UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 06425
SENTO TECHNICAL INNOVATIONS CORPORATION
---------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Utah 87-0284979
------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
311 North State Street
Orem, Utah 84057
---------------------------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (801) 226-6222
--------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports),and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------- -----
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 31, 1997
- ------------------------------ ---------------------------------
Common capital stock, 5,496,783
.25 par value
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
<PAGE>
SENTO TECHNICAL INNOVATIONS CORPORATION
Quarterly Report on Form 10-QSB
for the Quarter Ended December 31, 1997
INDEX
Part I - Financial Information
ITEM 1.
Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1997 and March 31, 1997
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended December 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended December 31, 1997 and 1996
Notes To Condensed Consolidated Financial Statements
ITEM 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II - Other Information
ITEM 2.
Changes in Securities
ITEM 6.
Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SENTO TECHNICAL INNOVATIONS CORPORATION
Condensed Consolidated Balance Sheets
December 31, March 31,
1997 1997
---------------- -----------
ASSETS (Unaudited)
------
Current assets:
Cash $7,315,716 $ 2,225,338
Accounts receivable, net 4,211,789 3,140,425
Other current assets 737,449 241,644
Current portion of note receivable 700,000 --
Deferred tax asset 98,917 98,917
Inventory/Work in process 351,849 155,465
----------- ------------
Total current assets 13,415,720 5,861,789
Fixed assets net of depreciation 1,013,644 711,079
Other assets (Note B) 986,658 476,400
----------- ------------
$15,416,022 $ 7,049,268
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 3,123,142 $ 2,216,634
Current portion of long-term debt 172,271 8,286
Accrued liabilities 1,091,251 260,274
Note payable 100,000 ---
Income taxes payable 232,207 132,207
Deferred maintenance revenue 1,199,844 1,099,849
Other deferred revenue 876,492 4,959
---------- ----------
Total current liabilities 6,795,207 3,722,209
---------- ----------
Long-term liabilities:
Long-term debt, excluding current portion 346,885 208,075
Convertible bond 1,000,000 ---
Deferred tax liability 5,333 5,333
Other payable 87,500 ---
Deferred revenue 408,334 ---
---------- ---------
Total long-term liabilities 1,848,052 213,408
---------- ----------
Stockholders' equity:
Common stock 1,374,196 1,087,784
Additional paid-in capital 4,499,375 1,595,376
Deferred compensation (62,500) (100,000)
Retained earnings 961,692 530,491
---------- ----------
Total stockholders' equity 6,772,763 3,113,651
---------- ----------
$15,416,022 $7,049,268
=========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
SENTO TECHNICAL INNOVATIONS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Dec 31, Nine Months Ended Dec 31,
1997 1996 1997 1996
-------------------------- -------------------------
NET SALES $5,869,373 $4,131,652 $14,536,253 $13,932,238
COST OF GOODS SOLD 4,360,183 2,627,380 10,217,500 9,074,420
---------- ---------- ----------- ----------
GROSS PROFIT 1,509,190 1,504,272 4,318,753 4,857,818
EXPENSES:
Selling, General, and
Administration 2,580,179 1,515,683 6,366,974 4,543,864
Research and Development 0 189,570 78,875 463,563
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (1,070,989) (200,981) (2,127,096) (149,609)
OTHER REVENUE AND(EXPENSES) 322,380 (28,157) 2,913,185 52,491
--------- --------- --------- --------
INCOME (LOSS) BEFORE
INCOME TAXES (748,609) (229,138) 786,089 (97,118)
PROVISION FOR INCOME TAXES (676,452) 0 276,702 33,400
---------- ---------- ---------- ---------
NET INCOME (LOSS) $ (72,157) $ (229,138) $ 509,387 $ (130,518)
========== ========== ========== =========
NET INCOME (LOSS)
PER SHARE:
Basic $ (.01) $ (.05) $ .11 $ (.03)
Diluted $ (.01) $ (.05) $ .09 $ (.03)
Number of Common and
Common Equivalent Shares
used in calculation of
Earnings Per Share
Basic 5,417,386 4,347,914 4,813,452 4,347,914
Diluted 5,417,386 4,347,914 5,760,659 4,347,914
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
Sento Technical Innovations Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended December 31,
1997 1996
-------------------------------
Cash flows from operating activities:
Net income (loss) 509,387 (130,518)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Adjustment from fiscal year end change --- 9,443
Depreciation 99,729 63,683
Amortization of deferred compensation 37,500 ---
Gain on the sale of assets (2,655,110) ---
Stock issued in lieu of compensation 233,000 ---
Decrease (increase) in assets:
Accounts receivable (381,365) (922,099)
Other current assets (732,983) (84,364)
Other assets (245,269) (148,525)
Increase (decrease) in liabilities:
Accounts payable 630,840 798,114
Accrued liabilities 138,293 (28,849)
Accrued income taxes 100,000 94,310
Deferred revenue (205,702) (46,611)
--------- -------
Net cash provided by (used in)
operating activities (2,471,680) (395,416)
--------- ---------
Cash flows from investing activities:
Business Acquisitions (1,374,440) ---
Proceeds from the sale of ASI assets 5,600,000 ---
Purchase of furniture & equipment (162,232) (602,651)
--------- ----------
Net cash provided by investing activities 4,063,328 (602,651)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of stock 2,973,915 1,592,791
Principal payments on notes payable
and capital leases (756,833) (5,892)
Proceeds from issuance of debt 281,648 ---
Proceeds from issuance of convertible bond 1,000,000 ---
--------- ----------
Net cash provided by (used in)
financing activities 3,498,730 1,586,899
--------- ----------
Net increase in cash 5,090,378 588,832
Cash at beginning of period 2,225,338 1,552,806
--------- ---------
Cash at end of period $7,315,716 $2,141,638
========== ==========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid for interest $ 28,640 $ 25,935
Cash paid for income taxes $776,702 $ 0
See accompanying notes to financial statements.
<PAGE>
SENTO TECHNICAL INNOVATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
A. BASIS OF PRESENTATION
---------------------
The Condensed Consolidated Balance Sheet as of December 31, 1997, the
Statements of Operations for the three and nine month periods ended December
31, 1997 and December 31, 1996, and the Statements of Cash Flows for the nine
month periods ended December 31, 1997 and December 31, 1996 have been prepared
by the Company without audit. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The Condensed Consolidated Balance
Sheet as of March 31, 1997 was derived from the Company's audited Consolidated
Financial Statements of such date.
Operating results for the nine months ended December 31, 1997 are not
necessarily indicative of the results that may be expected for the Company's
fiscal year ending March 31, 1998. The unaudited condensed consolidated
financial statements of the Company should be read in conjunction with the
consolidated financial statements of the Company and footnotes thereto included
in the Company's Annual Report on Form 10-KSB for the eleven months ended March
31, 1997.
B. OTHER ASSETS
------------
Other Assets at December 31, 1997 are comprised as follows:
December 31,
1997
-------------
Note Receivable from BMC 700,000
Note Receivable from Astron 240,000
Organization Expense (net) 306
Deposits 46,352
--------
$986,658
========
C. EARNINGS PER SHARE
------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). SFAS
128 became effective for financial statements with interim and annual periods
ending after December 15, 1997. Accordingly, the Company has adopted SFAS 128
for the quarter ended December 31, 1997.
SFAS 128 establishes a different method of computing earnings (loss) per share
than was required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS 128, entities with publicly held common stock are required
to present basic earnings (loss) per share and diluted earnings (loss) per
share. Basic earnings per share is the amount of earnings (loss) for the
period available to each share of common stock outstanding during the reporting
period. Diluted earnings per share is the amount of earnings (loss) for the
period available to each share of common stock outstanding during the reporting
period and to each share that would have been outstanding assuming the issuance
of common shares for all dilutive potential common shares outstanding during
the period.
Prior periods have been restated for presentation in accordance with SFAS 128.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
Sento Technical Innovations Corporation ("Sento") is the parent of Spire
Technologies, Inc. ("STI"), Spire Systems Incorporated ("SSI"), DewPoint
Distributed Solutions Incorporated ("DewPoint"), PC Business Solutions, Inc.
("PCBS"), CDG Technologies, Inc. ("CDG"), Australian Software Innovations
Limited ("ASI"), and Software Innovations Ltd. ("SIUK")(collectively, the
Company). These companies are resellers of computer software and hardware, and
also provide technical support for certain software. The Company's customers
consist of business and governmental entities, geographically dispersed
throughout the United States and abroad. Revenues from foreign sales for the
periods ended December 31, 1997 were approximately eight percent of total
sales. As a reseller, the Company is dependent on third-party suppliers, with
over seventy percent of the Company's revenues derived from products it obtains
from three suppliers.
Three Months Ended December 31, 1997 Compared to
Three Months Ended December 31, 1996
- --------------------------------------------------
Net sales for the three months ended December 31, 1997 were $5,869,373,
compared to $4,131,652 for the three months ended December 31, 1996, an
increase of 42% Much of the increase in net sales resulted from increases in
both software product sales and computer hardware sales. An additional
increase related to consulting and training sales from newly acquired product
lines. Hardware sales were $2,437,630 for the three months ended December 31,
1997, a 78% increase from sales of $1,371,744 for the three months ended
December 31, 1996. Software sales for the three months ended December 31, 1997
were $3,190,512, which was an increase of 28% from sales of $2,478,870 for the
three months ended December 31, 1996. Consulting and training sales were
$241,231 for the three months ended December 31, 1997 which represents a new
revenue line added through the acquisition of PCBS.
Gross margin decreased from 36 percent of net sales for the three months ended
December 31, 1996 to 26 percent of net sales for the comparable period in 1997.
The decrease was primarily due to the higher mix of hardware sales which carry
substantially lower profit margins than do the software sales.
Research and development expenses for the three months ended December 31, 1997
were zero, compared to $189,570 for the three months ended December 31, 1996.
This decrease represents the completion of software development on products
which have been released for general sale into the market.
Selling, general and administrative expenses for the three months ended
December 31, 1997 were $2,580,179, compared to $1,515,683 for the three months
ended December 31, 1996. This 70% increase is related to several factors:
first, the addition of two sales offices and personnel and general business
expansion; second, increased legal and accounting expenses and senior
management compensation related to the Company's acquisition and financing
activities.
<PAGE>
Nine Months Ended December 31, 1997 Compared to
Nine Months Ended December 31, 1996
- ------------------------------------------------
Net sales for the nine months ended December 31, 1997 were $14,536,253,
compared to $13,932,238 for the nine months ended December 31, 1996, an
increase of 4%. The increase in net sales resulted from increases in hardware
sales and consulting and training sales. Software sales for the nine months
ended December 31, 1997 remained virtually unchanged from the first nine months
of 1996.
Gross margin for the nine months ended December 31, 1997 was 30% of sales,
compared to 35% of sales for the comparable period in 1996. Computer hardware,
which carries lower margins represented a larger percent of sales during the
nine months ended December 31, 1997 than in the nine months ended December 31,
1996.
Research and development expenses for the nine months ended December 31, 1997
were $78,875, compared to $463,563 for the nine months ended December 31, 1996.
New versions of existing software were completed and released during the
period, eliminating new programming and its associated costs.
Selling, general and administrative expenses for the nine months ended December
31, 1997 were $6,366,974, compared to $4,543,864 for the nine months ended
December 31, 1996, an increase of 40%. This increase was primarily due to
increased legal and accounting expenses associated with projects relating to
financing activities, costs associated with the sale of the Open Aviator
technology to BMC Software, Inc. ("BMC") in July, 1997, and acquisition
activities during the period. The Company continued to incur selling and
personnel expenses associated with the Open Aviator product line while the
department was being redeployed following the sale to BMC in July. The Company
also incurred additional expenses relating to compensation for new management
team members.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its operations and capital requirements primarily
through the sale of certain assets to BMC, cash flow generated from operations,
sales of equity securities, and the sale of a convertible bond.
The Company has a $350,000 line of credit which bears interest at prime plus
two percent, secured by equipment, expiring May 1, 1999. The total amount
outstanding at December 31, 1997 was $155,524.
At December 31, 1997 the cash balance was $7,315,716, compared to $2,225,338 as
of March 31, 1997. Working capital increased from $2,139,580 at March 31, 1997
to $6,037,492 at December 31, 1997. The Company's current ratio increased from
1.97 at March 1997 to 1.81. This increase was due primarily to the cash
received from the sale to BMC of certain assets, proceeds of a private
placement completed in August 1997, and the sale of a convertible bond in July
1997.
Based on anticipated working capital requirements, the Company believes that
existing cash, cash generated from operations, and debt financing and
borrowings under the Company's existing lines of credit will be sufficient to
finance the operations of the Company in the near term. The Company continues
to evaluate opportunities for the license or acquisition of additional software
products as well as the possible acquisition of, or development of strategic
alliances with, other companies which may have products or distribution
channels that are compatible with the business objectives of the Company.
<PAGE>
Factors Affecting Future Results
- --------------------------------
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Among other
forward-looking statements contained in this report regarding the expansion of
the Company's operations and any future acquisition activities are
forward-looking statements. In addition, words such as "expects", "intends",
"believes", "anticipates", and "likely" also identify forward-looking
statements. Actual results could differ materially from those anticipated for
a number of reasons, including, among others, increased competition, a downturn
in the market for hardware and software products, increases in interest rates,
and other unanticipated factors. Risk factors, cautionary statements, and
other conditions that could cause actual results to differ are contained in the
Company's filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-KSB, as amended.
PART II: OTHER INFORMATION
- ---------------------------
ITEM 2. CHANGES IN SECURITIES
c. Sales of Unregistered Securities
(i) Acquisition of PC Business Solutions, Inc.
------------------------------------------
On October 1, 1997, Sento acquired all of the issued and
outstanding shares of the capital stock of PC Business
Solutions, Inc., an information technology value-added reseller
and service provider located in Upland, California ("PCBS") in a
shares exchange transaction pursuant to which Sento issued to
the former shareholders of PCBS 250,000 shares of Sento's common
stock, $0.25 par value (the "Common Stock"). Upon the
completion of the acquisition, PCBS became a wholly-owned
subsidiary of Sento.
Sento's issuance of the shares of Common Stock to the
former shareholders of PCBS was effected in reliance upon the
exemption for sales of securities not involving any public
offering, as set forth in Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act'), based upon
representations and warranties provided by PCBS and its former
shareholders in an Acquisition Agreement executed between Sento,
PCBS and its former shareholders.
(ii) Acquisition of Software Innovations Limited
-------------------------------------------
Effective October 31, 1997, Sento acquired all of the
issued and outstanding shares of the capital stock of Software
Innovations Limited, ("Software Innovations"), a software value-
added reseller located in Herts, England, in a share exchange
transaction pursuant to which Sento issued to Barry N. Green,
the former shareholder of Software Innovations, 31,750 shares of
Common Stock. Upon the completion of the acquisition, Software
Innovations became a wholly-owned subsidiary of Sento.
Sento's issuance of the shares of Common Stock to Mr. Green
was effected in reliance upon the exemption for sales of
securities not involving any public offering, as set forth in
Section 4(2) of the Securities Act, based upon representations
and warranties provided by Mr. Green in an Acquisition Agreement
executed between Sento and Mr. Green.
<PAGE>
(iii) Acquisition of Astron Incorporated
----------------------------------
At the close of business on December 31, 1997, to be
effective January 1, 1998, Sento entered into a merger
transaction with Astron Incorporated, an Orem, Utah-based
provider of computer training and education courses ("Astron").
Pursuant to the terms of an Acquisition Agreement, as amended
(the "Astron Agreement"), Sento acquired all of the issued and
outstanding shares of capital stock of Astron in exchange for
the issuance of 180,000 shares of Common Stock to Jay Barth, the
founder and sole shareholder of Astron. Sento's acquisition of
Astron was accomplished through a merger of Sento Acquisition,
Inc., a newly-formed and wholly-owned subsidiary of Sento
("Sento Acquisition"), with and into Astron. Upon completion of
the merger, Sento became the sole shareholder of Astron, the
Articles of Incorporation and Bylaws of Sento Acquisition
existing prior to the merger became the Articles of
Incorporation and Bylaws of Astron and the individuals serving
as the officers and directors of Sento Acquisition prior to the
merger became the officers and directors of Astron.
On December 31, 1997, Sento entered into Employment
Agreements with Mr. Barth and Joseph J. Bunker, pursuant to
which Sento agreed to employ Mr. Barth as Director of Training
and Education of Spire Technologies, Inc., a wholly-owned
subsidiary of Sento ("STI"), and to employ Mr. Bunker as Manager
of Training and Education of STI. As part of the remuneration
payable to Messrs. Barth and Bunker under the terms of the
Employment Agreements described above, Sento issued to Messrs.
Barth and Bunker 40,000 shares of Common Stock and 25,000 shares
of Common Stock, respectively.
Sento's issuance of the shares of Common Stock contemplated
by the Astron Agreement and the Employment Agreements with
Messrs. Barth and Bunker described above were effected in
reliance upon the exemption for sales of securities not
involving any public offering, as set forth in Section 4(2) of
the Securities Act, based upon representations and warranties
provided by Astron and Mr. Barth in the Astron Agreement and
representations, warranties, and covenants provided by Messrs.
Barth and Bunker in such Employment Agreements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
a. Exhibits. The following exhibits are included herein:
3. Articles of Incorporation, as amended, of Sento Technical
Innovations Corporation
27. Exhibits--Exhibit No. 27 Financial Data Schedule
b. Reports on Form 8-K. The following Reports on Form 8-K were filed
by the Registrant during the period covered by this Quarterly Report on
Form 10-QSB.
Form 8K, filed on October 15, 1997 for the purpose of reporting
the acquisition of the issued and outstanding capital stock of
PC Business Solutions, Inc.
Form 8K, filed on October 20, 1997 for the purpose of updating
and amending the description of capital stock contained in a
Registration Statement on Form 10 filed by the registrant (then
known as Amacan Resources Corporation) on July 24, 1972.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SENTO TECHNICAL INNOVATIONS CORPORATION
---------------------------------------
(Issuer)
\s\ Kieth E. Sorenson
---------------------------------------
President and Chief Executive Officer
Date: 02-11-98 \s\ Robert K. Bench
-------- ---------------------------------------
Robert K. Bench
Vice President and Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 7,315,716
<SECURITIES> 0
<RECEIVABLES> 4,211,789
<ALLOWANCES> 0
<INVENTORY> 351,849
<CURRENT-ASSETS> 13,415,720
<PP&E> 1,465,332
<DEPRECIATION> 451,687
<TOTAL-ASSETS> 15,416,022
<CURRENT-LIABILITIES> 6,795,207
<BONDS> 0
0
0
<COMMON> 1,374,196
<OTHER-SE> 5,398,567
<TOTAL-LIABILITY-AND-EQUITY> 15,416,022
<SALES> 5,869,373
<TOTAL-REVENUES> 5,859,373
<CGS> 4,360,183
<TOTAL-COSTS> 2,580,179
<OTHER-EXPENSES> 322,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (748,609)
<INCOME-TAX> (676,452)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72,157)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
ARTICLES OF INCORPORATION, AS AMENDED,
OF
SENTO TECHNICAL INNOVATIONS CORPORATION
As of September 22, 1997
ARTICLE I - CORPORATE NAME
The name of the Corporation is SENTO TECHNICAL INNOVATIONS CORPORATION.
ARTICLE II - DURATION
The period of the Corporation's duration shall be perpetual.
ARTICLE III - PURPOSES
The purposes for which the Corporation is organized are: To engage in any
business, investment or other pursuit or activity, whether retail or wholesale,
whether commercial or industrial, or whether mining, milling or manufacturing,
and specifically including the purchase and development of gold, silver,
uranium and other mining properties; and to perform any and all other lawful
acts or purposes as are or may be granted to corporate entities under the laws
of the State of Utah and by any other state or foreign country. The
Corporation may conduct its business anywhere within the State of Utah and may
have branch businesses within the State or in any of the states of the United
States, or in any foreign country, without in any way limiting the foregoing
powers. It is hereby provided that the Corporation shall have power to do any
and all acts and things that may be reasonably necessary or appropriate to
accomplish any of the foregoing purposes from which the Corporation is formed.
ARTICLE IV - CAPITAL STOCK
The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue is Twenty Million (20,000,000)
shares, consisting of (i) Fifteen Million (15,000,000) shares of common stock,
par value $0.25 per share (the "Common Stock"), and (ii) Five Million
(5,000,000) shares of preferred stock, par value $1.00 per share (the
"Preferred Stock").
A. COMMON STOCK. Each share of Common Stock shall entitle the
holder thereof to one vote at all meetings of the stockholders.
There shall be no cumulative voting with respect to shares of Common
Stock. There shall be no preemptive rights with respect to shares of
Common Stock. Fully paid Common Stock of the Corporation shall not
be liable to any further call or assessment. Subject to the rights
of holders of Preferred Stock, holders of Common Stock shall be
entitled to receive such dividends and other distributions in cash,
stock or property of the Corporation as may be declared thereon by
the Board of Directors of the Corporation (the "Board") from time to
time. Subject to the rights of holders of Preferred Stock, holders
of Common Stock shall be entitled to receive the net assets of the
Corporation upon its liquidation or dissolution.
B. PREFERRED STOCK. The Preferred Stock may be divided into
and issued from time to time in one or more series as may be fixed
and determined by the Board. The relative rights and preferences of
the Preferred Stock of each series shall be such as shall be stated
in any resolution or resolutions adopted by the Board setting forth
the designation of the series and fixing and determining the relative
rights and preferences thereof (a "Directors' Resolution"). The
Board is hereby authorized to fix and determine the powers,
designations, preferences and relative, participating, optional or
other rights of any such series of Preferred Stock, including,
without limitation, voting powers, full or limited, preferential
rights to receive dividends or assets upon liquidation, rights of
conversion or exchange into Common Stock, Preferred Stock of any
series or other securities, any right of the Corporation to exchange
or convert shares into Common Stock, Preferred Stock of any series or
other securities, or redemption provisions or sinking fund
provisions, as between series and as between the Preferred Stock or
any series thereof and the Common Stock, and the qualifications,
limitations or restrictions thereof, if any, all as shall be stated
in a Directors' Resolution, and the shares of Preferred Stock or any
series thereof may have full or limited voting powers, or be without
voting powers, all as shall be stated in a Directors' Resolution.
Except where otherwise set forth in the Directors' Resolution
providing for the issuance of any series of Preferred Stock, the
number of shares comprising such series may be increased or decreased
(but not below the number of shares then outstanding) from time to
time by like action of the Board. The shares of Preferred Stock of
any one series shall be identical with the other shares in the same
series in all respects except as to the dates from and after which
dividends thereon shall cumulate, if cumulative.
C. REACQUIRED SHARES OF PREFERRED STOCK. Shares of any series
of Preferred Stock that have been redeemed (whether through the
operation of a sinking fund or otherwise) or purchased by the
Corporation, or which, if convertible or exchangeable, have been
converted into, or exchanged for, shares of stock of any other class
or classes or any evidences of indebtedness shall have the status of
authorized and unissued shares of Preferred Stock and may be reissued
as a part of the series of which they were originally a part or may
be reclassified and reissued as part of a new series of Preferred
Stock or as part of any other series of Preferred Stock, all subject
to conditions or restrictions on issuance set forth in the Directors'
Resolution providing for the issuance of any series of Preferred
Stock and to any filing required by law.
<PAGE>
ARTICLE V - CAPITALIZATION
The Corporation shall not commence business until at least $1,000.00 has
been received by it as consideration for the issuance of shares.
ARTICLE VI - PLACE OF BUSINESS
The principal place of business and the principal office of the
Corporation shall be in Salt Lake County, State of Utah; branch offices or
other places of business may be established elsewhere in the State of Utah or
without the State of Utah and in the United States or without the United States
as the Board may determine.
ARTICLE VII - BYLAWS
Provisions for the regulation of the internal affairs of the Corporation
will be contained in Bylaws appropriately adopted by the Board in accordance
with the Act.
ARTICLE VIII - NUMBER OF DIRECTORS
The number of directors shall be not less than three nor more than nine.
