<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) For the annual period ended JUNE 30, 1999
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period from
_____________ TO ______________
For the fiscal year ended June 30, 1999
Commission file number 0-12962
CAMBRIDGE HOLDINGS, LTD.
(Exact name of small business issuer as specified in its charter)
Colorado 84-0826695
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1722 Buffehr Creek Road, 81657
Vail, Colorado (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code (970) 479-2800
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, and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and will not be contained to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer had $202,479 in revenues for the fiscal year ended June 30, 1999.
The aggregate market value of the voting stock held by non-affiliates was
approximately $741,386 on September 24, 1999.
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<PAGE>
State the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at August 31, 1999
<S> <C>
Common Stock, $.025 par value 3,029,870
</TABLE>
Transitional Small Business Disclosure Format Yes No X
--- ---
Part I
Item 1. DESCRIPTION/BUSINESS.
(a) BUSINESS DEVELOPMENT. Cambridge Holdings, Ltd. the Registrant (the
"Company"), was incorporated under the laws of the State of Colorado on June
23, 1980 under the name Jones Optical Company. The Company's name was changed
to Cambridge Holdings, Ltd. in August 1988.
During the fiscal year ended June 30, 1997, the Company purchased in two
separate transactions from two different unaffiliated sellers, raw land in an
area known as Cordillera Valley Club in Eagle County, Colorado west of Vail.
Each lot was conveyed to a limited liability company in which the Company is
a member with a 50% interest (CVC Lot 2 LLC and CVC Lot 19 LLC). Each lot has
been developed with a separate luxury residence and is offered for sale.
Construction on the properties were completed in early 1998. It is presently
unknown when these properties will be sold or what proceeds will be realized
upon sale. Due to the delay on sale of these properties, the Company has
agreed to rent the CVC Lot 19 house until a buyer is found. Management has
rented the CVC Lot 19 home commencing on September 1, 1999 at a monthly
rental fee of $5,700, net of commission. The delay on the sale of these
properties is likely to cause the LLC's to incur a loss in these transactions
and may cause the Company to be constrained in its ability to engage in other
transactions.
The lots are located in Cordillera Valley Club, a mountain golf community of 1
to 11-acre home sites and custom-designed residences, tennis courts, 15 miles of
hiking and cross-country ski trails, a fly-fishing river, mountain bike and
nature trails. The lots are being developed in a golf community planned with
care for natural aesthetic values. Accordingly, the home sites in the community
are being developed to minimize the impact of development upon the varied
vegetation and indigenous wildlife unique to the area. Deer and elk grazing and
calving areas have been carefully preserved along with native grasses, shrubs
and trees. The home sites in the community have been planned to maximize
mountain views, as well as the extensive aspen groves, forests of fir and
spruce, and varied terrain of adjacent canyons and draws which is characteristic
of the area.
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In July 1997, the Company purchased approximately three acres of raw land in
Glenwood Springs, Colorado for $925,000, including a mortgage of $675,000.
The mortgage bears interest at 9% per annum, payable $5,431 per month and is
due on January 15, 2000. The Company paid $300,000 on this mortgage in July
1999. Although management has commenced some preliminary engineering it is
decided at this time to resell the properties. In the event the Company
determines to proceed with the project, it is anticipated that the Company
will enter into an arrangement with Zneimer Company, Inc. to develop this
property.
The Company is currently considering other real estate development
activities, as well as other business opportunities. In addition to real
property acquisitions, the Company may consider the possible acquisition of,
or merger with, another business entity, or other types of business
transactions. The Company does not intend to limit its search to companies in
real estate activities. A substantial amount of time may lapse and the
Company may expend considerable funds for consulting, legal, accounting an
other fees before the Company is able, if at all, to acquire other real
estate interests or businesses outside the real estate industry. From time to
time, the Company also acquires equity securities, which have a potential for
capital gains and losses or, in some cases, income potential. The Company has
no limitations on the percentage of assets which may be invested in any one
instrument, or type of investment, nor is the Company limited in the types of
real estate in which the Company may invest. The Company's determination of
the method of operating and financing its properties is not fixed, and will,
instead depend on the type of property purchased and the Company's objective
in operating the particular property.
COMPETITION. The investment and real estate business is highly
competitive and the Company competes with numerous entities engaged in
investment and real estate activities, many of which have greater financial
resources than those of the Company. The Company's management believes that
success against such competition is dependent upon the quality of the
investments, the geographic location of the property, the amount of new
construction in the area and the design and appearance of the property. The
Company's management believes that general economic circumstances and trends
and new properties in the vicinity of each of the Company's properties will
also be competitive factors.
EMPLOYEES. The Company has no full-time employees; however, Gregory
Pusey, the Company's President, devotes a significant amount of time to the
affairs of the Company.
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Item 2. DESCRIPTION OF PROPERTIES.
The Company's administrative activities are conducted at the
Company's corporate headquarters located in Vail, Colorado in space shared by
the Company with an affiliate, Livingston Capital, Ltd. ("Livingston"). The
Company pays Livingston a monthly fee of $750 for rent and certain overhead
administrative expenses. A description of real estate business activities is
included in Item 1.
Item 3. LEGAL PROCEEDINGS.
The Company is not involved in any material, pending legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders
during the fourth quarter covered by this Report, and the Item is, therefore,
inapplicable.
PART II
Item 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's $.025 par value common stock trades on the Electronic
Bulletin Board under the symbol "CDGD". Trading in the common stock in the
over-the-counter market has been limited and sporadic and the quotations set
forth below are not necessarily indicative of actual market conditions. Further,
these prices reflect inter-dealer prices without retail mark-up, mark-down, or
commission and may not necessarily reflect actual transactions. The high and low
bid prices for the common stock for each quarter of the fiscal years ended June
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
------------- -------- -------
<S> <C> <C>
June 30, 1999 $.47 $.47
March 31, 1999 $.47 $.45
December 31, 1998 $.45 $.34375
September 30, 1998 $.34375 $.28125
June 30, 1998 $.28125 $.28125
March 31, 1998 $.28125 $.28125
December 31, 1997 $.40 $.25
September 30, 1997 $.40 $.375
</TABLE>
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<PAGE>
At September 20, 1999 the number of holders of record of the
Company's common stock was 990. No cash dividends were paid during the years
ended June 30, 1999 and 1998.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below includes "forward
looking statements" within the meaning of Section 27A of the Securities Act,
and is subject to the safe harbor created by that section. Factors that could
cause actual results to differ materially from these contained in the forward
looking statements are set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LIQUIDITY AND CAPITAL RESOURCES.
At June 30, 1999, the Company had cash and cash equivalents of $194,400
and working capital of $3,114,600. CVC Lot 2 LLC and CVC Lot 19 LLC (the
"LLC's") have incurred debt financing in the amounts of $1,041,600 and
$1,063,100, respectively, for the construction of the luxury residential
properties. In addition to the debt financing, the Company has loaned CVC Lot
2 LLC $109,300 and CVC Lot 19 LLC $65,900 to aid in completing and selling
the residential property. Commencing on September 1, 1999 the CVC #19 home is
being rented at a monthly rental fee of $5,700 net of commission. Due to the
inability to sell the homes to date, management anticipates making changes to
the houses to make them more saleable and believes that the LLC's will
realize a loss once sold. However, management is unsure whether the proceeds
received by the LLC's from the sale of the luxury residential properties will
be sufficient to allow the Company to fully realize the $905,636 (at June 30,
1999) in notes receivable from the LLC's.
In July 1997 the Company purchased land in Glenwood Springs, Colorado
for $925,000, including a mortgage note in the amount of $675,000. The
Company made a principal payment of $300,000 on the mortgage note in July
1999. The remaining balance of $365,782 is due January 15, 2000. The property
is currently available for resale.
During the quarter ended December 31, 1998, the Company commenced an
offer to its shareholders to tender shares of the Company's common stock to
the Company at a price of $.45 per share. The tender offer was concluded
during the quarter ended March 31, 1999. The Company purchased 378,530 shares
for a total of $170,338 in the tender offer.
For the period ended June 30, 1999, operating activities generated a
negative cash flow of $186,200 as compared to a positive cash flow of $21,800
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for the year ended June 30, 1998. The Company had interest income paid on
investment securities of $77,800 and $22,500 during the years ended June 30,
1999 and June 30, 1998, respectively. The Company wrote-down the value of two
investments which were determined to be worthless for $206,300 during the
year ended June 30, 1999. The Company wrote off investment securities of
$102,000 during the year ended June 30, 1998. Gains from the sale of
investment securities increased from approximately $44,200 to $101,400 and
depreciation increased from $11,900 in 1998 to $17,800 in 1999. In 1999 the
Company recorded a $44,000 deferred tax asset to reflect capital loss
carrybacks which will be realizable through a carry back to previous year's
capital gains. Prepaid expenses and other increased by $7,100 in the year
ended June 30, 1999. Other accrued liabilities increased by $2,400 in 1999.
Cash used in investing activities was approximately $1,099,300 during
the year ended June 30, 1999 compared to cash provided from investing
activities of $13,600 during the year ended June 30, 1998. Approximately
$1,913,200 was used to purchase investment securities during the year ended
June 30, 1999 compared to $234,500 in 1998. No land was purchased during
1999, but $264,200 was used to purchase land in 1998. The Company purchased
fixed assets for $6,300 and $47,500 in the years ended June 30, 1999 and June
30, 1998, respectively and had an increase in investments in notes receivable
from $36,900 to $131,300. Cash provided from investing activities during
fiscal 1999 was from the proceeds from sales of investment securities of
$909,100 and $42,500 was the collection of notes receivable. In the
comparable period in 1998, cash provided from investing activities was from
proceeds from sales of investment securities of $214,100 and $382,500 was the
collection of notes receivable. The values of the land and securities held by
the Company are often highly volatile. In addition, trading in these
securities may be thin or there may be other impediments to, or restrictions
on transfer.
Financing activities during the year ended June 30, 1999 used cash of
approximately $194,700, including $170,300 in payments to repurchase stock
and $22,800 of costs incurred in connection with the tender offer. Cash used
in financing activities during the year ended June 30, 1998 totaled $1,000.
Of this total, $4,200 was principal payments on notes payable compared to
$5,000 in 1999 offset by cash generated from the exercise of stock options of
$3,400 in 1999 and $3,200 in 1998.
YEAR 2000 COMPLIANCE
The Company has completed a review and risk assessment of all technology
items used in its operations. The Company believes that the year 2000 problem
will pose no significant operational problems. The Company's accounting
software program as well as other office software will be upgraded during
1999 to be year 2000 compliant. The Company estimates that the cost of the
upgrades will be
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approximately $1,000. The Company has reviewed the status of the year 2000
issues with its financial institutions.
RESULTS OF OPERATIONS.
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
The Company's revenues for the year ended June 30, 1999 totaled
approximately $202,500, consisting of gains on the sale of securities of
approximately $101,400 and interest and dividend income of $101,100. Revenues
for the year ended June 30, 1998 totaled approximately $178,100, consisting
of net gains on the sale of securities of approximately $44,200 and interest
and dividend income of $133,900. The Company's dividend and interest income
decreased primarily because of an increase in use of funds for real estate
development and investments in bond funds in 1999. The Company's net realized
gains on sales of investment securities and cash equivalents increased
primarily as a result of the sale of common stock received with convertible
notes and the sale of various other investment securities.
During the years ended June 30, 1999 and June 30, 1998, the Company incurred
operating, general and administrative costs of approximately $175,400 and
$166,900, respectively. The Company also incurred a write-down of impaired
assets of $206,300 and $102,000 during 1999 and 1998 respectively. During the
year ended June 30, 1999, the Company wrote off its investment in a
partnership totaling $101,300 as it has not been repaid under the terms of
the bridge loan agreement and collection is doubtful. The Company has filed
suit against the general partner of the partnership to collect its
investment. The Company had a loss before taxes for the year ended June 30,
1999 of approximately $239,300 as compared with a loss before taxes of
approximately $146,500 for the year ended June 30, 1998. The Company
anticipates a tax benefit of $57,000 and $10,000 in 1999 and 1998
respectively, as a result of the carryback of capital losses to 1996.
INCOME TAXES
As discussed in Note 4 to the accompanying financial statements, the Company has
$83,000 in deferred tax assets. Management of the Company has developed a tax
planning strategy in which capital losses will be carried back to previous tax
filings and allow the Company to realize a $44,000 tax benefit. A valuation
allowance of $39,000 has been established for the remainder of the net deferred
tax assets because the Company has not been able to determine that it is more
likely than not that the net deferred tax assets will be realized.
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Item 7. FINANCIAL STATEMENTS.
See pages F-1 through F-20.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants during the fiscal years ended
June 30, 1999 and 1998.
Item 9. DIRECTORS AND EXECUTIVE OFFICERS.
<TABLE>
<CAPTION>
Date First
Elected Principal Occupation
Name Age Director and Employment
- ---- --- -------- --------------
<S> <C> <C> <C>
Gregory Pusey 47 1982 President, treasurer and director. Mr. Pusey is also the president of Livingston
Capital, Ltd., a venture capital and business consulting firm, and an officer and
director of Advanced Nutraceuticals, Inc., a company organized to do business in the
nutritional supplement industry. Mr. Pusey was a consultant and at times a director
of Nutrition for Life International from 1986 to 1998. Mr. Pusey graduated from
Boston College in 1974 with a BS in finance.
Donald E. Yager 74 1988 Secretary and director. Since 1968 Mr. Yager has served as President and Director of
Yager Realty, Inc., a real estate agency and development company located in
Westminster, Colorado, a suburb of Denver, Colorado.
John H. Altshuler 68 1991 Director. Dr. Altshuler is a medical doctor with a specialty in hematology. He
maintains a laboratory and a private medical practice and has served as a medical
consultant since 1965. Dr. Altshuler graduated from
Page 8 of 16
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<PAGE>
McGill University in 1959 with a doctorate in medicine.
Scott Menefee 34 1993 Director. Mr. Menefee is a Real Estate Manager for Opus Northwest, LLC. a large
commercial real estate development firm. Prior to his current position, he served as
a Leasing Manager for Vector Property Services, LLC. From 1992 through early 1997. Mr.
Menefee was a Leasing Manager for Brookfield Development. Mr. Menefee graduated from
Southern Methodist University with a MBA in 1989.
</TABLE>
The Company's directors serve until the next annual meeting of the
shareholders and until their successors shall have been duly elected and
qualified. The Company's officers may be removed from their positions at any
time by the Company's Board of Directors. Dr. Altshuler and Mr. Yager serve as
members of the Option Committee (See Item 10). There are no family relationships
among the directors of the Company except that Mr. Yager is the father-in-law of
Mr. Pusey. During the fiscal year ended June 30, 1999, the Company's Board of
Directors held three meetings in person or by consent.
Based solely upon review of Forms 3, 4 and 5, which have been furnished
to the Company with respect to the past fiscal year of the Company, and
certain representations made by officers and directors of the Company in
connection therewith, the Company has no knowledge that any current officer
or director failed to file on a timely basis any reports required by Section
16(a) of the Securities Exchange Act of 1934 with respect to the fiscal year
of the Company ended June 30, 1999.
Item 10. EXECUTIVE COMPENSATION.
(a) COMPENSATION. The following table sets the cash compensation paid
by the Company during the fiscal year ended June 30, 1999 and in the two
prior fiscal years of the Company to the chief executive officer of the
Company. No executive officer received a total annual salary and bonus of
more than $100,000 during the fiscal year.
Page 9 of 16
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Awards Payouts
------------------- ------ -------
Other
Name and Annual Restricted LTIP All Other
Principal Salary Compensa- Stock Options Payouts Compensa-
Position Fiscal Year ($)(1) Bonus Tion Awards ($) (#) ($) Tion ($)(2)
-------- ----------- ------ ------ ---- ---------- --- --- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gregory Pusey,
President 1999 60,000 -0- -0- -0- -0- -0- 4,924
1998 60,000 -0- -0- -0- -0- -0- 5,993
1997 60,000 -0- -0- -0- -0- -0- 11,543
</TABLE>
(1) The dollar value of base salary (cash) received. (No non-cash base
salary was paid during the period covered by the Table). Mr. Pusey's
current salary is $60,000 per year.
(2) All other compensation received that the Company has not properly
reported in any other column of the Table. During the period covered
by the Table, the Company did not make any contributions or other
allocations to any defined contribution plans. The amount shown for
the year ended June 30, 1999 is health insurance premiums of $4,924
paid on Mr. Pusey's behalf. The amount shown for the year ended June
30, 1998 is health insurance premiums of $3,852 and auto lease
payments of $2,141. The amount shown for the year ended June 30, 1997
is health insurance premiums in the amount of $5,789 and auto lease
payments of $5,754.
(b) OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1999.
<TABLE>
<CAPTION>
% of Total
Options
Granted to Exercise or
Options Employees/Directors Base Price
Name Granted (#) in Fiscal Year ($/Sh) Expiration Date
- ---- ----------- -------------- ------ ---------------
<S> <C> <C> <C> <C>
Gregory Pusey 30,000 50% $.52 4/15/04
John Altshuler 10,000 17% $.47 4/15/04
Scott Menefee 10,000 17% $.47 4/15/04
Donald Yager 10,000 17% $.47 4/15/04
</TABLE>
1988 STOCK OPTION PLAN. During the fiscal year ended June 30, 1989 the
Company adopted the 1988 Stock Option Plan (the "1988 Plan"). The 1988 Plan
is designed to provide incentives for key employees of the Company. In
September 1992, the shareholders approved an increase from 200,000 to 400,000
in the number of shares issuable pursuant to the 1988 Plan and the
elimination of a provision of the 1988 Plan that limited the number of shares
underlying options that could be granted to any one individual to 40,000
shares in a fiscal year. The 1988 Plan terminated in May 1998, except that
previously granted options will remain outstanding until terminated in
accordance with the individual option agreements.
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All the outstanding options granted pursuant to the 1988 Stock Option
Plan are exercisable at a price of not less than 100 percent of the fair
market value on their respective dates of grant.
NON-DISCRETIONARY STOCK OPTION PLAN. The Board of Directors has adopted
a Non-Discretionary Stock Option Plan pursuant to which the Company was
authorized to grant options to purchase up to an aggregate of 250,000 shares
of the Company's common stock. The Non-Discretionary Stock Option Plan became
effective as of September 12, 1991 and is intended to reward non-employee
directors for their participation and contributions to the Company. The
Non-Discretionary Stock Option Plan terminated in September 1997. Outstanding
options will remain exercisable in accordance with the terms of the
individual option agreements.
Options granted pursuant to the Non-Discretionary Plan are exercisable
in full effective as of the date of grant and expire three years from the
date of grant, except that an option will expire, if not exercised, 90 days
after the optionee ceases to be a director of the Company.
1999 STOCK OPTION PLAN. In April 1999, the Board of Directors of the Company,
adopted, subject to shareholder approval, the 1999 Stock Option Plan (the
"1999 Plan"). The purpose of the 1999 Plan is to promote the interests of the
Company and its shareholders by:
- - Attracting and retaining key personnel;
- - Providing participants a significant stake in the performance of the
Company;
- - Providing an opportunity for participants to increase their holdings of the
Company's common stock.
The 1999 Plan is administered by the Option Committee. The Option Committee
consists of the Board of Directors or a committee of the Board of Directors,
as the Board of Directors may from time to time designate, composed of not
less than two members of the Board of Directors, each of whom shall be a
director who is not employed by the Company. The Option Committee currently
consists of the full Board of Directors. The Option Committee has the
authority to select employees and consultants to receive awards, to determine
the number of shares of common stock covered by awards, and to set the terms
and conditions of awards. The Option Committee has the authority to establish
rules for the administration of the 1999 Plan, and its determinations and
interpretations are binding.
Any employee or officer (including executive officers) of the Company or any
of its subsidiaries will be eligible for a stock option grant under the 1999
Plan if selected by the Option Committee. Any consultant to the Company,
including Directors,
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will also be eligible to receive option grants under the 1999 Plan if
authorized by the Option Committee.
The 1999 Plan authorizes the grant of options to purchase up to 1,000,000
shares of the Company's common stock. There are currently outstanding options
to purchase up to 60,000 shares. All of these options were granted on April
16, 1999. Of the options to purchase up to 60,000 shares, options to purchase
10,000 shares were granted to each of John H. Altshuler, Scott L. Menefee,
and Donald E. Yager, directors of the Company, and options to purchase up to
30,000 shares were granted to Gregory Pusey, President and Director of the
Company. The options granted to Dr. Altshuler and Messrs. Menefee and Yager
are exercisable at $.47 per share, the fair market value of the Company's
common stock on the date of grant. The options granted to Mr. Pusey are
exercisable at $.52 per share, which represented 110% of the fair market
value of the Company's common stock on the date of grant. All of the options
are exercisable from the later to occur of October 16, 1999 or shareholder
approval of the 1999 Plan through April 15, 2004. The options will terminate
earlier if the optionee's status as an employee or consultant is discontinued.
The 1999 Plan was designed to permit the Option Committee to grant stock
options that qualify as "incentive stock options" or options that do not so
qualify. The option grant to Mr. Pusey was intended to qualify as an
incentive stock option, and the option grants to the other directors are not
intended to so qualify.
In addition to stock options, the Company may also offer a participant a
right to purchase shares of common stock subject to such restrictions and
conditions as the Option Committee may determine at the time of grant. Such
conditions may include, but are not limited to, continued employment or the
achievement of specified performance goals or objectives. No restricted
common stock has been issued pursuant to the 1999 Plan.
Certain corporate transactions or events such as stock splits,
recapitalizations, spin-offs, mergers, etc. may directly affect the number of
outstanding shares and/or the value of the outstanding common stock. If such
transactions occur, the Option Committee may adjust the number of shares that
may be granted under the 1999 Plan, as well as the limits on individual
option grants. The Option Committee may adjust the number of shares and the
exercise price under outstanding options, and may make other adjustments,
which are thought to be in the best interest of the Company.
Options granted under the 1999 Plan may not be transferred except by will or
the laws of descent and distribution, or pursuant to a qualified domestic
relations order or the Employee Retirement Income Security Act. The Board of
Directors may amend or terminate the 1999 Plan at any time. No amendments may
be made without the approval of the Company's shareholders to the extent such
approval is
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required by law or agreement. The 1999 Plan will continue until April 15,
2009, unless abandoned or terminated at an earlier time.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth ownership of the presently issued and
outstanding shares of the Company's $.025 par value common stock held by each
director, individually, and all officers and directors as a group, and all
persons who own five percent or more of the outstanding shares of the
Company's common stock as of September 15, 1999. The Company has only one
class of capital stock, its $.025 par value common stock.
<TABLE>
<CAPTION>
Number of Percent of
Beneficial Owner Shares Class
- ---------------- ------ -----
<S> <C> <C>
John H. Altshuler 10,000 0.3%
18 Blue Heron Drive West
Littleton, CO 80121 (1)
Scott Menefee 50,000 1.6%
971 Garfield Street
Denver, CO 80206 (2)
Gregory Pusey 1,591,218 52.5%
1722 Buffehr Creek Road
Vail, CO 81657 (3)
Cede & Co. 203,469 6.6%
PO Box 222
New York, NY 10274
Donald E. Yager 10,000 0.3%
3200 W. 72nd Avenue
Westminster, CO 80030 (4)
E. Jeffrey Peierls 307,824 10.0%
73 S. Holman Way
Golden, CO 80401 (5)
All officers and directors as a 1,661,218 54.8%
group (4 persons) (1) (2) (3) (4)
</TABLE>
(1) Includes exercisable options to purchase 10,000 shares which have been
granted under the Non-Discretionary Stock Option Plan. Does not
include options to purchase 10,000 shares which have been granted
under the 1999 Plan which are not currently exercisable.
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(2) Includes exercisable options to purchase 10,000 shares which have been
granted under the Non-Discretionary Stock Option Plan. Does not
include options to purchase 10,000 shares which have been granted
under the 1999 Plan which are not currently exercisable.
(3) Includes 18,604 shares owned jointly by Mr. Pusey with his wife, and
an aggregate of 96,411 shares owned by Mrs. Pusey, individually or as
custodian for their minor children. Does not include 30,000 shares
which have been granted under the 1999 Plan which are not currently
exercisable.
(4) Includes options to purchase 10,000 shares which have been granted
under the Non-Discretionary Stock Option Plan. Does not include
options to purchase 10,000 shares which have been granted under the
1999 Plan which are not currently exercisable.
(5) Does not include 178,111 shares held of record by Brian E. Peierls. E.
Jeffrey Peierls disclaims beneficial ownership in the shares held by
other members of his family and Kathryn and Alice Thames.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to an oral agreement with Livingston, which is an affiliate of
Gregory Pusey, the Company pays $750 per month to Livingston for rent and
certain administrative expenses. The Company believes that these arrangements
have been at least as favorable as could be obtained with a non-affiliated
party.
During the fiscal year ended June 30, 1997 the Company purchased raw land
in Eagle County, Colorado. The land has been conveyed to two limited liability
companies. The Company owns a 50% interest in each company. Additional
information regarding transactions with these companies and the status of the
properties is provided in Item 1(a).
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The exhibits listed on the accompanying index to exhibits are filed as
part of this Annual Report.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last fiscal quarter
covered by this Report.
INDEX TO EXHIBITS
(3)(a) Articles of Incorporation, as amended, filed as an exhibit to the
Registrant's Annual Report on Form 10-K for the year ended
June 30, 1990 are incorporated herein by this reference.
Page 14 of 16
10-KSB
<PAGE>
(3)(b) Bylaws, as amended, filed as an Exhibit to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 1988 are
incorporated herein by this reference.
(10)(a) 1988 Stock Option Plan, as amended, filed as an Exhibit to the
Registrant's Proxy Statement for a Special Meeting of
Shareholders held on September 30, 1992 is incorporated herein by
this reference.
(10)(b) Contract of Purchase and Sale between the Company and San Jac
Financial Services, Inc. filed as Exhibit 10(b) the Registrant's
Annual Report on Form 10-K for the year ended June 30, 1991 is
incorporated herein by this reference.
(10)(d) Non-Discretionary Stock Option Plan, as amended, filed as an
Exhibit to the Registrant's Proxy Statement for a Special Meeting
of Shareholders held on September 30, 1992 is incorporated herein
by this reference.
(10)(j) Continuing Contract to Buy and Sell Real Estate between the
Company and Columbine West, LLC, accepted June 15, 1995, as
amended on August 11, 1995, August 15, 1995, September 8, 1995
and September 25, 1995 filed as Exhibit 10(k) in the Registrant's
Report on Form 10-KSB for the year ended June 30, 1995 is
incorporated herein by this reference.
(10)(l) Commercial Contract to Buy and Sell Real Estate between the
Company and Centurion Development Company, dated June 15, 1995,
as amended on September 15, 1995 filed as Exhibit 10(l) in the
Registrant's Report on Form 10-KSB for the year ended June 30,
1995 is incorporated herein by this reference.
(10)(m) 1999 Stock Option Plan
Page 15 of 16
10-KSB
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CAMBRIDGE HOLDINGS, LTD.
Date: October 13, 1999 By: /s/ Gregory Pusey
----------------------------------------------
Gregory Pusey
President, Treasurer and Director
In accordance with the requirements of the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated
<TABLE>
<S> <C>
Date: October 13, 1999 By: /s/ Gregory Pusey
----------------------------------------------
Gregory Pusey
President, Treasurer and Director
Date: October 13, 1999 By: /s/ Donald E. Yager
----------------------------------------------
Donald E. Yager
Secretary and Director
Date: October 13, 1999 By: /s/ John H. Altshuler
----------------------------------------------
John H. Altshuler, Director
Date: October 13, 1999 By: /s/ Scott Menefee
----------------------------------------------
Scott Menefee, Director
</TABLE>
Page 16 of 16
10-KSB
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
BALANCE SHEET F-3
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS F-5
STATEMENTS OF STOCKHOLDERS' EQUITY F-6
STATEMENTS OF CASH FLOWS F-7
SUMMARY OF ACCOUNTING POLICIES F-9
NOTES TO FINANCIAL STATEMENTS F-13
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Cambridge Holdings, Ltd.
Vail, Colorado
We have audited the accompanying balance sheet of Cambridge Holdings, Ltd. as of
June 30, 1999 and the related statements of operations and comprehensive loss,
stockholders' equity and cash flows for each of the two years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cambridge Holdings, Ltd. at
June 30, 1999, and the results of its operations and comprehensive loss, and its
cash flows for each of the two years then ended, in conformity with generally
accepted accounting principles.
Denver, Colorado
August 30, 1999
F-2
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
BALANCE SHEET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1999
- ------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 194,447
Investment securities - available for sale (Note 1 and 7) 1,683,136
Notes receivable - related party (Note 3) 905,636
Deferred tax asset (Note 4) 44,000
Prepaids and other 45,888
Real estate development (Note 5) 939,199
- -------------------------------------------------------------------------------------------
Total current assets 3,812,306
Other assets 27,130
- -------------------------------------------------------------------------------------------
$ 3,839,436
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
BALANCE SHEET
(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1999
- -----------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accrued liabilities $ 14,751
Deferred income taxes (Note 4) 17,150
Note payable (Note 5) 665,782
- -----------------------------------------------------------------------------------------
Total current liabilities 697,683
- -----------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Note 6):
Common stock, $.025 par value; 15,000,000 shares
authorized: 3,029,870 issued and outstanding 75,747
Additional paid-in capital 2,997,292
Retained earnings 39,653
Accumulated other comprehensive income, net of tax
Net unrealized gains on securities
available for sale (Note 1) 29,061
- -----------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 3,141,753
- -----------------------------------------------------------------------------------------
$ 3,839,436
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Net realized gains on sales of
investment securities $ 101,359 $ 44,203
Interest and dividend income 101,120 133,865
- -------------------------------------------------------------------------------------------
Total revenues 202,479 178,068
- -------------------------------------------------------------------------------------------
EXPENSES:
Operating, general and administrative 175,372 166,866
Investment write-off (Notes 1 and 2) 206,278 102,000
Interest expense 60,168 55,719
- -------------------------------------------------------------------------------------------
Total expenses 441,818 324,585
- -------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAX BENEFIT (239,339) (146,517)
INCOME TAX BENEFIT (Note 4) (57,000) (10,000)
- -------------------------------------------------------------------------------------------
NET LOSS (182,339) (136,517)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX -
Unrealized holding gains (losses) 18,521 (64,741)
- -------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS $ (163,818) $ (201,258)
- -------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE $ (.06) $ (.04)
- -------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,295,337 3,396,948
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------------- Paid-in
YEARS ENDED JUNE 30, 1998 AND 1999 Shares Amount Capital
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, July 1, 1997 3,388,400 $ 84,710 $ 3,174,785
Net loss - - -
Shares issued from
exercise of stock options 10,000 250 2,950
Net unrealized losses on
securities available for sale - - -
- --------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1998 3,398,400 84,960 3,177,735
Net loss - - -
Shares issued from
exercise of stock options 10,000 250 3,187
Repurchase of shares at $.45 share, plus costs of
$22,755 (378,530) (9,463) (183,630)
Net unrealized gains on
securities available for sale - - -
- --------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1999 3,029,870 $ 75,747 $ 2,997,292
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other Total
Retained Comprehensive Stockholders'
YEARS ENDED JUNE 30, 1998 AND 1999 Earnings Income Equity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, July 1, 1997 $ 358,509 $ 75,281 $ 3,693,285
Net loss (136,517) - (136,517)
Shares issued from
exercise of stock options - - 3,200
Net unrealized losses on
securities available for sale - (64,741) (64,741)
- ------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1998 221,992 10,540 3,495,227
Net loss (182,339) - (182,339)
Shares issued from
exercise of stock options - - 3,437
Repurchase of shares at $.45 share, plus costs of
$22,755 - - (193,093)
Net unrealized gains on
securities available for sale - 18,521 18,521
- ------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1999 $ 39,653 $ 29,061 $ 3,141,753
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEARS ENDED JUNE 30, 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss (182,339) $ (136,517)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Provision for possible losses - 102,000
Write off of investments 206,278 -
Interest income paid in investment securities (77,796) (22,500)
Depreciation and amortization 17,792 11,940
Realized gains on sale of investment securities (101,359) (44,203)
Deferred income taxes (44,000) -
Changes in operating assets and liabilities
Prepaids and other (7,085) 111,876
Accrued liabilities and other 2,358 (830)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (186,151) 21,766
- -------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property - (264,199)
Purchase of investment securities (1,913,184) (234,453)
Proceeds from sale of investment securities 909,077 214,112
Increase in other non operating assets (6,322) (47,533)
Investments in notes receivable - related party (131,333) (36,875)
Collection on notes receivable - related party 42,500 382,500
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,099,262) 13,552
- -------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
STATEMENTS OF CASH FLOWS
(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEARS ENDED JUNE 30, 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCING ACTIVITIES:
Payments of costs to repurchase common stock (22,755) -
Payments to repurchase common stock (170,338) -
Principal payments on notes payable (5,007) (4,211)
Proceeds from exercise of stock options 3,437 3,200
- -----------------------------------------------------------------------------------------------
Net cash used in financing activities (194,663) (1,011)
- -----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,480,076) 34,307
CASH AND CASH EQUIVALENTS, beginning of year 1,674,523 1,640,216
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year 194,447 $ 1,674,523
- -----------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO FINANCIAL STATEMENTS.
F-8
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS The Company was incorporated on June 23, 1980 under the laws
of the State of Colorado. The Company has purchased two
undeveloped lots in the Cordillera Valley Club, located near
Vail, Colorado and has contributed the properties to two
separate limited liability companies (LLC's). With their
partner in the LLC's, the Company has built a separate
luxury residence on each parcel for resale. The Company also
explores other business acquisitions, opportunities and
investments.
CONCENTRATIONS The Company's financial instruments that are exposed to
OF CREDIT RISK concentrations of credit risk consist primarily of cash
balances in excess of the insurance provided by governmental
insurance authorities. The Company has not experienced any
losses on such accounts.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
INVESTMENT Investment securities classified as available for sale are
SECURITIES those securities that the Company does not have the positive
intent to hold to maturity or does not intend to trade
actively. These securities are reported at fair value with
unrealized gains and losses reported as a net amount (net of
applicable income taxes) as a separate component of
stockholders' equity.
FAIR VALUE OF Unless otherwise specified, the Company believes the
FINANCIAL carrying value of financial instruments approximates their
INSTRUMENTS fair value.
REVENUE Interest and dividend income is recorded on the accrual
RECOGNITION basis. Gains and losses on sales of securities are
recognized at time of sale.
F-9
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT IN The investment in partnership is accounted for using the
PARTNERSHIP cost method.
INVESTMENT IN LLC The investments in LLC's are accounted for under the equity
method.
LONG-LIVED ASSETS Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the expected
undiscounted future cash flow from the use of the assets and
its eventual disposition is less than the carrying amount of
the assets, an impairment loss is recognized and measured
using the asset's fair value.
INCOME TAXES The Company follows the provisions of Statement of Financial
Accounting Standards No. 109 - ACCOUNTING FOR INCOME TAXES.
Under SFAS No. 109, the Company's policy is to provide
deferred income taxes related to items that result in
differences between the financial reporting and tax basis of
assets and liabilities.
NET LOSS The Company follows the provisions of SFAS No. 128, which
PER SHARE provides for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income (loss) available
to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings
per share reflect the potential dilution of securities that
could share in the earnings of an entity. In loss periods,
dilutive common equivalent shares are excluded, as the
effect would be anti-dilutive. Basic and diluted earnings
are the same for all periods presented.
Options to purchase 120,000 and 160,000 shares of common
stock were not included in the computation of diluted
earnings per share as their effect was anti-dilutive for the
years ended June 30, 1999 and 1998.
CASH EQUIVALENTS The Company considers all highly liquid investments
purchased with an original maturity of three months or less
to be cash equivalents.
F-10
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK OPTION PLANS The Company applies Accounting Principles Board Opinion 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, ("APB Opinion 25")
and related Interpretations in accounting for all stock
option plans. Under APB Opinion 25, no compensation cost has
been recognized for stock options granted as the option
price equals or exceeds the market price of the underlying
common stock on the date of grant.
Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, ("SFAS No. 123")
requires the Company to provide pro forma information
regarding net income as if compensation cost for the
Company's stock option plans had been determined in
accordance with the fair value based method prescribed in
SFAS.
COMPREHENSIVE Effective July 1, 1998, Cambridge Holdings, Ltd. adopted
INCOME (LOSS) FASB Statement No. 130, REPORTING COMPREHENSIVE INCOME
("SFAS No. 130"). SFAS No. 130 requires the reporting of
comprehensive income in addition to net income (loss) from
operations. Comprehensive income (loss) is a more inclusive
financial reporting methodology that includes disclosure of
certain financial information that historically has not
been recognized in the calculation of net income (loss).
The change in net unrealized securities gains (losses)
recognized in other comprehensive income includes two
components: (1) unrealized gains (losses) that arose during
the period from changes in market value of securities that
were held during the period (Holding gains (losses)), and
(2) gains or (losses) that were previously unrealized, but
have been recognized in current period net income due to
sales of available-for sale securities (reclassification for
realized gains). This reclassification has no effect on
total comprehensive income or shareholder's equity.
F-11
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following table presents the components of other
comprehensive income (loss), net of tax:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
YEARS ENDED JUNE 30, (NET OF TAX) 1999 1998
------------------------------------------------------------------------------------
<S> <C> <C>
Holding losses $ (13,512) $ (37,026)
Reclassification for realized (gains) losses 32,033 (27,715)
------------------------------------------------------------------------------------
Increase (decrease) in net unrealized
securities gains recognized in other
comprehensive income $ 18,521 $ (64,741)
------------------------------------------------------------------------------------
</TABLE>
NEW ACCOUNTING In June 1998, the FASB issued SFAS No. 133, "ACCOUNTING FOR
PRONOUNCEMENT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" which
requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair market
value. Gains or losses resulting from changes in the values
of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that
the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows.
SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000. Management believes the adoption of this
statement will have no material impact on the Company's
financial statements.
RECLASSIFICATIONS Certain items included in the prior years' financial
statements have been reclassified to conform to current year
presentation.
F-12
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. INVESTMENT The Company's market value of available for sale securities
SECURITIES consisted of the following:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
JUNE 30, 1999 Cost Gains Loss Fair Value
--------------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Common and
preferred stocks $ 585,079 $ 89,427 $ - $ 674,506
Bond Funds 1,051,845 - (43,215) 1,008,630
--------------------- --------------- -------------- --------------- --------------
Total $ 1,636,924 $ 89,427 $ (43,215) $ 1,683,136
--------------------- --------------- -------------- --------------- --------------
</TABLE>
The Company realized net gains of $101,359 and $44,203 on
the sale of investment securities for the years ended June
30, 1999 and 1998.
The Company wrote off $105,000 and $102,000 in investment
securities during the years ended June 30, 1999 and 1998.
2. INVESTMENT IN In 1997 the Company invested $100,000 for a 10% interest in
PARTNERSHIP a partnership which entered into a bridge loan with a third
party. During the year ended June 30, 1999, the Company
wrote off its investment in the partnership totaling
$101,278 as it has not been repaid under the terms of the
bridge loan agreement and collection is doubtful. The
Company, however, is pursuing litigation in this matter in
an effort to recover its investment.
F-13
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. NOTES In February 1997, the Company entered into agreements to
RECEIVABLE- become a member of two limited liability companies with the
RELATED PARTY Zneimer Company, a real estate developer in the Vail,
Colorado area. The Company and the Zneimer Company each hold
a 50% interest in these companies, each of which built a
separate luxury residence in the Vail Valley for resale. In
December 1996 the Company purchased raw land near Vail for
$366,400. This land, which is known as Cordillera Valley
Club Lot #19, was conveyed to the limited liability company
entitled CVC Lot 19, LLC in August 1997. In January 1997 the
Company purchased raw land near Vail, known as Cordillera
Valley Club Lot #2, for $356,700. This lot was conveyed to
the limited liability company known as CVC Lot 2, LLC in May
1997. In both cases, the Company received a secured
promissory note in an amount equal to the purchase price for
the real estate plus expenses, which have been subordinated
to the secured construction loans provided by a financial
institution. The notes receivable from CVC Lot 19, LLC and
CVC Lot 2, LLC totaled $420,125 and $485,511 at June 30,
1999 and are due upon the consummation of the sale of the
property. The Zneimer Company and Mr. Zneimer personally
guaranteed $454,402, one half the original principal
amount of the notes issued to the Company. This guarantee
took place simultaneously with the conveyance of each
property to the applicable limited liability company.
Separate unaudited condensed statement of operations of CVC
Lot 2, LLC and CVC Lot 19, LLC, on a combined basis are as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 1998
----------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Revenue $ 122 $ 8,466
Expenses 3,391 48,005
----------------------------------------------------------------------
Net loss from operations $ (3,269) $ (39,539)
----------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. INCOME Income taxes (benefit) consisted of the following:
TAXES
(BENEFIT)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1999 1998
---------------------------------------------------------------------
<S> <C> <C>
CURRENT:
Federal $ (56,000) $ (9,000)
State (1,000) (1,000)
---------------------------------------------------------------------
$ (57,000) $ (10,000)
---------------------------------------------------------------------
</TABLE>
The types of temporary differences between the tax basis of
assets and liabilities that give rise to a significant
portion of the net deferred tax liability and their
approximate tax effects are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
----------------------------------------------------------------
<S> <C>
DEFERRED TAX ASSETS:
Allowance for losses on investments $ 45,000
Write off of Partnership interests 38,000
----------------------------------------------------------------
Net deferred tax assets 83,000
Less valuation allowance (39,000)
----------------------------------------------------------------
Net deferred tax assets 44,000
----------------------------------------------------------------
DEFERRED TAX LIABILITY:
Net unrealized gain on securities
available for sale 17,150
----------------------------------------------------------------
Net deferred tax asset $ 26,850
----------------------------------------------------------------
</TABLE>
F-15
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Management of the Company has developed a tax planning
strategy in which certain capital losses will be carried
back to prior years tax filings in which the Company
reported capital gains. The Company has recorded a deferred
tax asset of $44,000, which reflects the amount of tax
benefit expected to be realized as a result of the available
capital loss carry back. A valuation allowance has been
recorded for the remainder of the deferred tax assets as
management is not able to determine if it is more likely
than not that certain other deferred tax assets will be
realized.
A reconciliation of income tax expense (benefit) at the
federal statutory rate to the effective tax rate is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Income tax benefit computed at the
federal statutory rate $ (81,000) $ (50,000)
State income taxes, net of
federal benefit (8,000) (5,000)
Increase in valuation allowance 1,000 38,000
Other 31,000 7,000
---------------------------------------------------------------------------------------
Income tax benefit $ (57,000) $ (10,000)
---------------------------------------------------------------------------------------
</TABLE>
5. NOTE In July 1997, the Company purchased a parcel of raw land in
PAYABLE Glenwood Springs, Colorado for $264,199 in cash and a
$675,000 note payable. The note requires monthly payments of
$5,431 and bears interest at 9%. The note originally matured
on July 15, 1999 and is collateralized by the parcel of raw
land. At June 30, 1999 the balance of the note payable was
$665,782. Subsequent to year end the Company made a
principal reduction of $300,000 to extend the note to
January 15, 2000.
F-16
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. STOCK OPTIONS 1999 STOCK OPTION PLAN
The Company's 1999 Stock Option Plan, as amended, has a
maximum of 1,000,000 common shares reserved to be issued to
key employees upon the exercise of options granted under the
Plan. The option price of shares may not be less than the
fair market value of common stock on the date of grant. The
option price of shares issued to more than 10% shareholders
may not be less than 110% of the fair market value of common
stock on the date of grant. The exercise term will not
exceed ten years from the date of the grant. During 1999 the
Company granted 60,000 options under the plan, which are
scheduled to expire April 15, 2004 and may not be exercised
prior to October 16, 1999.
1988 STOCK OPTION PLAN
The Company's 1988 Stock Option Plan, as amended, has a
maximum of 400,000 common shares reserved to be issued to
key employees upon the exercise of options granted under the
Plan. The option price of shares may not be less than the
fair market value of common stock on the date of grant. The
exercise term will not exceed five years from the date of
the grant. The Plan expired in May 1998. Individual grants
expire under the terms of the option agreements.
NON-DISCRETIONARY STOCK OPTION PLAN
The Company's Non-Discretionary Stock Option Plan (the
"Plan"), as amended, is intended to reward non-employee
directors' contributions to the Company. The number of
shares of common stock reserved for issuance pursuant to the
Plan is 250,000. Pursuant to the terms of the Plan, on
September 1 of each year, options to purchase an additional
10,000 shares will be granted to each non-employee director.
The option price of shares under this Plan may not be less
than the fair market value of common stock on the date of
grant. The exercise term will expire three years from the
date of grant. The Plan expired in September 1997.
Individual grants of options expire under the terms of the
option agreements.
F-17
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FASB Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
("SFAS No. 123"), requires the Company to provide pro forma
information regarding net loss and net loss per share as if
compensation costs for the Company's stock option plans and
other stock awards had been determined in accordance with
fair value based methods prescribed in SFAS No. 123. The
Company estimates the fair value of each stock award at the
grant date by using the Black-Scholes option-pricing model
with the following weighted-average assumptions: no dividend
yield; risk free interest rate of 5.13%; and an expected
life of 5 years for the year ended June 30, 1999. There were
no options granted during June 30, 1998. The Company's net
loss and basic and diluted loss per share would have been
increased to the pro forma amounts indicated in the
following table.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Net loss as reported $ (182,339) $ (136,517)
Net loss pro forma (194,880) (136,517)
Basic and diluted loss per share as
reported (.06) (.04)
Basic and diluted loss per share pro
forma (.06) (.04)
---------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A summary of the Company's stock option plans, outstanding
options and changes during the years is presented below:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1999 1998
------------------------------ ------------------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of year 160,000 $ .53805 170,000 $ .52522
Granted 60,000 .50000 - -
Expired (90,000) .48000 - -
Exercised (10,000) .34375 (10,000) .32000
------------------------------ ------------ ------------ ------------- ------------
Outstanding, end of year 120,000 $ .57625 160,000 $ .53805
------------------------------ ------------ ------------ ------------- ------------
Options exercisable, end
of year 60,000 $ .65750 160,000 $ .53805
------------------------------ ------------ ------------ ------------- ------------
Weighted average fair
value of options granted
during the year 60,000 $ .21000 - $ -
------------------------------ ------------ ------------ ------------- ------------
</TABLE>
The following table summarizes information about stock
options outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- --------------------------
Weighed
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life-Years Price Exercisable Price
----------------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ .44 to $ .875 120,000 2.7 $ .57625 60,000 $ .65750
----------------- ------------ ------------ ------------ ------------- ------------
</TABLE>
F-19
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. RELATED PARTY The Company shares corporate office space and administrative
TRANSACTIONS staff with an affiliate of the Company. The Company paid its
affiliate $750 per month for these facilities and services.
The Company's president was a member of the Board of
Directors of Nutrition for Life, Inc. ("NFL") in which
investment securities are classified as available for sale
and at June 30, 1999, the investments had an estimated fair
value of $16,620. The Company's president resigned from the
Board of Directors of NFL in August 1998.
8. SUPPLEMENTAL
DISCLOSURES OF
CASH FLOW
INFORMATION
<TABLE>
<CAPTION>
JUNE 30, 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during year for:
Interest $ 60,168 $ 55,532
---------------------------------------------------------------------------------------
</TABLE>
In 1998, the Company's purchase of a parcel of land in
Glenwood Springs included a mortgage note of $675,000.
The Company's deferred tax liability recognized on
securities available for sale was $17,150 and $6,054 at June
30, 1999 and 1998.
F-20
<PAGE>
CAMBRIDGE HOLDINGS, LTD.
1999 STOCK OPTION PLAN
This 1999 Stock Option Plan (the "Plan") is adopted in consideration for
services rendered and to be rendered to Cambridge Holdings, Ltd. and related
companies.
1. DEFINITIONS.
The terms used in this Plan shall, unless otherwise indicated or
required by the particular context, have the following meanings:
BOARD: The Board of Directors of Cambridge Holdings, Ltd.
CHANGE IN CONTROL: (i) The acquisition, directly or indirectly, by
any person or group (within the meaning of Section 13(d)(3) of the Exchange
Act) of the beneficial ownership of more than fifty percent of the
outstanding securities of the Company, (ii) a merger or consolidation in
which the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the state in which the Company is
incorporated, (iii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, (iv) a complete liquidation
or dissolution of the Company, or (v) any reverse merger in which the Company
is the surviving entity but in which securities possessing more than fifty
percent of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from the persons
holding those securities immediately prior to such merger.
CODE: The Internal Revenue Code of 1986, as amended.
COMMON STOCK: The $.025 par value Common Stock of Cambridge
Holdings, Ltd.
COMPANY: Cambridge Holdings, Ltd., a corporation incorporated
under the laws of Colorado, and any successors in interest by merger,
operation of law, assignment or purchase of all or substantially all of the
property, assets or business of the Company.
CONSULTANT: A Consultant is any person, including any advisor,
engaged by the Company or any Related Company to render consulting services
and may include members of the Board.
CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT: The employment by,
or relationship as a Consultant with, the Company or any Related Company is
not interrupted or terminated. The Board, at its sole discretion, may
determine whether Continuous Status as an Employee or Consultant shall be
considered interrupted due to personal or other mitigating circumstances.
DATE OF GRANT: The date on which an Option is granted under the
Plan.
EMPLOYEE: An Employee is an employee of the Company or any Related
Company.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXERCISE PRICE: The price per share of Common Stock payable upon
exercise of an Option.
<PAGE>
FAIR MARKET VALUE: The Fair Market Value of the Option Shares.
Such Fair Market Value as of any date shall be reasonably determined by the
Option Committee; provided, however, that if there is a public market for the
Common Stock, the Fair Market Value of the Option Shares as of any date shall
be the officially quoted closing price, if available, through The Nasdaq
Stock Market, Inc. (including the Electronic Bulletin Board system operated
by Nasdaq), or a stock exchange, or if no officially quoted closing price is
available, the representative closing bid price, on the date in question. In
the event there is no officially quoted closing price or bid price or the
Common Stock is not traded publicly, the Fair Market Value of a share of
Common Stock on any date shall be determined, in good faith, by the Board or
the Option Committee after such consultation with outside legal, accounting
and other experts as the Board or the Option Committee may deem advisable,
and the Board or the Option Committee shall maintain a written record of its
method of determining such value.
INCENTIVE STOCK OPTIONS ("ISOs"): "Incentive Stock Options" as
that term is defined in Section 422 of the Code.
NON-INCENTIVE STOCK OPTIONS ("NON-ISOs"): Options which are not
intended to qualify as "Incentive Stock Options" under Section 422 of the
Code.
OFFEREE: An Employee or Consultant to whom a Right to Purchase has
been offered or who has acquired Restricted Stock under the Plan.
OPTION: The rights granted to an Employee or Consultant to
purchase Common Stock pursuant to the terms and conditions of an Option
Agreement.
OPTION AGREEMENT: The written agreement (and any amendment or
supplement thereto) between the Company and an Employee or Consultant
designating the terms and conditions of an Option.
OPTION COMMITTEE: The Plan shall be administered by the Option
Committee which shall consist of the Board or a committee of the Board as the
Board may from time to time designate composed of not less than two members
of the Board who are not employees of the Company or a Related Company.
OPTION SHARES: The shares of Common Stock underlying an Option
granted to an Employee or Consultant.
OPTIONEE: An Employee or Consultant who has been granted an Option.
PARTICIPANT: An Employee or Consultant who holds an Option, a
Right to Purchase or Restricted Stock under the Plan.
PURCHASE PRICE: The Purchase Price per share of Restricted Stock
payable upon acceptance of a Right to Purchase.
RELATED COMPANY: Any subsidiary of the Company and any other
business venture in which the Company has a significant interest as
determined in the discretion of the Option Committee.
RESTRICTED STOCK: The shares of Common Stock issued pursuant to
Section 15, subject to any restrictions and conditions as are established
pursuant to such Section 15.
2
<PAGE>
RIGHT TO PURCHASE: A right to purchase Restricted Stock granted to
an Offeree pursuant to Section 15 hereof.
RULE 16b-3: Rule 16b-3 as promulgated by the Securities and
Exchange Commission under Section 16(b) of the Exchange Act.
2. PURPOSE AND SCOPE.
(a) The purpose of this Plan is to advance the interests of the
Company and its stockholders by affording Employees and Consultants an
opportunity for investment in the Company and the incentive advantages
inherent in stock ownership in this Company.
(b) This Plan authorizes the Option Committee to grant Options to
purchase shares of Common Stock to Employees and Consultants selected by the
Option Committee while considering criteria such as employment position or
other relationship with the Company, duties and responsibilities, ability,
productivity, length of service or association, morale, interest in the
Company, recommendations by supervisors, and other matters.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Option Committee. The Option Committee shall have the authority granted to
it under this section and under each other section of the Plan.
In accordance with and subject to the provisions of the Plan, the
Option Committee shall select the Optionees and Offerees, shall determine (i)
the number of shares of Common Stock to be subject to each Option and Right
to Purchase, (ii) the time at which each Option or Right to Purchase is to be
granted, (iii) whether an Option or Right to Purchase shall be granted in
exchange for the cancellation and termination of a previously granted option
or options under the Plan or otherwise, (iv) the Exercise Price for the
Option Shares, (v) the Purchase Price of Restricted Stock, (vi) the option
period, and (vii) the manner in which the Option becomes exercisable. In
addition, the Option Committee shall fix such other terms of each Option and
Right to Purchase as the Option Committee may deem necessary or desirable.
The Option Committee shall determine the form of Option Agreement to evidence
each Option and the form of Stock Purchase Agreement to evidence each Right
to Purchase.
The Option Committee from time to time may adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper
and in the best interests of the Company. The Option Committee shall keep
minutes of its meetings and those minutes shall be distributed to every
member of the Board.
All actions taken and all interpretations and determinations made
by the Option Committee in good faith (including determinations of Fair
Market Value) shall be final and binding upon all Employees, Consultants, the
Company and all other interested persons. No member of the Option Committee
shall be personally liable for any action, determination or interpretation
made in good faith with respect to the Plan, and all members of the Option
Committee shall, in addition to rights they may have if Directors of the
Company, be fully protected by the Company with respect to any such action,
determination or interpretation.
4. THE COMMON STOCK. The Board is authorized to appropriate, issue and
sell for the purposes of the Plan, and the Option Committee is authorized to
grant Options and Rights to Purchase with respect
3
<PAGE>
to, a total number, not in excess of 1,000,000 shares of Common Stock, either
treasury or authorized but unissued, or the number and kind of shares of
stock or other securities which in accordance with Section 16 shall be
substituted for the 1,000,000 shares or into which such 1,000,000 shares
shall be adjusted. All or any unsold shares subject to an Option or Right to
Purchase that for any reason expires or otherwise terminates may again be
made subject to Options or Rights to Purchase under the Plan. No person may
be granted Options or Rights to Purchase under this Plan covering in excess
of an aggregate of 500,000 Option Shares and shares of Restricted Stock in
any calendar year, subject to adjustments in connection with Section 16.
5. ELIGIBILITY. Options which are intended to qualify as ISOs will be
granted only to Employees. Employees and Consultants may hold more than one
Option under the Plan and may hold Options under the Plan and options granted
pursuant to other plans or otherwise, and may hold Rights to Purchase under
the Plan.
6. OPTION PRICE. The Exercise Price for the Option Shares shall be
established by the Option Committee or shall be determined by a method
established by the Option Committee; provided that the Exercise Price to be
paid by Optionees for the Option Shares that are intended to qualify as ISOs,
shall not be less than 100 percent of the Fair Market Value of the Option
Shares on the Date of Grant, or the date on which the Optionee is hired or
promoted (or similar event), if the Date of Grant occurs not more than 90
days after the date of such hiring, promotion or other event.
7. DURATION AND EXERCISE OF OPTIONS.
(a) The option period shall commence on the Date of Grant and
shall be as set by the Option Committee, but not to exceed 10 years in
length. Except as otherwise provided herein or as determined by the Option
Committee, no Option shall be exercised for the period of one year following
the Date of Grant; provided, however, that this limitation shall not apply to
the exercise of an Option pursuant to the terms of the relevant Option
Agreement upon the Optionee's death.
(b) During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee; provided, that in the event of the legal
disability of an Optionee, the guardian or personal representative of the
Optionee may exercise the Option. However, if the Option is an ISO it may be
exercised by the guardian or personal representative of the Optionee only if
such guardian or personal representative obtains a ruling from the Internal
Revenue Service or an opinion of counsel to the effect that neither the grant
nor the exercise of such power is violative of the Code. Any opinion of
counsel must be both from counsel and in a form acceptable to the Option
Committee.
(c) The Option Committee may determine whether any Option shall be
exercisable in installments only; if the Option Committee determines that an
Option shall be exercisable in installments, it shall determine the number of
installments and the percentage of the Option exercisable at each installment
date. All such installments shall be cumulative.
(d) In the event an Optionee's Continuous Status as an Employee or
Consultant terminates for any reason, any Option held by the Optionee on the
date of termination may be exercised within 90 days after the date of
termination, but only to the extent that the Option was exercisable according
to its terms on the date of termination. After such 90-day period, any
unexercised portion of an Option shall expire.
4
<PAGE>
(e) Each Option shall be exercised in whole or in part by
delivering to the office of the Treasurer of the Company written notice of
the number of shares with respect to which the Option is to be exercised and
by paying in full the Exercise Price for the Option Shares purchased as set
forth in Section 8; provided, that an Option may not be exercised in part
unless the Exercise Price for the Option Shares purchased is at least $2,000.
(f) No Option may be exercised until the Plan is approved by the
shareholders of the Company as provided in Section 17 below.
8. PAYMENT FOR OPTION SHARES. If the Exercise Price of the Option
Shares purchased by any Optionee at one time exceeds $2,000, the Option
Committee may permit all or part of the Exercise Price for the Option Shares
to be paid by delivery to the Company for cancellation shares of the
Company's Common Stock previously owned by the Optionee with a Fair Market
Value as of the date of payment equal to the portion of the Exercise Price
for the Option Shares that the Optionee does not pay in cash. In the case of
all other Option exercises, the Exercise Price shall be paid in cash or check
upon exercise of the Option, except that the Option Committee may permit an
Optionee to elect to pay the Exercise Price upon the exercise of an Option by
authorizing a third party to sell some or all of the Option Shares acquired
upon exercise of an Option and remit to the Company a sufficient portion of
the sale proceeds to pay the entire Exercise Price and any tax withholding
resulting from such exercise.
9. RELATIONSHIP TO EMPLOYMENT OR POSITION. Nothing contained in the
Plan, or in any Option or Right to Purchase granted pursuant to the Plan,
shall confer upon any Participant any right with respect to continuance of
employment by the Company, as an Employee or as a Consultant or interfere in
any way with the right of the Company to terminate the Participant's
employment as an Employee or position as a Consultant, at any time.
10. NONTRANSFERABILITY OF OPTION. Except as otherwise provided by the
Option Committee, no Option granted under the Plan shall be transferable by
the Optionee, either voluntarily or involuntarily, except by will or the laws
of descent and distribution.
11. RIGHTS AS A STOCKHOLDER. No person shall have any rights as a
shareholder with respect to any share covered by an Option until that person
shall become the holder of record of such share and, except as provided in
Section 16, no adjustments shall be made for dividends or other distributions
or other rights as to which there is an earlier record date.
12. SECURITIES LAWS REQUIREMENTS. No Option Shares shall be issued
unless and until, in the opinion of the Company, any applicable registration
requirements of the Securities Act of 1933, as amended, any applicable
listing requirements of any securities exchange on which stock of the same
class is then listed, and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance and delivery, have been fully
complied with. Each Option and each Option Share certificate may be imprinted
with legends reflecting federal and state securities laws, restrictions and
conditions, and the Company may comply therewith and issue "stop transfer"
instructions to its transfer agent and registrar in good faith without
liability.
13. DISPOSITION OF SHARES. Each Optionee, as a condition of exercise,
shall represent, warrant and agree, in a form of written certificate approved
by the Company, as follows: (a) that all Option Shares are being acquired
solely for his own account and not on behalf of any other person or entity;
(b) that no Option Shares will be sold or otherwise distributed in violation
of the Securities Act of 1933, as amended,
5
<PAGE>
or any other applicable federal or state securities laws; (c) that if he is
subject to reporting requirements under Section 16(a) of the Exchange Act, he
will (i) not violate Section 16(b) of the Exchange Act, (ii) furnish the
Company with a copy of each Form 4 and Form 5 filed by him, and (iii) timely
file all reports required under the federal securities laws; and (d) that he
will report all sales of Option Shares to the Company in writing on a form
prescribed by the Company.
14. TEN PERCENT SHAREHOLDER RULE. With respect to ISO's, no Option may
be granted to an Employee who, at the time the Option is granted, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company, unless at the time the Option is granted the
purchase price for the Option Shares is at least 110 percent of the Fair
Market Value of the Option Shares on the Date of Grant and such Option by its
terms is not exercisable after the expiration of five years from the Date of
Grant.
15. RIGHTS TO PURCHASE
15.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to
an Offeree entitles the Offeree to purchase, for a Purchase Price determined
by the Option Committee, shares of Common Stock subject to such terms,
restrictions and conditions as the Option Committee may determine at the time
of grant ("Restricted Stock"). Such conditions may include, but are not
limited to, continued employment or the achievement of specified performance
goals or objectives.
15.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no
rights with respect to the Restricted Stock subject to a Right to Purchase
unless the Offeree shall have accepted the Right to Purchase within ten days
(or such longer or shorter period as the Option Committee may specify)
following the grant of the Right to Purchase by making payment of the full
Purchase Price to the Company in the manner set forth in Section 15.3 hereof
and by executing and delivering to the Company a Stock Purchase Agreement.
Each Stock Purchase Agreement shall be in such form, and shall set forth the
Purchase Price and such other terms, conditions and restrictions of the
Restricted Stock, not inconsistent with the provisions of this Plan, as the
Option Committee shall, from time to time, deem desirable. Each Stock
Purchase Agreement may be different from each other Stock Purchase Agreement.
15.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions,
payment of the Purchase Price upon acceptance of a Right to Purchase
Restricted Stock may be made, in the discretion of the Option Committee, by
(a) cash; (b) check; (c) the surrender of shares of Common Stock owned by the
Offeree that have been held by the Offeree for at least six months, which
surrendered shares shall be valued at Fair Market Value as of the date of
such exercise; (d) any combination of the foregoing methods of payment or any
other consideration or method of payment as shall be permitted by applicable
corporate law.
15.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions
of Section 15.2 hereof, an Offeree shall have the rights of a shareholder
with respect to the Restricted Stock purchased pursuant to the Right to
Purchase, including voting and dividend rights, subject to the terms,
restrictions and conditions as are set forth in the Stock Purchase Agreement.
Unless the Option Committee shall determine otherwise, certificates
evidencing shares of Restricted Stock shall remain in the possession of the
Company in accordance with the terms of the Stock Purchase Agreement.
15.5 RESTRICTIONS. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered or disposed of except
as specifically provided in the Stock Purchase Agreement or by the Option
Committee. In the event a Participant's Continuous Service as an Employee or
6
<PAGE>
Consultant terminates for any reason, the Stock Purchase Agreement may
provide, in the discretion of the Option Committee, that the Company shall
have the right, exercisable at the discretion of the Option Committee , to
repurchase (a) at the original Purchase Price, any shares of Restricted Stock
which have not vested as of the date of termination, and (b) at Fair Market
Value, any shares of Restricted Stock which have vested as of such date, on
such terms as may be provided in the Stock Purchase Agreement.
15.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement
shall specify the date or dates, the performance goals or objectives which
must be achieved, and any other conditions on which the Restricted Stock may
vest.
15.7 DIVIDENDS. If payment for shares of Restricted Stock is made
by promissory note, any cash dividends paid with respect to the Restricted
Stock may be applied, in the discretion of the Option Committee, to repayment
of such note.
15.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be
assignable or transferable except by will or the laws of descent and
distribution or as otherwise provided by the Option Committee.
16. CHANGE IN STOCK, ADJUSTMENTS, ETC. In the event that each of the
outstanding shares of Common Stock (other than shares held by dissenting
shareholders which are not changed or exchanged) should be changed into, or
exchanged for, a different number or kind of shares of stock or other
securities of the Company, or, if further changes or exchanges of any stock
or other securities into which the Common Stock shall have been changed, or
for which it shall have been exchanged, shall be made (whether by reason of
merger, consolidation, reorganization, recapitalization, stock dividends,
reclassification, split-up, combination of shares or otherwise), then
appropriate adjustment shall be made by the Option Committee to the aggregate
number and kind of shares subject to this Plan, and the number and kind of
shares and the price per share subject to outstanding Options and Rights to
Purchase as provided in the respective Option Agreements and Stock Purchase
Agreements in order to preserve, as nearly as practical, but not to increase,
the benefits to Participants.
17. EFFECTIVE DATE OF PLAN; TERMINATION DATE OF PLAN. Subject to the
approval of the Plan by the affirmative vote of the holders of a majority of
the Company's securities entitled to vote and represented at a meeting duly
held in accordance with applicable law, the Plan shall be deemed effective
April 16, 1999. The Plan shall terminate at midnight on April 15, 2009,
except as to Options previously granted and outstanding under the Plan at
that time. No Options or Rights to Purchase shall be granted after the date
on which the Plan terminates. The Plan may be abandoned or terminated at any
earlier time by the Board, except with respect to any Options or Rights to
Purchase then outstanding under the Plan.
18. WITHHOLDING TAXES. The Company, or any Related Company, may take
such steps as it may deem necessary or appropriate for the withholding of any
taxes which the Company, or any Related Company, is required by any law or
regulation or any governmental authority, whether federal, state or local,
domestic or foreign, to withhold in connection with any Option or Right to
Purchase including, but not limited to, the withholding of all or any portion
of any payment or the withholding of issuance of Option Shares or Restricted
Stock to be issued upon the exercise of any Option.
7
<PAGE>
19. CHANGE IN CONTROL.
In the event of a Change in Control of the Company, (a) the Option
Committee, in its discretion, may, at any time an Option or Right to Purchase
is granted, or at any time thereafter, accelerate the time period relating to
the exercise or realization of any Options, Rights to Purchase and Restricted
Stock and (b) with respect to Options and Rights to Purchase, the Option
Committee in its discretion may, at any time an Option or Right to Purchase
is granted, or at any time thereafter, take one or more of the following
actions: (i) provide for the purchase of each Option or Right to Purchase
for an amount of cash or other property that could have been received upon
the exercise of the Option or Right to Purchase had the Option been currently
exercisable, (ii) adjust the terms of the Options and Rights to Purchase in a
manner determined by the Option Committee to reflect the Change in Control,
(iii) cause the Options and Rights to Purchase to be assumed, or new rights
substituted therefor, by another entity, through the continuance of the Plan
and the assumption of outstanding Options and Rights to Purchase, or the
substitution for such Options and Rights to Purchase of new options and new
rights to purchase of comparable value covering shares of a successor
corporation, with appropriate adjustments as to the number and kind of shares
and exercise prices, in which event the Plan and such Options and Rights to
Purchase, or the new options and rights to purchase substituted therefor,
shall continue in the manner and under the terms so provided or (iv) make
such other provision as the Committee may consider equitable. If the Option
Committee does not take any of the foregoing actions, all Options and Rights
to Purchase shall terminate upon the consummation of the Change in Control
and the Option Committee shall cause written notice of the proposed
transaction to be given to all Participants not less than fifteen days prior
to the anticipated effective date of the proposed transaction.
20. AMENDMENT.
(a) The Board may amend, alter or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would (i) impair
the right of a Participant under an outstanding Option Agreement or Stock
Purchase Agreement, except such an amendment made to cause the Plan to
qualify for the exemption provided by Rule 16b-3, or (ii) disqualify the Plan
from the exemption provided by Rule 16b-3. In addition, no such amendment
shall be made without the approval of the Company's shareholders to the
extent such approval is required by law or agreement
(b) The Committee may amend the terms of any Option or Right to
Purchase theretofore granted, prospectively or retroactively, but no such
amendment shall impair the rights of any Participant without the
Participant's consent except such an amendment made to cause the Plan to
qualify for the exemption provided by Rule 16b-3.
(c) Subject to the above provisions, the Board shall have
authority to amend the Plan to take into account changes in law and tax and
accounting rules as well as other developments, and to grant Options and
Rights to Purchase which qualify for beneficial treatment under such rules
without shareholder approval.
21. OTHER PROVISIONS.
(a) The use of a masculine gender in the Plan shall also include
within its meaning the feminine, and the singular may include the plural, and
the plural may include the singular, unless the context clearly indicates to
the contrary.
(b) Any expenses of administering the Plan shall be borne by the
Company.
8
<PAGE>
(c) This Plan shall be construed to be in addition to any and all
other compensation plans or programs. Neither the adoption of the Plan by
the Board nor the submission of the Plan to the shareholders of the Company
for approval shall be construed as creating any limitations on the power or
authority of the Board to adopt such other additional incentive or other
compensation arrangements as the Board may deem necessary or desirable.
(d) The validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and the rights of any
and all personnel having or claiming to have an interest therein or
thereunder shall be governed by and determined exclusively and solely in
accordance with the laws of the State of Colorado.
* * * * * * * *
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 194,447
<SECURITIES> 1,683,136
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,812,306
<PP&E> 74,614
<DEPRECIATION> 47,484
<TOTAL-ASSETS> 3,839,436
<CURRENT-LIABILITIES> 697,683
<BONDS> 665,782
75,747
0
<COMMON> 0
<OTHER-SE> 3,066,006
<TOTAL-LIABILITY-AND-EQUITY> 3,839,436
<SALES> 0
<TOTAL-REVENUES> 202,479
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,168
<INCOME-PRETAX> (239,339)
<INCOME-TAX> (57,000)
<INCOME-CONTINUING> (182,339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (182,339)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
