The initial step that DDR Systems, Inc. plans to take is to identify target
companies and develop a sales force to approach these companies. Once target
companies are identified, DDR Systems, Inc. will develop a marketing budget.
DDR Systems, Inc. anticipates that it would raise the required budget capital by
one or more private offerings of its common stock.
DDR Systems, Inc. plans to cooperate with and future licensees that have license
rights in other territories to establish referral sale relationships. To date no
other company has received a license. DDR Systems, Inc. is therefore unable to
elaborate on what if any those arrangements might be.
Reach Technologies Inc. has indicated that experience shows the typical sales
cycle for the product is 6 to 8 months from lead generation to order. The
license agreement with Reach Technologies Inc. that provides the rights to
distribute the product includes a minimum purchase requirement that must be met
by January 31, 2001, 2002 and 2003. Because the sales cycle is typically long
and the offering under this prospectus is solely for selling shareholders, DDR
Systems, Inc. will need to raise funds to develop its license rights. By
raising additional funds through the sale of common stock or securities
convertible into common stock, the ownership interest of holders of existing
shares of DDR Systems, Inc.'s common stock will be diluted.
Although the product offers low life cycle costs as a result of inexpensive
media, reduced maintenance, and no calibration requirements, there is no
guarantee that the telemetry and remote sensing marketplace, the primary target
market, will conclude that reduced costs are worth not dealing with established
companies already in the marketplace. DDR Systems, Inc. recognizes this fact.
To address this possibility, DDR Systems, Inc. does not discount other business
opportunities that may be available to it, whether in the form of asset
acquisitions or business combinations. DDR Systems, Inc.'s officer and director,
Glenn Jones, may devote a portion of the time he devotes to DDR Systems, Inc.
evaluating business opportunities that may be available. DDR Systems, Inc. has
had no discussions with any third parties regarding business opportunities. Any
asset acquisition or business combination would likely include the issuance of a
significant amount of DDR Systems, Inc.'s common stock, which would dilute the
ownership interest of holders of existing shares of DDR Systems, Inc.'s common
stock.
Industry Conditions and Competition
DDR Systems, Inc. is currently aware several products that compete directly in
its primary target market but is unaware of any other product that uses a
standard PC platform running Windows to implement the recorder. It is possible
that another company could develop a similar product that uses a standard PC
platform running Windows to implement the recorder to compete directly with DDR
Systems, Inc.'s product. DDR Systems, Inc. may have to compete with such
companies in the future. DDR Systems, Inc. does not yet know whether the sale of
the product will result in profitability. It does know, however, that if the
application turns out to be successful, it will hold an exclusive license in
Washington DC, Virginia, West Virginia, Maryland, Pennsylvania, New York,
Connecticut, Massachusetts, Vermont, New Hampshire, Maine, Ohio, Kentucky and
for an initial period beginning June 3, 1999, expiring January 31, 2003, as long
as it meets its minimum purchase requirements.
Employees
DDR Systems, Inc. is a development stage company and currently has no employees.
DDR Systems, Inc. is currently managed by Glenn Jones and Katherine Finnigan,
its only officers and directors. DDR Systems, Inc. looks to Mr. Jones for his
entrepreneurial skills and talents. His experience includes working with Reach
Technologies Inc. since its inception in 1993. He has spent years working for
large high tech companies like Hewlett Packard (2 years) and Macdonald Dettwiler
and Associates (10 years). DDR Systems, Inc. looks to Ms. Finnigan for her
financial skills and talents. Ms. Finnigan has extensive financial experience,
covering a broad spectrum of businesses. Her experience includes working for a
mutual fund and most recently as the Director of Finance for an Internet service
provider. For a complete discussion of Mr. Jones' and Ms. Finnigan's
experience, please see "Directors and Executive Officers."
11
<PAGE>
Management plans to use consultants, attorneys and accountants as necessary and
does not plan to engage any full-time employees in the near future. Once DDR
Systems, Inc. completes its marketing plan, its priority will shift to
implementing that plan. The marketing plan would focus on two major goals:
identifying the most likely prospects for installing the Digital Data Recorders
and retaining one or more qualified individuals to market product to those
prospects. DDR Systems, Inc. would hire marketing employees based on the
projected size of the market and the compensation necessary to retain qualified
sales employees. A portion of any employee compensation likely would include
the right to acquire stock in DDR Systems, Inc., which would dilute the
ownership interest of holders of existing shares of DDR Systems, Inc.'s common
stock.
Available Information
DDR Systems, Inc. has filed with the Securities and Exchange Commission a
registration statement on Form S-1 with respect to the common stock offered by
this prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are parts of the registration
statement. For further information with respect to DDR Systems, Inc. and its
common stock, see the registration statement and the exhibits and schedules
thereto. Any document DDR Systems, Inc. files may be read and copied at the
Commission's Public Reference Room located at 450 Fifth Street N.W., Washington
D.C. 20549, and the public reference rooms in New York, New York, and Chicago,
Illinois. Please call the Commission at 1-800-SEC-0330 for further information
about the public reference rooms. DDR Systems, Inc.'s filings with the
Commission are also available to the public from the Commission's website at
http://www.sec.gov.
Upon completion of this offering, DDR Systems, Inc. will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, accordingly, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the
Commission's public reference rooms, and the website of the Commission referred
to above.
DESCRIPTION OF PROPERTY
DDR Systems, Inc. currently maintains limited office space, occupied by Mr.
Jones, for which it pays no rent. Its address is 3650 West 30/th/ Avenue,
Vancouver, British Columbia V6S 1W8, CANADA, and its phone number is (604) 454-
8377. DDR Systems, Inc. does not believe that it will need to obtain additional
office space at any time in the foreseeable future until its business plan is
more fully implemented, at which time it may need office facilities. It is
intended that any such facilities would be located in Blaine or Ferndale,
Washington.
LEGAL PROCEEDINGS
DDR Systems, Inc. is not a party to any material pending legal proceedings, and
none of its property is the subject of a pending legal proceeding. Further, the
officer and director knows of no legal proceedings against DDR Systems, Inc. or
its property contemplated by any governmental authority.
MARKET PRICE OF AND DIVIDENDS ON CAPITAL
STOCK AND OTHER SHAREHOLDER MATTERS
No established public trading market exists for DDR Systems, Inc.'s securities.
DDR Systems, Inc. has no common equity subject to outstanding purchase options
or warrants. DDR Systems, Inc. has no securities convertible into its common
equity. There is no common equity that could be sold pursuant to Rule 144 under
the Securities Act or that DDR Systems, Inc. has agreed to register under the
Securities Act for sale by shareholders. Except for this offering, there is no
common equity that is being, or has been publicly proposed to be, publicly
offered by DDR Systems, Inc.. The principal operations of DDR Systems, Inc.
have not yet commenced.
DDR Systems, Inc. has 12,300,000 shares of common stock issued and outstanding,
of which 10,000,000 shares were issued on June 3, 1999 at $0.001 per share,
2,300,000 shares were issued on December 5, 1999. All stock was
12
<PAGE>
issued based on a valuation by the Board of Directors. No sale of DDR Systems,
Inc.'s common stock has ever been sold from one investor to another and the last
issue of stock from treasury occurred on December 5, 1999, when a total of
2,300,000 shares of DDR Systems, Inc. common stock were sold from treasury at a
price of $0.45 per share.
Upon effectiveness of the registration statement that includes this prospectus,
2.3 million of DDR Systems, Inc.'s 12.3 million outstanding shares will be
eligible for sale.
To date DDR Systems, Inc. has not paid any dividends on its common stock and
does not expect to declare or pay any dividends on its common stock in the
foreseeable future. Payment of any dividends will depend upon DDR Systems,
Inc.'s future earnings, if any, its financial condition, and other factors as
deemed relevant by the Board of Directors.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements appearing elsewhere in this prospectus.
The statement of operations data set forth below for the period from June 3,
1998, (inception) to the eight months ended, and the balance sheet data at
December 31, 1999, are derived from DDR Systems, Inc.'s audited financial
statements included elsewhere in this prospectus. The historical results are not
necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
Inception to
December 31, 1999
------------------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $Nil
====
Loss from continuing operations $ 17,066
========
Loss per share from continuing operations $Nil
====
As of
December 31, 1999
BALANCE SHEET DATA:
Total assets $105,577
========
Total liabilities $ 19,143
========
</TABLE>
DDR Systems, Inc. is in its early developmental and promotional stages. To
date, DDR Systems, Inc.'s only activities have been organizational, directed at
acquiring its principal asset, raising its initial capital and developing its
business plan. DDR Systems, Inc. has not commenced commercial operations. As a
result, the selected financial data presented above bear no resemblance to the
results that DDR Systems, Inc. expects when it begins operations. See "Risk
Factors," "Description of Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements, the accuracy of which
involves risks and uncertainties. We use words such as "anticipates,"
"believes," "plans," "expects," "future," "intends" and similar expressions to
identify forward-looking statements. Prospective investors should not place
undue reliance on these forward-
13
<PAGE>
looking statements, which apply only as of the date of this prospectus. DDR
Systems, Inc.'s actual results could differ materially from those anticipated in
these forward-looking statements for many reasons, including the risks faced by
DDR Systems, Inc. described in "Risk Factors" and elsewhere in this prospectus.
The following discussion and analysis should be read in conjunction with DDR
Systems, Inc.'s Financial Statements and Notes thereto and other financial
information included elsewhere in this prospectus.
Results of Operations
During the period from June 3, 1999, (inception) through the seven months ended
December 31, 1999, DDR Systems, Inc. has engaged in no significant operations
other than organizational activities, acquisition of the rights to market the
Reach Technologies Inc. licensed product line and preparation for registration
of its securities under the Securities Act of 1933. No revenues were received
by DDR Systems, Inc. during this period.
For the current fiscal year, DDR Systems, Inc. anticipates incurring a loss as a
result of organizational expenses, expenses associated with registration under
the Securities Act of 1933, and expenses associated with setting up a company
structure to begin implementing its business plan. DDR Systems, Inc. expects
that expenses such as state annual report fees, qualifications to do business
and the like, including related attorney fees, will not exceed $10,000. The
costs associated with filing this registration statement, and DDR Systems,
Inc.'s expenses associated with applying for DDR Systems, Inc.'s shares to trade
on the OTC bulletin board are not expected to exceed $29,000 and will be
expensed. The extent of these costs will depend primarily on the states in
which a market maker would want DDR Systems, Inc.'s shares to be qualified.
With respect to costs of implementing its business plan, it is difficult to
estimate DDR Systems, Inc.'s cost of a market analysis. DDR Systems, Inc.
estimates the total cost of market analysis, assuming difficulty in gathering
information and other unforeseen difficulties, would not exceed $40,000. DDR
Systems, Inc. anticipates that until these procedures are completed, it will not
generate revenues, and may continue to operate at a loss thereafter, depending
upon the performance of the business. DDR Systems, Inc. anticipates that current
fiscal year losses will be approximately to $100,000.
Liquidity and Capital Resources
DDR Systems, Inc. remains in the development stage and, since inception, has
experienced no significant change in liquidity or capital resources or
shareholders' equity. Consequently, DDR Systems, Inc.'s balance sheet as of
December 31, 1999, reflects total assets of $115,577 in the form of cash,
furniture and equipment and the license agreement with Reach Technologies Inc.
DDR Systems, Inc. expects to carry out its plan of business discussed above. In
addition, DDR Systems, Inc. may engage in a combination with another business.
DDR Systems, Inc. cannot predict the extent to which its liquidity and capital
resources will be diminished prior to the consummation of a business combination
or whether its capital will be further depleted by the operating losses (if any)
of the business entity with which DDR Systems, Inc. may eventually combine. DDR
Systems, Inc. has not engaged in discussions concerning potential business
combinations and there currently are no business acquisitions that are probable.
DDR Systems, Inc. may need additional capital to carry out its business plan or
to engage in a business combination. No commitments to provide additional funds
have been made by management or other shareholders. Accordingly, there can be
no assurance that any additional funds will be available on terms acceptable to
DDR Systems, Inc. or at all. DDR Systems, Inc. has no commitments for capital
expenditures.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Bedinger & Company has served as DDR Systems, Inc.'s independent auditor since
inception, and DDR Systems, Inc. has not had any dispute with Bedinger & Company
over accounting or financial disclosure.
14
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each director and
executive officer of DDR Systems, Inc.:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NAME AGE POSITION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Glenn Jones 38 President, Secretary, Treasurer, Director
- -----------------------------------------------------------------------------------------------------------
Katherine Finnigan 34 Chief Financial Officer
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Mr. Jones became a director and officer of DDR Systems, Inc.'s in June 1999. In
1986, Mr. Jones graduated from the University of British Columbia with a degree
in Electrical Engineering. During the past seven years, Mr. Jones has worked
with Reach Technologies Inc. as a Director and the head of research and
development. While initially working with Reach Technologies, Inc., Mr. Jones
worked for two years as an engineer in the Telcom Test Division of Hewlett
Packard. Mr. Jones has also worked for ten years as an engineer with MacDonald
Dettwiler and Associates (a wholly owned subsidiary of Orbital Sciences Inc.), a
Satellite Ground Station developer. Mr. Jones devotes approximately 40% of his
time to his position in Reach Technologies, Inc., conducting research and
development.
Ms. Finnigan became a director and officer of DDR Systems, Inc.'s in December
1999. During the past 4 years, Ms. Finnigan has worked as the Director of
Finance of Axion Internet, Inc., an Internet service provider. In the prior 2
years, Ms. Finnigan worked in corporate accounting for Planvest financial, a
mutual fund dealer and subsidiary of CM Oliver, Inc. a brokerage house. Prior to
that Ms. Finnigan was the Chief Financial Officer of the Kinsman Rehabilitation
Foundation, a non profit organization. Ms. Finnigan brings extensive financial
experience drawn from the broad spectrum of businesses described above.
The directors named above will serve until the first annual meeting of DDR
Systems, Inc.'s shareholders. Thereafter, directors will be elected for one-year
terms at the annual shareholders' meeting. Officers will hold their positions
at the pleasure of the board of directors. No employment agreements currently
exist or are being contemplated. There is no arrangement or understanding
between the directors and officers of DDR Systems, Inc. and any other person
pursuant to which any director or officer is to be selected as a director or
officer.
The directors and officers of DDR Systems, Inc. will devote their time to DDR
Systems, Inc.'s affairs on an "as needed" basis. As a result, the actual amount
of time that they will devote to DDR Systems, Inc.'s affairs is not consistent
and is likely to vary substantially from month to month.
EXECUTIVE COMPENSATION
No officer or director has received any remuneration from DDR Systems, Inc.
Although there is no current plan in existence, it is possible that DDR Systems,
Inc. will adopt a plan to pay or accrue compensation to its officers and
directors for services related to the implementation of DDR Systems, Inc.'s
business plan. DDR Systems, Inc. has no stock option, retirement, incentive,
defined benefit, actuarial, pension or profit-sharing programs for the benefit
of directors, officers or other employees, but the Board of Directors may
recommend adoption of one or more such programs in the future. DDR Systems,
Inc. has no employment contract or compensatory plan or arrangement with any
executive officer of DDR Systems, Inc. The Directors currently do not receive
any cash compensation from DDR Systems, Inc. for their service as members of the
board of directors. There is no compensation committee, and no compensation
policies have been adopted. See "Certain Relationships and Related
Transactions."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1999:
. DDR Systems, Inc.'s outstanding common stock owned or beneficially owned by
each executive officer and director;
15
<PAGE>
. DDR Systems, Inc.'s outstanding common stock owned or beneficially owned by
each person who owned of record, or was known by DDR Systems, Inc. to own
beneficially, more than 5% of DDR Systems, Inc.'s common stock;
. The shareholdings of all executive officers and directors as a group.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Percentage of
Name Shares Owned Shares Owned
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Glenn Jones, President, Secretary, Treasurer, and Director 10,000,000 81.2%
W 12/th/ Ave
Vancouver, B.C. Canada V6
- ------------------------------------------------------------------------------------------------------------------------
ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP (2 Individual) 10,000,000 81.2%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
All shares are held of record and each record shareholder has sole voting and
investment power. DDR Systems, Inc. knows of no one who has the right to
acquire beneficial ownership in DDR Systems, Inc. common stock. Other than the
sale of DDR Systems, Inc. stock contemplated by this prospectus, there are no
arrangements known to DDR Systems, Inc. the operation of which may at a
subsequent date result in a change of control of DDR Systems, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as discussed below, no director, executive officer or nominee for
election as a director of DDR Systems, Inc., and no owner of five percent or
more of DDR Systems, Inc.'s outstanding shares or any member of their immediate
family has entered into or proposed any transaction (other than the license
agreement itself) in which the amount involved exceeds $60,000. The initial
shareholder, Glenn Jones, is an one third shareholder in Reach Technologies
Inc., the licenser of DDR Systems, Inc.'s right to distribute the Reach
Technologies Inc. licensed product line. If DDR Systems, Inc. succeeds in
implementing its business plan, DDR Systems, Inc. will make payments to Reach
Technologies Inc. in the future that will exceed $60,000, although the resulting
benefits to Mr. Jones may not exceed $60,000.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
DDR Systems, Inc.'s bylaws provide that DDR Systems, Inc. will indemnify its
officers and directors for costs and expenses incurred in connection with the
defense of actions, suits, or proceedings against them on account of their being
or having been directors or officers of DDR Systems, Inc., absent a finding of
negligence or misconduct in the performance of duty.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling DDR Systems,
Inc. pursuant to the forgoing provisions, DDR Systems, Inc. has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable.
16
<PAGE>
INDEX TO FINANCIAL STATEMENTS
DDR Systems, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
<S> <C>
Independent Auditor's Report F-2
Balance Sheet as of December 31, 1999.......................................................... F-3
Statement of Operations from June 3, 1999 (Date of Inception) to December 31, 1999............. F-4
Statement of Stockholders' Equity from June 3, 1999 (Date of Inception) to December 31, 1999... F-5
Statement of Cash Flows from June 3, 1999 (Date of Inception) to December 31, 1999............. F-6
Notes to the Financial Statements.............................................................. F-7 to F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
January 21, 2000
Board of Directors
DDR Systems, Inc.
Vancouver, B. C. Canada
We have audited the accompanying balance sheet of DDR Systems, Inc. (Company),
as of December 31, 1999 and the related statements of operations and accumulated
deficit, stockholders' equity and of cash flows for the seven months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements at December 31, 1999 present fairly, in
all material respects, the financial position of DDR Systems, Inc. as of
December 31, 1999 and the results of its operations and its cash flows for the
seven month period then ended, in conformity with generally accepted accounting
principles.
/s/ Bedinger & Company
Bedinger & Company
Certified Public Accountants
Walnut Creek, California
F-2
<PAGE>
DDR SYSTEMS, INC,
BALANCE SHEET
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
- ------
CURRENT ASSETS
- --------------
Cash $ 103,500
---------
TOTAL CURRENT ASSETS 103,500
---------
Furniture & equipment (net) (Note A)
Cost 2,077
Accumulated depreciation (242)
---------
Net 1,835
---------
License agreement (Note B)
Cost 10,000
Accumulated amortization (1,628)
---------
Net 8,372
---------
TOTAL ASSETS $ 113,707
=========
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $ 19,143
---------
TOTAL CURRENT LIABILITIES 19,143
---------
COMMITMENT (Note B)
STOCKHOLDERS' EQUITY (Note C)
- -----------------------------
Preferred stock, par value $,001; 20,000,000
shares authorized; 0 issued and outstanding --
Common stock, par value $,001; 100,000,000
shares authorized; issued and outstanding 12,300,000 12,300
Additional paid in capital 101,200
Accumulated deficit (18,936)
---------
TOTAL STOCKHOLDERS' EQUITY 94,564
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 113,707
=========
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
DDR SYSTEMS, INC,
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
SEVEN MONTHS ENDED DECEMBER 31,1999
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
COSTS AND EXPENSES
- ------------------
Communication $ 517
Depreciation and amortization 1,870
Marketing and promotion 2,458
Office 13
Professional fees 4,000
Travel 10,078
---------
TOTAL EXPENSES 18,936
---------
NET LOSS (18,936)
ACCUMULATED DEFICIT:
Beginning --
---------
Ending $ (18,936)
=========
BASIC AND DILUTED
LOSS PER SHARE (Note A) $ (0.001)
=========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
DDR SYSTEMS, INC,
STATEMENT OF STOCKHOLDERS' EQUITY
SEVEN MONTHS ENDED DECEMBER 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------------------------ Additional
Number of Paid-in
Shares Amount Capital
------------- --------------- --------------
<S> <C> <C> <C>
BALANCES
June 3, 1999 -- $ -- $ --
Shares issued
during the period 12,300,000 12,300 101,200
BALANCES
---------- -------- --------
December 31, 1999 12,300,000 $ 12,300 $101,200
========== ======== ========
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
DDR SYSTEMS, INC.
STATEMENT OF CASH FLOWS
SEVEN MONTHS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(18,936)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,870
CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES:
Increase in current liabilities:
Accounts payable and accrued expenses 19,143
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,077
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture
and equipment (2,077)
Acquisition of license agreement (10,000)
--------
NET CASH <USED> FOR INVESTING ACTIVITIES (12,077)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 103,500
Issuance of common stock for license agreeme 10,000
--------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 113,500
--------
NET INCREASE IN CASH 103,500
CASH, beginning of period -
--------
CASH, end of period $103,500
========
</TABLE>
SUPPLEMENTAL DISCLOSURE:
No significant amounts of interest or taxes were paid during the period shown
above.
See Notes to Financial Statements
F-6
<PAGE>
DDR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEVEN MONTHS ENDED DECEMBER 31, 1999
- -----------------------------------------------------------
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
- --------------------------------------------------------------------
POLICIES
- --------
Organization
- ------------
The Company was incorporated under the laws of the state of Washington on June
3, 1999. On June 3, 1999, the Company entered into an agreement with Reach
Technologies, Inc., a Washington Corporation. Under the terms of this agreement
and concurrent with incorporation, the Company issued 10,000,000 of its common
stock to Glenn Jones, the President of Reach Technologies, Inc, The agreement
allows the Company to sell a digital data recorder product line in the
northeastern United States.
The Company's principal business plan is to seek immediate earnings by
exploiting the license agreement with Reach Technologies, Inc. The Company
plans to conduct market analysis, hire sales staff and begin marketing the
Digital Data Recorder product line.
Summary of Significant Accounting Principles
- --------------------------------------------
a. Accounting estimates
- -----------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b. Basic earnings per share
- ----------------------------
Basic loss per share have been calculated in conformity with Financial
Accounting Standards Board Statement No. 128 "Earnings per Share". The Company
has a simple capital structure with no significant potential common shares.
Basic loss per share is calculated on the weighted average number of common
shares outstanding during the period (1999-12,300,000).
F-7
<PAGE>
DDR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEVEN MONTHS ENDED DECEMBER 31, 1999
- -----------------------------------------------------------
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Summary of Significant Accounting Principles
- --------------------------------------------
c. Office furniture and equipment
- ----------------------------------
Office furniture and equipment purchases are capitalized and the cost
depreciated over the estimated useful lives of the related assets, generally
five to seven years. Office furniture and equipment abandoned is written off at
the time of the abandonment.
d. License agreement
- --------------------
The license agreement with Reach Technologies Inc. has been capitalized and the
cost will be amortized over the estimate useful life of the asset - three years
and seven months, commencing in June 3, 1999.
e. Issuance of Common Stock
- ---------------------------
The issuance of common stock for other than cash is recorded by the Company at
managements estimate of the fair value of the assets acquired or service
rendered.
f. Income taxes
- ---------------
No taxes are payable for the seven months ended December 31, 1999. See Note D
regarding the net operating loss carryforward
NOTE B - LICENSE AGREEMENT WITH RELATED PARTY
- ---------------------------------------------
On June 3, 1999, DDR Systems, Inc acquired from Reach Technologies, Inc. the
rights to distribute the Reach Technologies Inc. Digital Date Recorder product
line for the purpose of selling the product in the telemetry and remote sensing
marketplace. The licensed product line consists of 0 to 40 Megabit per second
Digital Data Recorders that are configured for laboratory and onsite use.
Models consist of laboratory, rack mount and portable versions. DDR Systems,
Inc., which at the time was owned by one investor-participant in Reach
Technologies Inc. paid for the license by issuing stock to the innestar-
participant in Reach Technologies, Inc.
F-8
<PAGE>
DDR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEVEN MONTHS ENDED DECEMBER 31, 1999
- -----------------------------------------------------------
Under license with Reach Technologies, Inc., DDR Systems, Inc. has the exclusive
right to distribute and market the Reach Technologies, Inc. licensed product
line in Washington DC, Virginia, West Virginia, Maryland, Pennsylvania, New
York,
NOTE B - LICENSE AGREEMENT (Continued)
- --------------------------------------
Connecticut, Massachusetts, Vermont, New Hampshire, Maine, Ohio, Kentucky and
Tennessee for an initial period beginning June 3, 1999, expiring January 31,
2003. To retain this right, DDR Systems, Inc. must purchase a minimum amount of
product based on pricing established in the license agreement during each of the
two years of its license, beginning February 1, 2000. DDR systems, Inc. is
required to purchase $50,000 of the Reach Technologies Inc. licensed product
line by January 31, 2001, a further $100,000 by January 31, 2002, and a further
$100,000 by 2003 to retain its license. The current price for the Reach
Technologies Inc. licensed product line is as follows:
<TABLE>
<CAPTION>
Product Model Number Wholesale Price
(US Dollars)
Digital Date Recorder (benchtop)
<S> <C> <C>
DAT based recorder DDR-4mm $12,170
Exabyte based recorder DDR-8mm 13,650
DLT based recorder DDR-DLT 16,700
Digital Date Recorder (portable)
(price does not include IBM
Laptop PC)
DAT based recorder DDR-P-4mm 12,170
Exabyte based Portable DDR-P-8mm 13,220
Digital Date Recorder (options)
RS-422 I/O option (2 channels) DDR-RS422 870
Differential ECL I/O option DDR-ECL 870
Additional PCM Channel DDR-PCM 3,480
IRIG Time Code input option DDR-IRIG 1,740
GPS Time input option DDR-GPS 2,610
2 GB High Speed Disk option DDR-Disk-2GB 870
4 GB High Speed Disk option DDR-Disk-2GB 1,300
Shipping case for portable DDR-Case 390
</TABLE>
F-9
<PAGE>
DDR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEVEN MONTHS ENDED DECEMBER 31, 1999
- -----------------------------------------------------------
Reach Technologies Inc. may change the price on a 30 day notice.
NOTE B -LICENSE AGREEMENT (Continued)
- -------------------------------------
The license agreement expires January 31, 2003, and may be renewed by DDR
Systems, Inc. for additional three year periods so long as DDR Systems, Inc. is
not in default. Any renewal agreement will be subject to the same minimum
purchase requirement structure except that the minimum purchase amount in each
year would be calculated as the greater of $120,000 and 65% of DDR Systems,
Inc.'s prior years audited revenue. The agreement may be terminated by DDR
Systems, Inc. at any time upon notice to Reach Technologies Inc., and by Reach
Technologies Inc. for any cause, which includes breach of the agreement, the
bankruptcy or insolvency of DDR Systems, Inc.; or the conviction of DDR Systems,
Inc.; or the convictions of DDR Systems, Inc. its officers or directors, of any
crime involving moral turpitude.
NOTE C- COMMON STOCK
- --------------------
During the period December 31, 1999 the Company issued a total of 12,300,000
shares. 10,000,000 shares were issued at $0.001 per share in exchange for the
license agreement. 2,300,000 shares were issued at $0.045 per share for cash of
$103,500.
NOTE - D NET OPERATING LOSS CARRYFORWARD
- ----------------------------------------
The Company's net operating loss for the seven months ended December 31, 1999 of
$18,936 may be utilized through the year ended December 31, 2019. SFAS No. 109
requires a valuation allowance to be recorded when it is more likely than not
that some or all of the deferred tax assets will not be realized. At December
31, 1999 a valuation allowance for the full amount of the net deferred tax asset
was recorded because of uncertainties as to the amount of taxable income that
would be generated in future years.
F-10
<PAGE>
Prospectus
___________ __, 2000
DDR SYSTEMS, INC.
3650 w. 30/th/ Ave
Vancouver, British Columbia V6S 1W8, CANADA
(604) 454-8377
2,300,000 Shares of Common Stock
to be sold by current shareholders
DDR Systems, Inc. has not authorized any dealer, salesperson or other person to
give you written information other than this prospectus or to make
representations as to matters not stated in this prospectus. You must not rely
on unauthorized information. This prospectus is not an offer to sell these
securities or a solicitation of your offer to buy the securities in any
jurisdiction where that would not be permitted or legal. Neither the delivery of
this prospectus nor any sales made hereunder after the date of this prospectus
shall create an implication that the information contained herein or the affairs
of DDR Systems, Inc. have not changed since the date hereof.
Until _____________ ___, 2000 (90 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The securities are being registered for the account of selling shareholders.
All of the following expenses will be borne by DDR Systems, Inc. The amounts set
forth are estimates except for the SEC registration fee:
<TABLE>
<S> <C>
SEC registration fee $ 27.33
Printing and engraving expenses 5,000
Attorneys' fees and expenses 20,000
Accountants' fees and expenses 2,000
Transfer agent's and registrar's fees and expenses 500
Miscellaneous 965
----------------
Total $28,492.33
----------------
</TABLE>
Item 14. Indemnification of Directors and Officers.
Pursuant to Washington State law, a corporation may indemnify an individual made
a party to a proceeding because the individual is or was a director against
liability incurred in the proceeding if the individual acted in good faith; and
he or she reasonably believed that, in the case of conduct in the individual's
official capacity with the corporation, his or her conduct was in its best
interests; in cases not involving his or her official capacity, his or her
conduct was at least not opposed to its best interests; and in the case of any
criminal proceeding, he or she had no reasonable cause to believe the conduct
was unlawful. A corporation is prohibited from indemnifying a director in
connection with a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation, in connection with any other
proceeding charging improper personal benefit to the director, whether or not
involving action in the director's official capacity, in which the director was
adjudged liable on the basis that personal benefit was improperly received by
the director.
The articles of DDR Systems, Inc., filed as Exhibit 3.1, provide that DDR
Systems, Inc. will indemnify its directors to the full extent permitted under
Washington state law. The bylaws of DDR Systems, Inc., filed as Exhibit 3.2,
provide that DDR Systems, Inc. will indemnify and hold harmless each person who
was, is or is threatened to be made a party to or is otherwise involved in any
threatened proceedings by reason of the fact that he or she is or was a Director
or officer of the corporation or is or was serving at the request of the
corporation as a Director, officer, partner, trustee, employee or agent of
another entity, against all losses, claims, damages, liabilities and expenses
actually and reasonably incurred or suffered in connection with such proceeding.
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding the issuance and sales of DDR Systems,
Inc.'s securities without registration since its formation. No such sales
involved the use of an underwriter and no commissions were paid in connection
with the sale of any securities.
a. On June 3, 1999, DDR Systems, Inc. issued a total of 10,000,000 shares
of common stock to Glenn Jones. The issuance was compensation for the license of
the Reach Technologies Inc. licensed product line rights. The offer and the sale
of the stock were exempt from registration under Rule 504 of Regulation D under
Section 3(b) of the Securities Act of 1933, as amended. If the exemption under
Rule 504 of Regulation D is not available, then DDR Systems, Inc. believes that
this offering is also exempt under Rule 506 and under Section 4(2) of the
Securities Act of 1933, as amended.. Mr. Jones was a founder and director of
DDR Technologies, Inc., and therefore an accredited investor at the time he
received the offer to purchase and at the closing of the purchase of the stock.
Mr. Jones agreed to resell such securities only in accordance with the
provisions of Regulation D, pursuant to registration, or pursuant to an
available exemption from
II-1
<PAGE>
registration. The stock contains a legend to the effect that transfer is
prohibited except in accordance with the provisions of Regulation D, pursuant to
registration, or pursuant to an available exemption from registration. DDR
Systems, Inc. will refuse to register any transfer of the Stock not made in
accordance with the provisions of Regulation D, pursuant to registration, or
pursuant to an available exemption from registration.
b. On December 5, 1999 DDR Systems, Inc. issued a total of 2,300,000
shares of common stock to four foreign corporations. The issuance of the common
stock was exempt from registration under Regulation S. Each entity was a
foreign corporation at the time it received the offer to purchase and at the
closing of the purchase of the stock, and did not acquire the stock for the
account or benefit of any U.S. person. Each corporation agreed to resell such
securities only in accordance with the provisions of Regulation S, pursuant to
registration, or pursuant to an available exemption from registration. The
stock contains a legend to the effect that transfer is prohibited except in
accordance with the provisions of Regulation S, pursuant to registration, or
pursuant to an available exemption from registration. DDR Systems, Inc. will
refuse to register any transfer of the Stock not made in accordance with the
provisions of Regulation S, pursuant to registration, or pursuant to an
available exemption from registration.
Item 16(a). Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Name Page
<C> <S> <C>
3.1 Articles of Incorporation, restated as
amended June 3, 1999.
3.2 Bylaws
4.1* Specimen Share of Common Stock
5.1* Opinion re: Legality
10.1 License Agreement
23.1 Consent of Independent Auditors.
23.2* Consent of Counsel (see Exhibit 5.1)
27.1 Financial Data Schedule.
</TABLE>
*To be filed by amendment.
Item 16(b). Financial Statement Schedules.
As of December 31, 1999, DDR Systems, Inc.:
. has no valuation or qualifying accounts
. does not have a substantial portion of its business devoted to acquiring and
holding for investment real estate or interests therein
. has no subsidiaries
. has no investments in mortgage loans on real estate.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed
II-2
<PAGE>
that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Vancouver, Province of
British Columbia, CANADA, on January 25, 2000.
DDR SYSTEMS, INC.
/s/ Glenn Jones
--------------------------
By Glenn Jones
Its President
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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Glenn Jones President, Secretary, Treasurer, and Director January 25, 2000
- -----------------
Glenn Jones
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Name Page
<C> <S> <C>
3.1 Articles of Incorporation
3.2 Bylaws
4.1* Specimen Share of Common Stock
5.1* Opinion re: Legality
10.1 License Agreement
23.1 Consent of Independent Auditors.
23.2* Consent of Counsel (see Exhibit 5.1)
27.1 Financial Data Schedule.
</TABLE>
*To be filed by amendment.
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION OF
DDR SYSTEMS, INC.
The undersigned, for the purpose of forming a corporation under the Washington
Business Corporation Act, hereby adopts the following Articles of Incorporation.
ARTICLE I
The name of the corporation is "DDR Systems, Inc.".
ARTICLE II
2.1. Authorized Capital
The total number of shares that this corporation is authorized to issue is
120,000,000, consisting of 100,000,000 shares of Common Stock having a par value
of $0.0001 per share and 20,000,000 shares of Preferred Stock having a par value
of $0.0001 per share. The Common Stock is subject to the rights and preferences
of the Preferred Stock as set forth below.
2.2. Issuance of Preferred Stock by Class and in Series
The Preferred Stock may be issued from time to time in one or more classes and
one or more series within such classes in any manner permitted by law and the
provisions of these Articles of Incorporation, as determined from time to time
by the Board of Directors and stated in the resolution or resolutions providing
for its issuance, prior to the issuance of any shares. The Board of Directors
shall have the authority to fix and determine and to amend the designation,
preferences, limitations and relative rights of the shares (including, without
limitation, such matters as dividends, redemption, liquidation, conversion and
voting) of any class or series that is wholly unissued or to be established.
Unless otherwise specifically provided in the resolution establishing any class
or series, the Board of Directors shall further have the authority, after the
issuance of
<PAGE>
Articles of Incorporation
EXO-WEB.COM, Inc.
shares of a class or series whose number it has designated, to amend
the resolution establishing such class or series to decrease the number of
shares of that class or series, but not below the number of shares of such class
or series then outstanding.
ARTICLE III
The purpose of this corporation is to engage in any business, trade or
activity that may lawfully be conducted by a corporation organized under the
Washington Business Corporation Act and to engage in any and all such activities
as are incidental or conducive to the attainment of the foregoing purpose or
purposes.
ARTICLE IV
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
ARTICLE V
The right to cumulate votes in the election of Directors shall not
exist with respect to shares of stock of this corporation.
ARTICLE VI
6.1. Number of Directors
The Board of Directors shall be composed of not less than one nor more
than nine Directors. Except with respect to the initial Director, the specific
number of Directors shall be set by resolution of the Board of Directors or, if
the Directors in office constitute fewer than a quorum
Page 2 of 10
<PAGE>
Articles of Incorporation
EXO-WEB.COM, Inc.
of the Board of Directors, by the affirmative vote of a majority of all the
Directors in office. The number of Directors of this corporation may be
increased or decreased from time to time in the manner provided herein, but no
decrease in the number of Directors shall have the effect of shortening the term
of any incumbent Director.
6.2. Classification of Directors
The Directors shall be divided into three classes, with each class to
be as nearly equal in number as possible, as specified by resolution of the
Board of Directors or, if the Directors in office constitute fewer than a quorum
of the Board of Directors, by the affirmative vote of a majority of all the
Directors in office. The term of office of Directors of the first class shall
expire at the first annual meeting of shareholders after their election. The
term of office of Directors of the second class shall expire at the second
annual meeting after their election. The term of office of Directors of the
third class shall expire at the third annual meeting after their election. At
each annual meeting after such classification, a number of Directors equal to
the number of the class whose term expires at the time of such meeting shall be
elected to hold office until the third succeeding annual meeting. Absent his or
her death, resignation or removal, a Director shall continue to serve despite
the expiration of the Director's term until his or her successor shall have been
elected and qualified or until there is a decrease in the number of Directors.
Page 3 of 10
<PAGE>
Articles of Incorporation
EXO-WEB.COM, Inc.
6.3. Removal of Directors
The shareholders may remove one or more Directors with or without
cause, but only at a special meeting called for the purpose of removing the
Director or Directors, and the meeting notice must state that the purpose, or
one of the purposes, of the meeting is removal of the Director or Directors.
6.4. Vacancies on Board of Directors
If a vacancy occurs on the Board of Directors, including a vacancy
resulting from an increase in the number of Directors, the Board of Directors
may fill the vacancy, or, if the Directors in office constitute fewer than a
quorum of the Board of Directors, they may fill the vacancy by the affirmative
vote of a majority of all the Directors in office. The shareholders may fill a
vacancy only if there are no Directors in office.
6.5. Initial Board of Directors
The initial Board of Directors shall consist of one Director, who
shall be in the first class of Directors, and the name and address of the person
who shall serve as such Director until the first annual meeting of shareholders
or until his successor is elected and qualified is:
James L. Vandeberg Vandeberg Johnson & Gandara
One Union Square, Suite 2424
600 University Street
Seattle, Washington 98101-1192
Page 4 of 10
<PAGE>
Articles of Incorporation
EXO-WEB.COM, Inc.
ARTICLE VII
This corporation reserves the right to amend or repeal any of the provisions
contained in these Articles of Incorporation in any manner now or hereafter
permitted by the Washington Business Corporation Act, and the rights of the
shareholders of this corporation are granted subject to this reservation.
ARTICLE VIII
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of this corporation, subject to the power of the shareholders to amend or
repeal such Bylaws. The shareholders shall also have the power to amend or
repeal the Bylaws of this corporation and to adopt new Bylaws.
ARTICLE IX
9.1. Shareholder Actions
Any action required or permitted to be taken at a shareholders meeting may be
taken without a meeting or a vote if either:
(a) the action is taken by written consent of all shareholders entitled to
vote on the action; or
(b) so long as this corporation is not a public company, the action is taken
by written consent of shareholders holding of record, or otherwise entitled to
vote, in the aggregate not
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EXO-WEB.COM, Inc.
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote on the action
were present and voted.
To the extent that the Washington Business Corporation Act requires prior
notice of any such action to be given to nonconsenting or nonvoting
shareholders, such notice shall be made prior to the date on which the action
becomes effective, as required by the Washington Business Corporation Act. The
form of the notice shall be sufficient to apprise the nonconsenting or nonvoting
shareholder of the nature of the action to be effected, in a manner approved by
the Directors of this corporation or by the committee or officers to whom the
Board of Directors has delegated that responsibility.
9.2. Number of Votes Necessary to Approve Actions
Whenever the Washington Business Corporation Act permits a corporation's
articles of incorporation to specify that a lesser number of shares than would
otherwise be required shall suffice to approve an action by shareholders, these
Articles of Incorporation hereby specify that the number of shares required to
approve such an action shall be such lesser number.
9.3. Special Meetings of Shareholders
So long as this corporation is a public company, special meetings of the
shareholders of the corporation for any purpose may be called at any time by the
Board of Directors or, if the Directors in office constitute fewer than a quorum
of the Board of Directors, by the affirmative vote
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EXO-WEB.COM, Inc.
of a majority of all the Directors in office, but such special meetings may not
be called by any other person or persons.
9.4. Quorum for Meetings of Shareholders.
Except with respect to any greater requirement contained in these Articles of
Incorporation or the Washington Business Corporation Act, one-third of the votes
entitled to be cast on a matter by the holders of shares that, pursuant to the
Articles of Incorporation or the Washington Business Corporation Act, are
entitled to vote and be counted collectively upon such matter, represented in
person or by proxy, shall constitute a quorum of such shares at a meeting of
shareholders.
ARTICLE X
To the full extent that the Washington Business Corporation Act, as it exists
on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of Directors, a Director of this corporation shall
not be liable to this corporation or its shareholders for monetary damages for
conduct as a Director. Any amendments to or repeal of this Article X shall not
adversely affect any right or protection of a Director of this corporation for
or with respect to any acts or omissions of such Director occurring prior to
such amendment or repeal.
ARTICLE XI
11.1. Indemnification.
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EXO-WEB.COM, Inc.
The corporation shall indemnify its directors to the full extent permitted by
the Washington Business Corporation Act now or hereafter in force. However, such
indemnity shall not apply on account of: (a) acts or omissions of the director
finally adjudged to be intentional misconduct or a knowing violation of law; (b)
conduct of the director finally adjudged to be in violation of RCW 23B.08.310;
or (c) any transaction with respect to which it was finally adjudged that such
director personally received a benefit in money, property, or services to which
the director was not legally entitled. The corporation shall advance expenses
for such persons pursuant to the terms set forth in the Bylaws, or in a separate
Board resolution or contract.
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Articles of Incorporation
EXO-WEB.COM, Inc.
11.2. Authorization.
The Board of Directors may take such action as is necessary to carry out these
indemnification and expense advancement provisions. It is expressly empowered
to adopt, approve, and amend from time to time such Bylaws, resolutions,
contracts, or further indemnification and expense advancement arrangements as
may be permitted by law, implementing these provisions. Such Bylaws,
resolutions, contracts or further arrangements shall include but not be limited
to implementing the manner in which determinations as to any indemnity or
advancement of expenses shall be made.
11.3. Effect of Amendment.
No amendment or repeal of this Article shall apply to or have any effect on
any right to indemnification provided hereunder with respect to acts or
omissions occurring prior to such amendment or repeal.
ARTICLE XII
The name and address of the incorporator is:
Vicki E. Orrico Vandeberg Johnson & Gandara
One Union Square, Suite 2424
600 University Street
Seattle, Washington 98101-1192
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The incorporator's authority on behalf of this corporation is limited to forming
it by the filing of these Articles of Incorporation, and the incorporator has no
further power or authority on behalf of the corporation, express or implied, by
virtue of being the incorporator.
ARTICLE XIII
The street address of the initial registered office of the corporation is
Vandeberg Johnson & Gandara, One Union Square, Suite 2424, 600 University
Street, Seattle, Washington 98101-1192, Attn: James L. Vandeberg. The name of
its initial registered agent at that address is Cowan & Gandara, P.S.
IN WITNESS WHEREOF, the incorporator has signed these Articles of
Incorporation this 2nd day of June, 1999.
/s/ Vicki E. Orrico
--------------------------
Vicki E. Orrico
Incorporator
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<PAGE>
CONSENT TO APPOINTMENT AS REGISTERED AGENT
------------------------------------------
The undersigned, having been appointed as registered agent of EXO-WEB.COM,
INC., does hereby consent to such appointment and agrees to serve as registered
agent for the corporation.
DATED this 2nd day of June, 1999.
COWAN & GANDARA, P.S.
By /s/ Kinne F. Hawes
-------------------
Kinne F. Hawes
Its Vice President
Address of Registered Agent:
Vandeberg Johnson & Gandara
One Union Square, Suite 2424
600 University Street
Seattle, Washington 98101-1192
Attn: James L. Vandeberg
<PAGE>
EXHIBIT 3.2
BYLAWS OF
DDR SYSTEMS, INC., INC.
ARTICLE 1
Meetings of Shareholders
------------------------
SECTION 1.1 - Meetings. Shareholder meetings shall be held at the
----------------------
principal office of the corporation, or at such other location within or without
the State of Washington as shall be determined by the Board of Directors (the
"Board") and stated in the notice of meeting. The exact time at which the
meeting shall commence shall be determined by the president or other person or
persons who call the meeting and set forth in the notice of meeting.
SECTION 1.2 - Annual Meeting. The regular annual meeting of the
----------------------------
shareholders for the election of directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on such day
and at such time during the one month preceding or four months following the
close of the corporation's fiscal year as shall be determined each year by the
Board. If such annual meeting is omitted by oversight or otherwise during such
period, a subsequent annual meeting may nonetheless be held, and any business
transacted or elections held at such meeting shall be as valid as if the annual
meeting had been held during the period provided above.
SECTION 1.3 - Special Meetings. Special meetings of the shareholders may
------------------------------
be called at any time by the president, a majority of the Board, or any
shareholder or shareholders holding in the aggregate not less than one-fourth of
all shares entitled to vote at the special meeting; provided, however, that so
long as the corporation is a public company, special meetings of the
shareholders for any purpose may be called only by the Board of Directors or, if
the Directors in office constitute fewer than a quorum of the Board of
Directors, by the affirmative vote of a majority of all the Directors in office,
but such special meetings may not be called by shareholders or any other person
or persons.
SECTION 1.4 - Notice. Written notice stating the place, day, and hour of
--------------------
the meeting, and in case of a special meeting the purpose or purposes for which
the meeting is called, shall be delivered not less than ten (10) days nor more
than sixty (60) days before the date of the meeting, either personally, by
facsimile transmission, or by mail, by or at the direction of the president, the
secretary, or the person or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If by facsimile transmission, such
notice shall be deemed to be delivered when received by the intended recipient.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, addressed to the shareholder at his or her
address as it appears on the stock transfer books of the corporation. Each
shareholder shall be responsible for providing the secretary with the
shareholder's current mailing address to which notices of meetings and all other
corporate notices may be served upon or mailed to him or her. A shareholder may
waive any notice required for any meeting by executing a written waiver of
notice either before or after said meeting and such waiver shall be equivalent
to the giving of such notice. A shareholder shall be deemed to have waived
notice of any meeting which the shareholder attends
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<PAGE>
if the shareholder participates in the meeting for any purpose other than to
object to the conduct of the meeting without proper notice having been given.
SECTION 1.5 - Quorum. A majority of the shares entitled to vote,
--------------------
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. When a quorum is present at any meeting, the affirmative vote of
the majority of the shares represented at the meeting, entitled to vote on the
subject matter, and actually voting on the subject matter, shall be the act of
the shareholders, unless otherwise provided by law or by the articles of
incorporation or bylaws of the corporation.
SECTION 1.6 - Adjournment. A majority of the shares represented at a
-------------------------
meeting, even if less than a quorum, may adjourn the meeting from time to time
without further notice. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally stated in the notice of meeting. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 1.7 - Chairman of Meeting. The president, or in his or her absence
---------------------------------
a chairman elected by the shareholders present, shall call the meetings of the
shareholders to order and shall act as the presiding officer thereof.
SECTION 1.8 - Secretary of Meeting. The secretary shall act as a secretary
----------------------------------
at all meetings of the shareholders, and in his or her absence, the presiding
officer may appoint any person to act as secretary.
SECTION 1.9 - Voting. Each outstanding share shall be entitled to one vote
--------------------
on each matter submitted to a vote at a meeting of shareholders.
SECTION 1.10 - Conduct of Meeting. Shareholder meetings shall be conducted
---------------------------------
in an orderly and fair manner, but the presiding officer shall not be bound by
any technical rules of parliamentary procedure.
SECTION 1.11 - Proxies. At all meetings of shareholders, a shareholder may
----------------------
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Such proxy shall be filed with the secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
SECTION 1.12 - Shareholder Advisor. A shareholder or holder of a valid
----------------------------------
proxy may be accompanied at any shareholders' meeting by one personal advisor,
but no such advisor may address the meeting without the consent of the presiding
officer.
2
<PAGE>
SECTION 1.13 - Recording of Proceedings. The proceedings of a
---------------------------------------
shareholders' meeting may not be mechanically or electronically recorded other
than by the secretary or acting secretary without the express approval of all
individuals in attendance at the meeting.
SECTION 1.14 - Record Date. For the purpose of determining shareholders
--------------------------
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
may by resolution fix in advance a date as the record date for any such
determination of shareholders. Such date in any case shall not be more than
sixty (60) days and, in case of a meeting of shareholders, not less than ten
(10) days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed by the
Board, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board declaring such dividend is adopted, as the case may
be, shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof.
SECTION 1.15 - List of Shareholders. The secretary of the corporation
-----------------------------------
shall make a complete record of the shareholders entitled to vote at a meeting
of shareholders, or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each as shown on the
corporation's stock transfer books on the record date. Such record shall be
kept on file at the registered office of the corporation for a period of ten
(10) days prior to the meeting of shareholders. Such record shall be produced
and kept open at the time and place of the shareholders' meeting and shall be
subject to the inspection of any shareholder during the meeting for any proper
purpose.
SECTION 1.16 - Shareholder Consent. Any action which may be taken at a
----------------------------------
meeting of the shareholders may be taken without a meeting or a vote if: (a)
the action is taken by written consent of all shareholders entitled to vote on
the action; or (b) so long as this corporation is not a public company, the
action is taken by written consent of shareholders holding of record, or
otherwise entitled to vote, in the aggregate not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote on the action were present and voted.
SECTION 1.17 - Attendance by Conference Telecommunication. Shareholders may
---------------------------------------------------------
participate in a meeting of the shareholders by means of a conference telephone
or similar communications equipment, by means of which all persons participating
in the meeting can hear each other at the same time, and participation by such
means shall constitute presence in person at a meeting.
ARTICLE 2
Directors
---------
SECTION 2.1 - Authority and Size of Board. The business and affairs of the
-----------------------------------------
corporation shall be managed by a board of not less than one nor more than nine
directors. The specific number
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<PAGE>
of directors shall be set by resolution of the Board of Directors or, if the
directors in office constitute fewer than a quorum of the Board of Directors, by
the affirmative vote of a majority of all the directors in office. The number of
directors of this corporation may be increased or decreased from time to time in
the manner provided herein, but no decrease in the number of directors shall
have the effect of shortening the term of any incumbent director. The directors
shall be divided into three classes, with each class to be as nearly equal in
number as possible, as specified by resolution of the Board of Directors or, if
the directors in office constitute fewer than a quorum of the Board of
Directors, by the affirmative vote of a majority of all the directors in office.
The term of office of directors of the first class shall expire at the first
annual meeting of shareholders after their election. The term of office of
directors of the second class shall expire at the second annual meeting after
their election. The term of office of directors of the third class shall expire
at the third annual meeting after their election. At each annual meeting after
such classification, a number of directors equal to the number of the class
whose term expires at the time of such meeting shall be elected to hold office
until the third succeeding annual meeting. Absent his or her death, resignation
or removal, a director shall continue to serve despite the expiration of the
director's term until his or her successor shall have been elected and qualified
or until there is a decrease in the number of directors.
SECTION 2.2 - Qualifications of Directors. Any person of lawful age may be
- -----------------------------------------
elected a director of the corporation.
SECTION 2.3 - Vacancies. Any vacancy occurring in the Board, unless caused by
-----------------------
the vote of the shareholders, shall be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board. A
director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office.
SECTION 2.4 - Annual Meeting. The annual meeting of the Board shall be held
----------------------------
immediately following the adjournment of the annual meeting of shareholders at
the principal office of the corporation, or at such other time and place as may
be designated for the holding of the annual meeting of shareholders pursuant to
Article 1 hereof. The Directors shall meet to elect officers and transact any
other business.
SECTION 2.5 - Regular Meetings. Regular meetings of the Board shall be held
------------------------------
at the principal office of the corporation, or at such time and place as may be
determined from time to time by the Board, either within or without this State.
SECTION 2.6 - Special Meetings. Special meetings of the Board may be held at
------------------------------
such time and place, within or without the State of Washington, upon the written
or telephonic call of either the president or by any two (2) directors.
SECTION 2.7 - Notices. Notices of regular or special meetings of the Board
---------------------
stating the date, time, place, and in general terms the purpose or purposes
thereof shall be delivered to each director, by mailing written notice or
transmitting notice by facsimile machine not less than five (5) days before the
meeting, except that no notice shall be required of (i) a meeting held at a time
and place fixed by the Bylaws or by resolution of the Board, or (ii) a meeting
at which the entire board
4
<PAGE>
is present, or (iii) the reconvening of a meeting pursuant to adjournment. If by
facsimile transmission, such notice shall be deemed to be delivered when
received by the intended recipient. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, addressed
to the director at the address provided to the secretary. An entry of the
service of notice, given in the manner above provided, shall be made in the
minutes of the proceedings of the Board, and such entry, if read and approved at
the subsequent meeting of the Board, shall be conclusive on the question of
service. A director may waive any notice required for any meeting by executing a
written waiver of notice either before or after said meeting, and such waiver
shall be equivalent to the giving of such notice. A director shall be deemed to
have waived notice of any meeting which the director attends if the director
participates in the meeting for any purpose other than to object to the conduct
of the meeting without proper notice having been given.
SECTION 2.8 - Quorum. A majority of the number of directors shall constitute
--------------------
a quorum for the transaction of business. Unless otherwise provided in these
Bylaws, the act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board. A majority of those present at
the time and place of any regular or special meeting, although less than a
quorum, may adjourn from time to time, without further notice, until a quorum
shall attend. When a quorum shall attend, any business may be transacted which
might have been transacted at the meeting had the same been held on the date
stated in the notice of meeting.
SECTION 2.9 - Attendance by Conference Telecommunication. Members of the
--------------------------------------------------------
Board may participate in a meeting of such Board by means of a conference
telephone or similar communications equipment, by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
SECTION 2.10 - Consent to Action. Any action which may be taken at a meeting
--------------------------------
of the Board, or at a meeting of any committee of the Board, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors or all the members of the committee.
Such consent shall have the same force and effect as a unanimous vote at a duly
convened meeting.
SECTION 2.11 - Removal of Director. The entire Board may be removed, with or
----------------------------------
without cause, at a special meeting of shareholders called expressly for that
purpose, by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors. Any individual director may be removed, with
or without cause, at a special meeting of shareholders called expressly for that
purpose, by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors, provided that if the shareholders are
permitted to cumulatively vote at elections for directors, then if the votes
cast against a director's removal would be sufficient to elect him or her if
then cumulatively voted at an election of the entire Board, he or she shall not
be removed. Any vacancy caused by such removal shall be filled by the
shareholders at such meeting, and any director elected to fill such vacancy
shall serve only for the unexpired term of his or her predecessor in office.
5
<PAGE>
SECTION 2.12 - Resignation of Director. Any director may resign his or her
--------------------------------------
membership on the Board at any time. Such resignation shall be made in writing
and delivered to and filed with the secretary (except that a resignation of the
secretary who is also a director shall be delivered to and filed with the
president). Resignations so made shall be effective upon acceptance by the
Board, unless some other reasonable time is stated in the resignation, and then
from the date so fixed.
SECTION 2.13 - Manifestation of Dissent. A director of the corporation who is
---------------------------------------
present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent shall be entered in the minutes of the meeting or unless he or she shall
file his or her written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered or certified mail to the secretary of the corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
ARTICLE 3
Officers and Employees
----------------------
SECTION 3.1 - Officers. The officers of the corporation shall consist of a
----------------------
president, one or more vice presidents as shall be determined by the Board, a
secretary, a treasurer and such other officers as shall be determined by the
Board. The officers of the corporation shall be elected annually by the Board
at its annual meeting, and each officer shall hold office until his or her
successor shall have been duly elected and qualified or until his or her death,
resignation, retirement or removal by the Board. A vacancy in any office may be
filled for the unexpired portion of the term by the Board. Any two (2) or more
offices may be held by the same person.
SECTION 3.2 - Removal of Officers. Any officer, agent, or employee of the
---------------------------------
corporation may be removed by the Board at any time with or without cause. Such
removal, however, shall be without prejudice to the contract rights, if any, of
the persons so removed. Election or appointment of an officer or agent or
employee shall not of itself create contract rights.
SECTION 3.3 - Resignation of Officers. Any officer may resign his or her
-------------------------------------
office at any time. Such resignation shall be made in writing and delivered to
and filed with the secretary (except that a resignation of the secretary shall
be delivered to and filed with the president). Resignations so made shall be
effective, in the case of an officer and director, upon acceptance by the Board,
and if by an officer other than a director, upon receipt by the secretary (or by
the president, as the case may be) unless some other reasonable time is stated
in the resignation, and then from the date so fixed.
SECTION 3.4 - Vacancy. If any corporate office becomes vacant by reason of
---------------------
death, resignation, removal or otherwise, the Board or the executive officer
possessing delegated authority to appoint such an officer, shall have power to
fill such vacancy. In case of the absence or disability of any officer, the
Board or the president may delegate the powers or duties of any such officer to
another officer until such time as the Board or shareholders take other action.
6
<PAGE>
SECTION 3.5 - Compensation. The Board, or a committee thereof appointed for
--------------------------
that purpose, shall establish the types and amounts of compensation for all
officers. Compensation for all other employees or agents of the corporation
shall be established by or at the direction of the president subject to
guidelines established by the Board.
SECTION 3.6 - Exercise of Rights as Shareholders. Unless otherwise ordered by
------------------------------------------------
the Board, the president, or his or her designee acting by written designation,
shall have full power and authority on behalf of the corporation to attend and
to vote at any meeting of shareholders of any corporation in which this
corporation may hold stock, other than in a fiduciary capacity, and may exercise
on behalf of this corporation any and all of the rights and powers incident to
the ownership of such stock at any such meeting, and shall have power and
authority to execute and deliver proxies and consents on behalf of this
corporation in connection with the exercise by this corporation of the rights
and powers incident to the ownership of such stock. The Board, from time to
time, may confer like powers upon any other person or persons.
SECTION 3.7 - Duties of President. The president shall be the chief executive
---------------------------------
officer of the corporation and shall have general management of the business of
the corporation. The president shall preside at all meetings of the
shareholders and at meetings of the Board. The president shall see that all
orders and resolutions of the Board are carried into effect. The president
shall have general supervision over the property, business, and affairs of the
corporation and its several officers. The president shall have the power and
shall perform the duties as are regularly and customarily performed by the chief
executive officer of a corporation and may delegate such of his or her duties as
he or she may see fit to delegate to a vice president or other officers of the
corporation. The president may appoint agents or employees other than those
appointed by the Board, and he or she shall perform such other duties as may be
prescribed from time to time by the Board or by the Bylaws.
SECTION 3.8 - Duties of Vice President. The vice president shall have such
--------------------------------------
powers and perform such duties as may be assigned to him or her by the Board.
In the absence of the president, the vice president shall be the chief executive
officer of the corporation.
SECTION 3.9 - Duties of Secretary. The secretary shall, subject to the
----------------------------------
direction of the president, keep the minutes of all meetings of the shareholders
and of the Board, and to the extent ordered by the Board or the president the
minutes of all meetings of all committees. The secretary shall cause notice to
be given of the meetings of the shareholders, of the Board, and of any committee
appointed by the Board. The secretary shall have custody of the corporate seal,
if one has been adopted, and general charge of the records, documents, and
papers of the corporation not pertaining to the performance of the duties vested
in other officers, which shall at all reasonable times be open to the
examination of any director. Without limiting the generality of the foregoing,
the secretary shall have charge (directly or through such transfer agents or
registrars as the Board may appoint) of the issuance, transfer, and registration
of certificates for shares of the corporation and of the records pertaining
thereto. Said records shall be kept in such manner as to show at any time the
number of shares of the corporation issued and outstanding, the manner in which
and the time when such shares were paid for, the names and addresses of the
holders of record thereof, the numbers and classes of shares held by each, and
the time when each became such holder of record.
7
<PAGE>
The secretary shall perform such other duties as may be assigned to him or her
by the Board or the president.
SECTION 3.10 - Duties of Treasurer. Except as otherwise set forth herein, the
----------------------------------
treasurer shall, subject to the direction of the president, have general custody
of all the property, funds and securities of the corporation and have general
supervision of the collection and disbursement of funds of the corporation. The
treasurer shall provide for the keeping of proper records of all transactions of
the corporation. The treasurer shall perform such other duties as may be
assigned to him or her by the Board or the president.
SECTION 3.11 - Other Officers. Such other officers as shall be appointed by
-----------------------------
the Board, or the president, acting pursuant to delegated authority of the
Board, shall exercise such powers and perform such duties as pertain to their
several offices, or as may be conferred upon, or assigned to, them by the Board
or the president or his or her designee.
SECTION 3.12 - Clerks and Agents. The president, or any other officer of the
--------------------------------
corporation authorized by him or her, may, subject to the supervision of the
Board, appoint such custodians, bookkeepers and other clerks, agents, and
employees as he or she shall deem advisable for the prompt and orderly
transaction of the business of the corporation and shall define their duties,
fix the salaries to be paid to them and dismiss them.
ARTICLE 4
Shares and Certificates for Shares
----------------------------------
SECTION 4.1 - Consideration. Certificates for shares of the corporation shall
---------------------------
be issued for consideration consisting of any tangible or intangible property or
benefit to the corporation, including cash, promissory notes, services
performed, contracts for services to be performed, or other securities of the
corporation, and upon a good faith determination by the Board that the
consideration received or to be received for the shares to be issued is
adequate.
SECTION 4.2 - Stock Certificates. Shares may but need not be represented by
--------------------------------
certificates. If shares are represented by certificates, the certificates shall
be in such form as designated by the Board, shall be numbered in the order in
which they shall be issued, and shall be signed by the president or by a vice-
president, and by the secretary or treasurer. The signatures may be facsimiles
if the certificate is countersigned by a transfer agent or registered by a
registrar other than the corporation or an employee of the corporation. If a
corporate seal is maintained, it or a facsimile thereof may be affixed to the
certificate. Each certificate shall state upon its face that the corporation is
organized under the laws of the State of Washington, the name of the person to
whom it is issued, and the number and class of shares which the certificate
represents, and the par value of each share represented by the certificate or a
statement that the shares are without par value. In case any officer or
officers who shall have signed or whose facsimile signature or signatures shall
have been used on any such certificate or certificates shall cease to fill such
office or offices of the corporation, whether because of death, resignation, or
otherwise, before such certificate or certificates shall have been delivered by
the corporation, such certificate or certificates may nevertheless be issued and
delivered by the corporation as though the person or persons who
8
<PAGE>
signed such certificate or certificates or whose facsimile signature or
signatures were used thereon had not ceased to fill such office or offices of
the corporation.
SECTION 4.3 - Lost Certificates. No new certificate shall be issued until the
-------------------------------
former certificate for the shares represented thereby shall have been
surrendered and canceled, except in the case of lost or destroyed certificates,
and in that case only after the receipt by the corporation of a bond or other
security or indemnification agreement, satisfactory to the Board, indemnifying
the corporation and all persons against loss in consequence of the issuance of
such new certificate.
SECTION 4.4 - Transfer of Shares. Shares of the corporation may be
--------------------------------
transferred by endorsement by the signature of the owner, his or her agent,
attorney or legal representative, and the delivery of the certificate; but no
transfer shall be valid except between the parties thereto, until the same shall
have been entered upon the books of the corporation, so as to show the names of
the parties, by and to whom transferred, the numbers and designation of the
shares and the date of transfer.
SECTION 4.5 - Holder of Record. The person registered on the books of the
------------------------------
corporation as the owner of the issued shares shall be recognized by the
corporation as the person exclusively entitled to have and to exercise the
rights and privileges incident to the ownership of such shares. Notwithstanding
the preceding sentence, the Board may adopt by resolution a procedure whereby a
shareholder may certify in writing to the corporation that all or a portion of
the shares registered in the name of such shareholder are held for the account
of a specified person or persons. Upon receipt by the corporation of a
certification complying with such an adopted procedure, the person specified in
the certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares specified in
place of the shareholder making the certification.
SECTION 4.6 - Issuance of Shares. Any shares authorized but not issued shall
--------------------------------
be issued, sold, or otherwise transferred by this corporation only upon
authorization of the Board.
SECTION 4.7 - Subscriptions. A subscription for shares of this corporation
---------------------------
shall be in writing and upon such terms as may be approved by the Board.
SECTION 4.8 - Payment of Subscriptions. A subscription for shares shall be
--------------------------------------
paid in accordance with the terms set forth in the subscription or related
subscription agreement, if any. If the subscription or subscription agreement
does not require payment on or before a stated date or at a fixed period after a
stated date, then payment shall be made in such manner and at such times as may
be determined by the Board and expressed by it in a written call for payment;
provided that the call shall be uniform as to all shares of the same class or
series and that the call shall be mailed to each subscriber at his or her last
post office address known to the corporation at least thirty (30) days in
advance of the date upon which payment or the first installment, if installment
payments are called for, is due.
SECTION 4.9 - Default in Payment of Subscriptions. If a payment required by a
-------------------------------------------------
subscription, a subscription agreement, or a call of the Board is not paid when
due, then the
9
<PAGE>
corporation may make written demand for payment upon the defaulting subscriber
by personal service or by mailing a copy of the demand to the subscriber at his
or her last post office address known to the corporation. If the payment is not
made within twenty (20) days of the serving or mailing of the demand for
payment, the corporation may terminate the subscription, forfeit the
subscriber's rights thereunder, retain as liquidated damages any sums previously
paid on the subscription, and hold and dispose of the shares as though never
subject to the subscription. In lieu of forfeiture, the corporation may proceed
to collect the amount due in the same manner as any debt due the corporation.
SECTION 4.10 - Other Rules and Regulations. The Board may make such
------------------------------------------
additional rules and regulations, not contrary to law or these Bylaws, as it may
deem expedient concerning the issuance, transfer and registration of
certificates for shares of the corporation.
ARTICLE 5
Seal
----
SECTION 5.1 - Corporate Seal. In the exercise of its discretion, the Board
----------------------------
may adopt and maintain a suitable seal for the corporation.
ARTICLE 6
Indemnification of Directors and Officers
-----------------------------------------
SECTION 6.1 - Right to Indemnification. Each person who was or is threatened
--------------------------------------
to be made a party to or is otherwise involved (including, without limitation,
as a witness) in any actual or threatened action, suit or proceeding, whether
civil, criminal, administrative or investigative, and whether formal or
informal, by reason of the fact that he or she is or was a director or officer
of the corporation or, while a director or officer, he or she is or was serving
at the request of the corporation as a director, trustee, officer, employee or
agent of another foreign or domestic corporation or of a foreign or domestic
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter "Indemnitee"), whether the basis
of such proceeding is alleged action in an official capacity while serving as a
director, trustee, officer, employee, or agent or in any other capacity while
serving as a director, trustee, officer, employee or agent, shall be indemnified
and held harmless by the corporation, to the full extent permitted by applicable
law as then in effect, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
to be paid in settlement) actually and reasonably incurred or suffered by such
Indemnitee in connection therewith, and such indemnification shall continue as
to an Indemnitee who has ceased to be a director, trustee, officer, employee or
agent and shall inure to the benefit of the Indemnitee's heirs, personal
representatives and administrators; provided, however, that no indemnification
shall be provided to any such Indemnitee if the corporation is prohibited by the
Washington Business Corporation Act or other applicable law as then in effect
from paying such indemnification; and, provided further, that except as provided
in section 6.2 with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any such Indemnitee seeking
indemnification in connection with an action or proceeding (or part thereof)
initiated by such Indemnitee only if such action or proceeding (or part thereof)
was authorized or ratified by the Board. The right to
10
<PAGE>
indemnification conferred in this section shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that the payment of such expenses in advance of the final disposition
of an action or proceeding shall be made only (1) upon delivery to the
corporation of an undertaking, by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such Indemnitee is
not entitled to be indemnified under this section or otherwise, and (2) upon
delivery to the corporation of a written affirmation (hereinafter an
"Affirmation") by the Indemnitee of his or her good faith belief that such
Indemnitee has met the standard of conduct necessary for indemnification by the
corporation pursuant to this section.
SECTION 6.2 - Right of Indemnitee to Bring Suit. If a claim under section 6.1
-----------------------------------------------
is not paid in full by the corporation within sixty (60) days after a written
claim has been received by the corporation, except in the case of a claim for
expenses incurred in defending an action or proceeding (or part thereof) in
advance of its final disposition, in which case the applicable period shall be
twenty (20) days, the Indemnitee may at any time thereafter bring suit or other
action against the corporation to recover the unpaid amount of the claim. If
successful in whole or in part, the Indemnitee shall be entitled to be paid also
the reasonable expense of prosecuting such claim. The Indemnitee shall be
presumed to be entitled to indemnification under this Article upon submission of
a written claim (and, in an action brought to enforce a claim for reasonable
expenses incurred in defending any proceeding in advance of its final
disposition, where the required undertaking and Affirmation have been tendered
to the corporation), and thereafter the corporation shall have the burden of
proof to overcome the presumption that the Indemnitee is not so entitled.
Neither the failure of the corporation (including its Board, independent legal
counsel or its shareholders) to have made a determination prior to the
commencement of such action or proceeding that indemnification of or
reimbursement or advancement of expenses to the Indemnitee is proper in the
circumstances nor an actual determination by the corporation (including its
Board, independent legal counsel or its shareholders) that the Indemnitee is not
entitled to indemnification or to the reimbursement or advancement of expenses
shall be a defense to the action or create a presumption that the Indemnitee is
not so entitled.
SECTION 6.3 - Nonexclusivity of Rights. The right to indemnification and the
--------------------------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Articles of Incorporation, Bylaws, agreement, vote of shareholders or
disinterested directors or otherwise.
SECTION 6.4 - Insurance, Contracts and Funding. The corporation may maintain
----------------------------------------------
insurance, at its expense, to protect itself and any director, trustee, officer,
employee or agent of the corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the Washington Business
Corporation Act or other applicable law then in effect. The corporation may,
without further shareholder action, enter into contracts with any director or
officer of the corporation in furtherance of the provisions of this Article and
may create a trust fund, grant a security interest or use other means
(including, without
11
<PAGE>
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this Article.
SECTION 6.5 - Indemnification of Employees and Agents of the Corporation. The
------------------------------------------------------------------------
corporation may, by action of its Board from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to employees and agents of the corporation with the same scope and
effect as the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or other applicable law then in effect.
SECTION 6.6 - Persons Serving Other Entities. Any individual who is or was a
--------------------------------------------
director, officer, or employee of the corporation who, while a director, officer
or employee of the corporation, is or was serving (a) at the request of the
corporation or as a director, trustee, officer, employee or agent of another
foreign or domestic corporation or of a foreign or domestic partnership or joint
venture, trust or other enterprise, or (b) as a trustee of an employee benefit
plan and the duties of the director or officer to the corporation also impose
duties on, or otherwise involve services by the director or officer to the plan
or to participants in or beneficiaries of the plan shall be deemed to be so
serving at the request of the corporation and entitled to indemnification and
advancement of expenses under section 6.1.
ARTICLE 7
Miscellaneous Provisions
------------------------
SECTION 7.1 - Fiscal Year. The fiscal year of the corporation shall be
-------------------------
determined by the Board.
SECTION 7.2 - Records. The Articles of Incorporation, the Bylaws, and the
---------------------
proceedings of all meetings of the shareholders, the Board and standing
committees of the Board shall be recorded in appropriate minute books provided
for that purpose. The minutes of each meeting shall be signed by the secretary
or other officer appointed to act as secretary.
SECTION 7.3 - Inspection. A copy of the Bylaws, with all amendments thereto,
------------------------
shall at all times be kept in a convenient place at the principal office of the
corporation, and shall be open for inspection of all shareholders during normal
business hours.
SECTION 7.4 - Amendments. The Bylaws may be amended, altered or repealed, at
------------------------
any regular or special meeting of the Board, by a vote of the majority of the
whole Board, provided that a written statement of the proposed action shall have
been delivered personally or by facsimile transmission or mailed to all
directors with the notice of the meeting.
12
<PAGE>
Exhibit 10.1
LICENSE AGREEMENT
-----------------
THIS AGREEMENT MADE EFFECTIVE AND EXECUTED AS OF JUNE 3, 1999 (the "Effective
Date").
BETWEEN:
Reach Technologies, Inc
-----------------------
Suite 201 - 2288 W 12th Ave
Vancouver, B.C.
V6K 4R2
("REACH")
AND:
DDR Systems, Inc.
-----------------
3650 West 30th Ave
Vancouver, B.C.
V6S 1W8
("DDR")
WHEREAS:
A. REACH (a British Columbia Corporation) is in the business producing Digital
Data Recorders;
B. DDR (a Washington Corporation) is a corporation specifically created to
market REACH'S Digital Data Recorders through the purchase of this Licensing
Agreement (the "Transaction");
C. REACH and DDR agree that this Agreement will constitute a binding agreement
upon them in respect of the Transaction, such to be on the terms and conditions
contained herein;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants
and agreements herein contained, the parties hereto do covenant and agree (the
"Agreement") each with the other as follows:
1. Representations And Warranties
------------------------------
1.1 DDR represents and warrants to REACH that DDR has good and sufficient right
and authority to enter into this Agreement and carry out its obligations under
this Agreement on the terms and conditions set forth herein, and this Agreement
is a binding agreement upon DDR enforceable against it in accordance with its
terms and conditions.
1.2 REACH represents and warrants to DDR that REACH has good and sufficient
right and authority to enter into this Agreement and carry out its obligations
under this Agreement on the terms and conditions set forth herein, and this
Agreement is a binding agreement upon REACH enforceable against it in accordance
with its terms and conditions.
<PAGE>
2. License
-------
2.1 The parties agree that, subject to the terms and conditions of this
Agreement, DDR will have the exclusive right to market and sell the Digital Data
Recorder licensed product line in Washington DC, Virginia, West Virginia,
Maryland, Pennsylvania, New York, Connecticut, Massachusetts, Vermont, New
Hampshire, Maine, Ohio, Kentucky and Tennessee from REACH.
2.2 DDR will commit to purchase $50,000 of the Reach Technologies Inc. licensed
product line by January 30, 2001, a further $100,000 by January 31, 2002, and a
further $100,000 by January 31, 2003, to retain its license. If these minimum
purchase levels are not achieved, REACH shall have the right to terminate this
agreement, immediately and without penalty.
2.3 This purchase commitment will be for a period of three years beginning
January 31, 2000.
2.4 The licensed product line consists of 0 to 40 Megabit per second Digital
Data Recorders that are configured for laboratory and onsite use. Models consist
of laboratory, rack mount and portable versions. See Appendix A for a price
list describing the product and options under licence ("the Digital Data
Recorder licensed product line").
2.5 DDR has the exclusive right to distribute and market the Digital Data
Recorder licensed product line for an initial period beginning May 10, 1999,
expiring January 31, 2003 ("the Term")
2.6 The current price for the REACH licensed product line is disclosed in
Appendix A of this License Agreement
2.7 REACH may charge its pricing on 30 days' notice.
2.8 DDR may renew this License Agreement under the same terms for additional
three-year periods, so long as DDR is not in default, by providing written
notice to REACH. Any renewal of this agreement will be subject to the same
minimum purchase requirement clause 2.1, except that the minimum purchase amount
shall be the greater of $120,000 and 65% of DDR's prior years audited revenue.
2.9 This Agreement may be terminated by DDR at any time upon notice to REACH,
and by REACH for cause, which includes breach of any of clauses 2.1 to 2.8 of
this Agreement; the bankruptcy or insolvency of DDR; or the conviction of DDR,
its officers or directors, of any crime involving moral turpitude.
2.10 As consideration for this Agreement DDR shall issue 10,000,000 in DDR
Systems, Inc. to Glenn Jones, the Presideent of REACH.
3. General
-------
3.1 Time and each of the terms and conditions of this Agreement shall be of the
essence of this Agreement.
3.2 This Agreement constitutes the entire agreement between the parties hereto
in respect of the matters referred to herein.
3.3 The parties hereto shall execute and deliver all such further documents and
do all such acts as any party may, either before or after the execution of this
Agreement, reasonably require of the other in order that the full intent and
meaning of this Agreement is carried out.
3.4 No amendment or interpretation of this Agreement shall be binding upon the
parties hereto unless such amendment or interpretation is in written form
executed by all of the parties to this Agreement.
-2-
<PAGE>
3.5 Any notice or other communication of any kind whatsoever to be given under
this Agreement shall be in writing and shall be delivered by hand, email or by
mail to the parties at:
Reach Technologies, Inc. DDR Systems, Inc.
Suite 201 - 2288 W 12th Ave 3650 West 30th Ave
Vancouver, B.C. Vancouver, B.C.
V6K 4R2 Canada V6S 1W8
Attention: Jeff Dilabough Attention: Glenn Jones
or to such other addresses as may be given in writing by the parties hereto in
the manner provided for in this paragraph.
3.6 This Agreement may not be assigned by any party hereto without the prior
written consent of all of the parties hereto.
3.7 This Agreement shall be governed by the laws of Washington State applicable
therein, and the parties hereby attorn to the jurisdiction of the Courts of
Washington State.
3.8 This Agreement may be signed by fax and in counterpart.
IN WITNESS WHEREOF the parties have hereunto set their hands and seals effective
as of the Effective Date first above written.
SIGNED, SEALED AND DELIVERED BY SIGNED, SEALED AND DELIVERED BY
REACH TECHNOLOGIES, INC. DDR SYSTEMS, INC.
per: per:
/s/ /s/
- ------------------------------------- --------------------------------
Authorized Signatory
Authorized Signatory Name of Signatory: Glenn Jones
Name of Signatory: Mike Frankenberger Title of Signatory: Director
Title of Signatory: Director
-3-
<PAGE>
Appendix A
<TABLE>
<CAPTION>
(a) Product Model Number Wholesale Price
(US Dollars)
Digital Data Recorder (benchtop)
<S> <C> <C>
DAT based recorder DDR-4mm 12,170
Exabyte based recorder DDR-8mm 13,650
DLT based recorder DDR-DLT 16,700
Digital Data Recorder (portable)
(PRICE DOES NOT INCLUDE IBM LAPTOP PC)
DAT based recorder DDR-P-4mm 12,170
Exabyte based portable DDR-P-8mm 13,220
Digital Data Recorder (options)
RS-422 I/O option (2 channels) DDR-RS422 870
Differential ECL I/O option DDR-ECL 870
Additional PCM Channel DDR-PCM 3,480
IRIG Time Code input option DDR-IRIG 1,740
GPS Time input option DDR-GPS 2,610
2 GB High Speed Disk option DDR-Disk-2GB 870
4 GB High Speed Disk option DDR-Disk-4GB 1,300
Shipping case for portable DDR-Case 390
</TABLE>
-4-
<PAGE>
EXHIBIT 23.1
Bedinger & Company
1850 Mt. Diablo, Blvd., Suite 610
Walnut Creek, California
January 21, 2000
CONSENT AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on form, S-1 of
our report dated January 21, 2000, relating to the financial statements of DDR
Systems, Inc. and to the references to our firm under the captions "Selected
Financial Data" and Experts" in the Prospectus.
Our examination of the financial statements referred to in the above-
mentioned report also included the related schedules listed under Item 16 (b).
In our opinion, such schedules present fairly the information required to be set
forth therein.
/s/ Bedinger & Company
Bedinger & Company
Certified Public Accounts
Walnut Creek, California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JUN-03-1999
<PERIOD-END> DEC-31-1999
<CASH> 103,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 103,000
<PP&E> 12,077
<DEPRECIATION> 1,870
<TOTAL-ASSETS> 113,707
<CURRENT-LIABILITIES> 19,143
<BONDS> 0
0
0
<COMMON> 113,500
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 113,707
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,936)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,936)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,936)
<EPS-BASIC> (.001)
<EPS-DILUTED> (.001)
</TABLE>
