<PAGE>
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 fiscal year ended June 30, 1998
OR
[ ] 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 __________
Commission File Number 0-12541
SISCOM, INC.
-------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-0899779
- --------------------------------- -------------------------
(State or other jurisdiction IRS Employer
of incorporation or organization) Identification Number
7464 Arapahoe Avenue, Suite B-17, Boulder, Colorado 80303
-------------------------------------------------------------
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: (303) 449-0442
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
---------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B (Section 229.405 of this chapter) 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. [ ]
The Registrant's revenues for the year ended June 30, 1998 were $1,136,800.
As of November 2, 1998 the aggregate market value of the Common Stock of the
Registrant based upon the average of the closing bid and asked prices of the
Common Stock, as quoted on the OTC Electronic Bulletin Board, held by
non-affiliates of the Registrant was approximately $590,177.
As of November 2, 1998 5,131,973 shares of Common Stock and 5,250,000 shares
of Preferred Stock of the Registrant were outstanding.
<PAGE>
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant incorporates by this reference the following:
PART IV - EXHIBITS
1. Incorporated by reference from the Company's Registration Statement
on Form 10, as amended, SEC File Number 0-12541.
FORWARD LOOKING STATEMENTS
In addition to historical information, this Annual Report contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective. The forward-looking
statements contained herein are subject to certain risks and uncertainties
that could cause actual results to differ materially from those reflected in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, competitive pressures, changing economic
conditions, factors discussed in the section entitled Management's Discussion
and Analysis of Financial Condition and Results of Operations, and other
factors, some of which will be outside the control of management. Readers are
cautioned not to place undue reliance on these forward looking statements,
which reflect management's analysis only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward looking statements
to reflect events or circumstances that arise after the date hereof. Readers
should refer to and carefully review the information described in future
documents the Company files with the Securities and Exchange Commission.
<PAGE>
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
History and Background
- ----------------------
SISCOM, INC. ("SISCOM" or the "Company") was incorporated in the State of
Colorado on September 29, 1982 under the name Stockwatch International, Inc.
The Company changed its name to Satellite Information Systems, Corp. on
December 10, 1982, and thereafter to Satellite Information Systems Company on
March 17, 1983. During fiscal year 1997 the Company approved and adopted an
amendment to the Articles of Incorporation officially changing it's name to
"SISCOM, Inc.". SISCOM currently operates as a software development company
that provides computer based products and related services to the electronic
media and sports industry. During the fiscal year ended June 30, 1998, the
business of the Company continued to focus primarily on the development,
marketing and support of its standard software products, including NewsPro(-
Registered Mark-), Video Logging(-TM-) (Logging), Video Retrieval (Retrieval),
Video Archive(-TM-) (Archive), and its newest product, Coaching Decision
Support System (CDSS(-TM-)). SISCOM also acts as a re-seller of hardware,
although such activities are viewed as ancillary to the Company's main
business.
Business of Registrant Products or Services
- -------------------------------------------
SISCOM's revenue has, and is expected to continue to be, primarily
generated through software product sales and services.
The Company has dedicated substantial efforts in the last few years to
broaden the market for the Company's software and related services into many
new fields, including the sports industry. SISCOM has completed installations
with three (3) of the major league sports entities: The National Basketball
Association ("NBA"), The National Hockey League ("NHL"), and FOX Sports
("FOX"). The NBA installation included the provision of full NewsPro(-
Registered Mark-) capabilities, including PC Logging(-TM-) and Video Archive(-
TM-) in support of their extensive video operation, while FOX represents a PC
Logging(-TM-) and Video Archive(-TM-) focused application. The initial NHL
installation included the provision of the core NewsPro(-Registered Mark-)
software and later was expanded to include PC Logging(-TM-) and Video
Archive(-TM-).
In 1994 SISCOM began the development and marketing of PC Logging(-TM-) in
conjunction with Video Archive(-TM-). Together they form a personal computer
("PC") based suite of software designed to automate the process of logging
video tapes (shot listing), storing and subsequently retrieving the logs, and
managing the physical tape library. PC Logging(-TM-) and Video Archive(-TM-)
have been generalized and installed for customers with sports applications
(e.g., FOX Sports, the NHL and the Portland Trail Blazers) and non-sports
applications (e.g., The Travel Channel). Currently, the PC Logging(-TM-)
software supports generic video logging as well as the specialized individual
requirements of basketball, baseball, hockey and football. Development is
continuing to include support for other sports, corporate video requirements,
and for the emerging digital video technologies.
During early 1995, the Company entered into a strategic partnership with
FAST Electronics, U.S., one of the world's leading providers of non- linear
video editing systems for the professional and consumer markets. FAST, a
German based company, has identified the U.S. market as a strategic growth
market and has indicated that it sees an alliance with the Company as an
effective way to penetrate the sports and broadcast segments of the U.S.
market. For SISCOM, this partnership provides a perfect product line
extension for its other video related products. Under the terms of the
agreement, SISCOM will adapt FAST's products to the newsroom automation and
sports markets and will maintain exclusive distribution rights for the
resulting products. This agreement with FAST gives the Company access to a
leading proprietary hardware technology within the emerging digital video
industry, a benefit that is expected to afford the Company a distinct
advantage in the global market.
In February 1996, the re-sale arrangement for Stadium Click Effects (a
computerized sound effects product for stadiums and arenas) between EMSI, Inc.
and the third party software developer was terminated. The Company's initial
strategy of using this product to create a significant customer base was
generally successful with an installed base of over 140 customers. The
Company has decided to redirect its resources toward developing and selling
higher margin video related software products to its customers.
In Autumn 1996 and with the cooperation of the Portland Trail Blazers and
the Miami Heat of the NBA, the Company began development of CDSS, its new
software product for interpreting NBA game statistics and reporting them to
users in a unique, graphical presentation. The initial customer base for the
product is NBA coaching staffs who have reacted very favorably to CDSS product
demonstrations. The Company is currently combining CDSS with many of its
other software products (e.g., video logging, video retrieval, and FAST
editing) to create a comprehensive and powerful coaching tool for NBA coaching
staffs. For the first time, an NBA coach will have the ability to see raw game
statistics interpreted and graphically recreated according to his exact
specifications. In addition he will be able to retrieve and view clips in any
order of the actual game video footage related to those statistics within a
couple of hours after the game itself. Eventually the Company anticipates
offering a slightly modified version of this product to NBA fans at the
consumer level.
DISTRIBUTION METHODS. The Company is marketing and distributing its
current products, including CDSS, under the SISCOM name primarily because of
the strong name recognition SISCOM has in the marketplace. The Company has
elected not to use its marketing subsidiary EMSI, Inc. for NBA or NewsPro(-
Registered Mark-) customers (which together represent the Company's current
focus) in order to avoid confusing customers. The activities of EMSI, Inc.
curtailed sharply over the last few months of the fiscal year of 1996. There
are no significant operations in the current year.
COMPETITION. The Company has competitors for each of its product
offerings, many of whom are larger and possess resources significantly greater
than the Company's resources. The Company is, however, confident that its
products can be sold effectively because each product can be demonstrated to
show unique and valuable advantages over competing products.
MAJOR CUSTOMERS. Management believes that SISCOM has consciously served
a niche market of specialized customers. Because of its minimal marketing
efforts, the Company has historically had to rely on revenues from a few
substantial installations to large customers. This reliance has resulted from
the Company's limited working capital rather than any limitation in the scope
of the potential markets and customers for the Company's products. However
prospectively, management believes that the Company now has the products and
the customer contacts to appeal to a much broader customer base.
PROPRIETARY INFORMATION. The Company relies upon copyrights, trademarks
and trade secrets protection for its products. The Company claims copyright
on all its published materials, including its guides, manuals and computer
software. The Company also owns a federally registered trademark for the
product name NewsPro(-Registered Mark-), and claims common law trademark
protection for the product names P.C. Logging(-TM-), Video Archive(-TM-),
CDSS(-TM-) and FTM(-TM-). The Company's copyrights and trademarks are
considered by the Company to be valuable property rights. The protection
afforded by these intellectual property rights and the law of trade secrets is
believed by the Company to be adequate protection for its products. However,
notwithstanding the Company's intellectual property rights, it is possible for
a competitor to develop near imitations of the Company's products,
implementing modifications, without violating those rights.
RESEARCH AND DEVELOPMENT. The Company plans to introduce additional
products and services as customer demand for such products and services, and
potential sales within specific market segments becomes evident. As marketing
and use of the Company's products and services expand, new applications will
be developed revealing new product development opportunities.
REGULATION. The Company is a public company which files reports with the
Securities and Exchange Commission pursuant to Section 15(d) of the Securities
Exchange Act of 1934, as amended. The Company's Common Stock is traded
over-the-counter and quoted on the OTC Electronic Bulletin Board under the
symbol "SATI".
To the best of the Company's knowledge and belief, the Company is
currently in compliance with all Federal, State and Local laws and
regulations. Compliance with the foregoing is not anticipated to have a
material adverse effect on the Company's earnings and/or competitive position
within the respective industries and will not result in increased capital
expenditures. The Company currently is not subject to any Federal, State or
local provisions which have been enacted or adopted regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment.
EMPLOYEES. The Company currently employs ten (10) full-time employees in
its Boulder, Colorado office.
ITEM 2. DESCRIPTION OF PROPERTIES
-------------------------
The Company's corporate headquarters are located at 7464 Arapahoe Avenue,
Suite B-17, in Boulder, Colorado. This property measures 3,000 square feet
and is leased at $3,510.88 per month, expiring June 30, 1999. The Company has
the option to renew the lease for additional terms. This facility is
considered to be adequate for the Company's current needs.
The Company has various computer hardware, software and communication
equipment located at its Boulder office. This equipment is used to develop
software, to demonstrate products to customers and to provide service to
customers.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Neither the Company nor any officer or director in his capacity as such
is a party to any pending litigation involving the Company, and no such
proceedings are known to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the Company's shareholders during
the quarter ended June 30, 1998.
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
The outstanding shares of Common Stock are traded over-the-counter and
quoted on the OTC Electronic Bulletin Board under the symbol "SATI". The
reported high and low bid and ask prices for the Common Stock are shown below
for the period from July 1, 1996 through November 23, 1998:
<TABLE>
<CAPTION>
Bid Ask
------------------ ------------------
High Low High Low
------- -------- ------- --------
<S> <C> <C> <C> <C>
1997 FISCAL YEAR
First Quarter .4063 .1875 .50 .375
Second Quarter .625 .4063 .8438 .50
Third Quarter .625 .4375 .7813 .55
Fourth Quarter .375 .26 .5313 .35
1998 FISCAL YEAR
First Quarter .26 .20 .35 .26
Second Quarter .40 .25 .45 .3125
Third Quarter .47 .28 .50 .37
Fourth Quarter .43 .29 .49 .34
1999 FISCAL YEAR
First Quarter .29 .10 .35 .12
Second Quarter .29 .05 .35 .06
(Thru November 23, 1998)
</TABLE>
The closing bid and ask prices of the Company's Common Stock as of
November 23, 1998 were $.05 and $.06 respectively. The prices represented
above are bid and ask prices which represent prices between broker-dealers and
do not include retail mark-ups and mark-downs or any commissions. The prices
do not reflect prices in actual transactions. As of November 23, 1998, there
were approximately 466 record owners of the Company's Common Stock.
The Company's Board of Directors may only declare and pay dividends on
outstanding shares of Common Stock when all declared funds on the Company's
Preferred Shares have been paid, or the Company has set aside a sufficient
amount to pay them. As of the date of this Report, no dividends have been
declared or paid on the Company's outstanding Preferred Shares. (See
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Liquidity and
Capital Resources - June 30, 1998 Compared to June 30, 1997)
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this Report.
Results of Operations - Fiscal Year Ended June 30, 1998 Compared to Fiscal
Year Ended June 30, 1997
- --------------------------------------------------------------------------
During the fiscal year ended June 30, 1998, SISCOM generated revenue of
$1,136,800 with a resulting net loss of $460,100 compared to revenue of
$838,200 and net loss of $218,400 the previous year.
Revenue
-------
The following table outlines the Company's revenue mix over the last two
(2) fiscal years.
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C> <C> <C>
Product Sales
Software sales $ 228,000 20% $ 283,800 34%
Hardware sales 273,700 24% 124,600 15%
Software Services 635,100 56% 429,800 51%
----------- ---- ----------- ----
Total Revenue $1,136,800 100% $ 838,200 100%
----------- ---- ----------- ----
</TABLE>
Product Sales were primarily to the sports industry and involved the sale
of proprietary software and computer hardware (on a re-sale basis). Software
sales and software services revenues increased $149,500, from $713,600 for
fiscal 1997, to $863,100 for the twelve (12) months ended June 30, 1998, an
increase of approximately 21%. This growth in revenue was the result of an
increased effort on the part of the Company to target the sports industry and
expand its customer base.
SISCOM's hardware sales increased from $124,600 for the twelve (12)
months ended June 30, 1997, to $273,700 for fiscal 1998, an increase of over
100%. The increase was the direct result of a stepped up effort to gain more
customers in the sports industry.
Costs and Expenses
------------------
Cost of sales and services includes components for hardware sales, direct
labor and materials used in the manufacture of software, capitalized software
amortization and other expenses incurred to generate revenue. For the fiscal
year ended June 30, 1998, cost of sales and services was approximately 68% of
total revenue compared with 56% for the prior year.
Gross margins were nearly 32% in fiscal 1998 compared to 44% in fiscal
1997. This decrease in gross margin is attributable to the change in sales
mix between hardware sales and software sales and related services. Hardware
sales have consistently had a substantially lower margin than software and
related services revenue over the years. Revenue from hardware sales, as a
percentage of total revenue, increased from 15% in fiscal 1997 to
approximately 24% in fiscal 1998. During this same period, software and
service revenue, as a percentage of total revenue, decreased from 85% in
fiscal 1997 to 76% in fiscal 1998, resulting in a decrease in gross margin.
The following table outlines the Company's cost of sales components for
the last two (2) fiscal years.
<TABLE>
<CAPTION>
Years Ended June 30
----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C> <C> <C>
Hardware Cost of Sales $ 315,300 41% $ 98,000 21%
Direct Labor and Materials 180,400 23% 162,000 35%
Software Amortization 257,000 33% 193,000 41%
Other 21,000 3% 14,000 3%
----------- ---- ----------- ----
Total Costs of Sales $ 773,700 100% $ 467,000 100%
=========== ==== =========== ====
</TABLE>
Hardware Cost of Sales increased from $98,000 in fiscal 1997 to $315,300
in fiscal 1998, an increase of more than 200%. The increase is due primarily
to the growth in the Company's customer base. Typically, new customers
purchase hardware to run the Company's software programs. Hardware sales,
while generally low margin sales, are used to support software sales and
services. The cost of hardware increased from 21% of total cost of sales in
fiscal 1997 to 41% in fiscal 1998, and hardware was sold in 1998 at a negative
margin. In the future, the Company intends to return to at least a small
positive gross margin on hardware sales. This increase in Hardware Cost of
Sales is primarily a result of the growth in first time customers, and due to
existing customers upgrading their equipment. During fiscal 1998, the Company
continued to focus on providing business solutions through sales of its
software and services within the sports industry with hardware sales an
ancillary component of that solution.
The cost of direct labor and materials includes employee hours spent
contract programming and installing, training, and supporting the company's
software applications as well as any materials and supplies directly used in
the process. The total cost of direct labor and materials rose $18,400 or
roughly 11% between fiscal 1997 and fiscal 1998. However, as a percentage of
total cost of sales, direct labor and materials decreased from 35% in fiscal
1997 to 23% in fiscal 1998, primarily as a result of increased hardware costs.
Software amortization increased $64,000 in fiscal 1998 to $257,000 from
$193,000 in fiscal 1997, an increase of approximately 33%. The Company
continues to emphasize software development and introduced a new digital video
management application in fiscal 1998. Management expects a corresponding
increase in capitalized software creation costs and the related amortization
of those costs. The Company amortizes its software over the shorter of its
estimated life or three years.
Operating, general and administrative expenses increased by $178,000
during fiscal 1998, from $522,600 for the twelve (12) months ended June 30,
1997, to $700,600 in fiscal 1998, an increase of approximately 34%. This
increase was primarily a result of the Company's increased travel costs of
approximately $60,000, health insurance of $20,000, supply and telephone
expenses of $20,000, compensation expense associated with the exercise of
options totaling $12,000, and other general increases associated with efforts
to increase the Company's customer base.
Depreciation expense increased from $89,600 for the year ended June 30,
1997, to $127,800 for fiscal 1998, an increase of approximately 43%. This
increase is attributable to sizable additions during the fiscal year to
property and equipment in order to upgrade the Company's in house software
development capabilities.
Liquidity and Capital Resources - June 30, 1998 Compared to June 30, 1997
- -------------------------------------------------------------------------
SISCOM's current working capital surplus of $67,400, represented by
current assets minus liabilities, shows a decrease over fiscal 1997's working
capital surplus of $157,500. The decrease is primarily the result of
operating losses and significant investments in software enhancements in
excess of capital contributions from the sale of preferred stock.
The Company's primary uses of cash and working capital during fiscal 1998
were the purchase of capital assets of $ 191,900 which included upgrades to
the computer equipment for use in software development and customer support,
and the capitalized cost of computer software development of $345,600.
During the third quarter of fiscal 1998, the Company entered into
agreements with two investors who each purchased 625,000 shares of Series A-1
Convertible Preferred Stock at a purchase price of $.40 per share for a total
investment of $500,000. The two investors are subsidiaries of Global Equities
Corporation, the current holder of 4,000,000 shares of the Company's Series A
Convertible Preferred Stock. The new shares carry the same rights and
preferences as the previously issued Series A Convertible Preferred Stock.
Specifically, these shares carry a non-cumulative dividend at an annual rate
of $.0175 per share, which will only be paid out of the net profits or surplus
of the Company as determined by the Board of directors. At June 30, 1998, no
dividends were declared or payable. No dividends will be paid on the
Company's common stock, no distributions will be made on the Company's common
stock, and no shares of Company common stock will be redeemed, retired, or
otherwise acquired by the Company for valuable consideration until all
declared dividends on the Company's Preferred Shares have been paid, or the
Company has set aside a sufficient amount to pay them. The Series A-1
Preferred Shares are convertible into the Company's common stock on a
one-for-one basis commencing the earlier of one year from the date of issuance
or the effective date of a registration statement registering for sale the
shares of common stock issuable upon conversion of the Series A-1 Preferred
and ending three years from the date of issuance. Holders of Series A-1 have
the right to demand that the Company file a registration statement to register
for sale the shares of common stock received upon conversion. All costs of
such registration shall be paid by the Company. Conversion values shall be
adjusted for stock splits and combinations. The holders of Series A-1 have
voting rights that are identical to the voting rights of holders of common
stock.
The Company, as a result of new capital, continued sales of its software
products to the sports industry, and renewal of its maintenance support
services, believes it will generate sufficient cash flow to meet its current
operating needs.
Management believes that inflation has not had a material impact on
its results of operations.
Subsequent Event
- ----------------
The start of the 1998-99 NBA season has been delayed, indefinitely,
pending the resolution of various disputes between team owners and the NBA
Player's Association (the "NBA Lockout"). A significant portion of the
Company's business has historically involved transactions with certain NBA
teams, including the Portland Trailblazers, Miami Heat and Toronto Raptors.
While the NBA Lockout has not, to date, materially affected the Company's
existing agreements with various NBA teams, protracted negotiations between
team owners and the Player's Association, resulting in a significantly
shortened or forfeited 1998-99 NBA season, could have a material adverse
impact on the Company's operations, and particularly on sales and/or renewals
of the Company's CDSS software product. However, the Company believes that
any adverse effects of a lengthy NBA Lockout would be offset, somewhat, by
recent sales to NHL teams and at the collegiate level. There can, however, be
no assurance that the Company will be able to continue its expansion into the
NHL or at the collegiate level, or that said expansion will be at a level that
is sufficient to replace revenues, if any, lost as a result of the NBA
Lockout.
Other than the foregoing, management knows of no trends, or other
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, a material impact on the income and expenses
of the Company.
Year 2000 Issue
- ---------------
THE PROBLEM. The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
As a result, any of the Company's computer programs that have date sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which, in turn, could result in system failures or miscalculations
causing disruptions in the operations of the Company and its suppliers and
customers.
THE COMPANY'S STATE OF READINESS. The Company has instituted a Year 2000
Project. As part of the Company's Year 2000 Project, the Company has completed
its initial evaluation of current computer systems, software and embedded
technologies. The evaluation revealed that the Company's accounting software
is the only major resources that has Year 2000 compliance issues. This
resource will need to be either replaced or upgraded. Fortunately, the
identified software is an "off the-shelf" product with a Year 2000 compliant
version now available.
The Company has determined that there should be no material Year 2000
Issues for the products it is selling or has already sold, excluding issues
associated with the Microsoft Windows95(-Registered Mark-) operating system
which is incorporated into certain of the Company's products. To the
Company's best knowledge, the minor Year 2000 issues associated with Microsoft
Windows95(-Registered Mark-) operating system will have no material impact on
customers running the Company's applications on the Windows95(-Registered
Mark-) platform. However, should any issues arise, they will be addressed as
incurred.
The Company has not, to date, contacted its significant suppliers and
large customers to determine the extent to which the Company is vulnerable to
those third parties' failure to remediate their Year 2000 compliance issues.
The Company does, however, plan to contact its significant suppliers and large
customers as part of its Year 2000 Project. However, there can be no guarantee
that the systems of other companies on which the Company's business relies
will be timely converted or that failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company and its operations.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Expenditures in
1997 and 1998 for the Year 2000 Project have been insignificant. Management
expects that completion of its Year 2000 Project will not result in
expenditures that are material to the financial statements.
THE RISKS ASSOCIATED WITH THE COMPANY'S YEAR 2000 ISSUES. The Company's
failure to resolve Year 2000 Issues on or before December 31, 1999 could
result in system failures or miscalculations causing disruption in operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. Additionally,
failure of third parties upon whom the Company's business relies to timely
remediate their Year 2000 Issues could result in disruptions in the Company's
supply of parts and materials, late, missed or unapplied payments, temporary
disruptions in order processing and other general problems related to the
Company's daily operations. While the Company believes its Year 2000 Project
will adequately address the Company's internal Year 2000 issues, until the
company receives responses from a significant number of the Company's
suppliers and customers, the overall risks associated with the Year 2000 Issue
remain difficult to accurately describe and quantify, and there can be no
guarantee that the Year 2000 issue will not have a material adverse effect on
the Company and its operations.
THE COMPANY'S CONTINGENCY PLAN. The Company has not, to date,
implemented a Year 2000 Contingency Plan. It is the Company's goal to have the
major Year 2000 Issues resolved by the end of fiscal 1998, with final Year
2000 verification and validation is scheduled to occur by the end of March,
1999. The Company will, however, develop and implement a contingency plan by
the end of December, 1998, in the event the Company's Year 2000 Project should
fall behind schedule.
Private Securities Litigation Reform
- ------------------------------------
Certain statements in this Annual Report on Form 10-KSB which are not
historical facts are forward looking statements, such as statements relating
to future operating results, existing and expected competition, financing and
refinancing sources and availability and plans for future development or
expansion activities and capital expenditures. Such forward looking
statements involve a number of risks and uncertainties that may significantly
affect the Company's liquidity and results in the future and, accordingly,
actual results may differ materially from those expressed in any forward
looking statements. Such risks and uncertainties include, but are not limited
to, those related to effects of competition, leverage and debt service
financing and refinancing efforts, general economic conditions, changes in
gaming laws or regulations (including the legalization of gaming in various
jurisdictions) and risks related to development and construction activities.
ITEM 7. FINANCIAL STATEMENTS
--------------------
The following financial statements are filed as part of this report:
1. Report of Independent Auditors;
2. Audited Consolidated Balance Sheet as of June 30, 1998;
3. Audited Consolidated Statements of Operations as of June 30, 1998
and 1997;
4. Audited Consolidated Statement of Changes in Stockholders' Equity
from July 1, 1996 through June 30, 1998;
5. Audited Consolidated Statements of Cash Flows for the years ended
June 30, 1998 and 1997;
6. Notes to Consolidated Financial Statements.
All schedules are omitted since the required information is not present
or is not in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements and
notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
---------------------------------------------------------------
There has been no change in, or disagreement with, the Company's
principal accountant during the Company's two most recent fiscal years or any
later interim period.
<PAGE>
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
-------------------------------------------------------------
Directors and Executive Officers
- --------------------------------
The name, position with the Company, age of each director and officer and
the period during which each director and/or officer has served are as
follows:
<TABLE>
<CAPTION>
Director and/or Executive
Name and Position in the Company Age Officer Since
- -------------------------------- ---- --------------
<S> <C> <C>
Michael J. Ellis, 51 1985
Chairman of the Board,
President and CEO
Robert D.S. Turner, 59 1988
Director, Secretary
and Director of Marketing
Mark S. Boledovich 46 1987
Director, V.P. of
Field Operations
John R. Hart 39 1996
Director
Maxim C.W. Webb 37 1996
Director
</TABLE>
- ----------------------------
MICHAEL J. ELLIS. Mr. Ellis has been Chairman of the Board, President
and Chief Executive Officer of the Company since February, 1985. Mr. Ellis
was a founder and the President of DI-SYS, Ltd., a wholly owned subsidiary of
the Company from December, 1982 to February, 1985.
ROBERT D. S. TURNER. Mr. Turner joined the Company as Director of
Marketing in February, 1990. On August 24, 1990, he was elected Secretary of
the Company. Prior to joining SISCOM, from January, 1989 to February, 1990,
Mr. Turner had been Branch Manager of Structural Dynamics Research
Corporation, Englewood, Colorado, a manufacturer of computer software. From
February, 1982 to December, 1988, Mr. Turner was Western Regional Manager -
Federal Sales, for Calma Company, a wholly owned subsidiary of General
Electric, engaged in the design, manufacture and sale of high performance
graphic systems.
MARK S. BOLEDOVICH. Mr. Boledovich was with DI-SYS, Ltd., a wholly owned
subsidiary of SISCOM, from September, 1984, until he became Vice President of
Field Operations for SISCOM in November, 1986. For four (4) years prior to
joining the Company, he was Operations Manger for TENTIME, a computer
timesharing service bureau.
JOHN R. HART. Mr. Hart was appointed to the Company's Board of Directors
in November 1996, in conjunction with Global Equity Corporation's purchase of
4,000,000 shares of the Company's Series A Convertible Preferred Stock. After
graduating from Pomona College in 1982 with a B.A. degree in Economics, he
began his investment career with a firm which was a pioneer in developing
computerized analytical systems for portfolio management and trading. This
led to a partnership in investment banking firm of Detwiler, Ryan & Company, a
partnership that specialized in providing merger and acquisition advice and
institutional portfolio management consultation services. Mr. Hart is
President, CEO, and a Director of PICO Holdings, Inc., a publicly traded
corporation listed on the Nasdaq National Market System, as well as various
subsidiaries of PICO Holdings, Inc. He is also President, CEO and a Director
of Global Equity Corporation, a publicly traded corporation listed on the
Toronto Stock Exchange and the Montreal Exchange; and a Director of PC Quote,
Inc., a publicly traded corporation listed on the American Stock Exchange.
MAXIM C. W. WEBB. Mr. Webb was appointed to the Company's Board of
Directors in November, 1996, in conjunction with the Global Equity Corporation
transaction. Mr. Webb currently serves as a Senior Investment Analyst with
Global Equity Corporation (f/k/a The Ondaatje Corporation), a Canadian
corporation having its principal offices in Toronto, Ontario, Canada. Mr.
Webb joined Global Equity Corporation in 1993, and was initially responsible
for setting up Global Equity Corporation's Asian corporate finance activities.
Prior to going to Global Equity Corporation, he worked for KPMG Peat Marwick
in its London and Toronto offices with responsibilities for managing a variety
of client merger and acquisition, corporate disposal and due diligence
assignments. Mr. Webb graduated with a degree in Zoology from London
University in 1982 and qualified as a Chartered Accountant in 1987.
The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
Shareholders. Each executive officer will hold office until his successor is
duly elected and qualified, until his resignation or until he shall be removed
in the manner provided by the Company's By-laws.
There were no family relationships among directors, executive officers,
or persons nominated or chosen by the Company to become a director or
executive officer. Except for the appointment of Messrs. Hart and Webb to the
Company's Board of Directors in conjunction with the Global Equity
transaction, there were no arrangements or understandings between any director
or executive officer and any other person pursuant to which any director or
executive officer was elected as such. See ITEM 12 - CERTAIN RELATIONSHIPS
AND RELATED TRANSACTION
During the past five years, no director or officer of the Company has:
(1) Filed or has had filed against him a petition under the federal
bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent
or similar officer been appointed by, a court for the business or property of
such person, or any partnership in which he was a general partner, or any
corporation or business association of which he was an executive officer at or
within two years before such filings;
(2) Been convicted in a criminal proceeding or is a named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Been the subject of any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining such person from, or otherwise limiting
his involvement in any type of business, securities or banking activities.
(4) Been found by a court of competent jurisdiction in a civil action,
the Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated any federal or state securities or commodities
law, which judgment has not been reversed, suspended, or vacated.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires any person who owns more than ten percent of any class of any equity
security which is registered pursuant to Section 12 of the Exchange Act, or
who is a director or an officer of the issuer of such security, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Directors, officers, and greater than ten- percent
shareholders are also required by SEC regulation to furnish the issuer of such
securities with copies of all Section 16(a) reports filed.
Specific due dates for these reports have been established and the
Company is required to report any failure to file by these dates during the
last fiscal year. All of these filing requirements were satisfied by the
Company's directors, officers and 10% holders. In making these statements,
the Company has relied on the written representation of its directors and
officers or copies of the reports that they have filed with the Commission,
with copies to the Company.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following tables and discussion set forth information with respect to
all plan and non-plan compensation awarded to, earned by or paid to the Chief
Executive Officer ("CEO"), and the Company's four (4) most highly compensated
executive officers other than the CEO, for all services rendered in all
capacities to the Company and its subsidiaries for each of the Company's last
three (3) completed fiscal years; provided, however, that no disclosure has
been made for any executive officer, other than the CEO, whose total annual
salary and bonus does not exceed $100,000.
<PAGE>
<TABLE>
TABLE 1
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
--------------------------
Annual Compensation(1) Awards Payouts
------------------------------ ----------------- -------
Other All
Annual Restricted Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($)(1) ($) (#) ($) ($)
- --------- ------- ------ ------ ------ -------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael J.
Ellis, 1998 120,000 -0- -0- -0- -0- -0- -0-
Chairman,
President, 1997 120,000 -0- -0- -0- -0- -0- -0-
and CEO
1996 90,000 -0- -0- -0- -0- -0- -0-
</TABLE>
- ------------------------------
<PAGE>
All executive officers of the Company participate in the Company's group
health insurance plan. However, no executive officer received perquisites and
other personal benefits which, in the aggregate, exceeds the lesser of either
$50,000 or 10% of the total annual salary and bonus paid during the respective
fiscal years.
1987 Nonqualified and 1988 Qualified Stock Option Plans
- -------------------------------------------------------
In 1987 the Company adopted a nonqualified stock option plan (the "1987
Plan") and in 1988 the Company adopted a qualified stock option plan (the
"1988 Plan"), both for the benefit of the Company's officers, directors and
key employees. Under the 1987 Plan 157,500 shares of the Company's common
stock were reserved for issuance. The 1987 Plan expired in 1997. The 1988
Plan expires in November, 1998 and includes 130,000 reserved shares. Grants
under the Plans are to be issued at the fair market value of the shares on the
date of grant. As of June 30, 1998, there were no options outstanding under
the 87 Plan or the 88 Plan.
1989 Qualified Stock Purchase Plan
- ----------------------------------
In 1989, the Company adopted an Employee Qualified Stock Purchase Plan
(the "1989 Plan"). All full time employees of the Company who have completed
six (6) months of employment and own less than five percent (5%) of the
Company's common stock are eligible to participate in the 1989 Plan. The 1989
Plan makes available to eligible employees who elect to participate through
payroll deductions 60,000 shares of the Company's authorized but unissued
shares of common stock. As of the date of this Report, 2,000 of these shares
had been purchased under the 1989 Plan. The purchase price of the common
stock purchased under the 1989 Plan is equal to eighty-five percent (85%) of
the average of the high and low trading prices of the Company's common stock
on the first or last business days of a six-month subscription period,
whichever is lower.
1994 Stock Incentive Plan
- -------------------------
On October 24, 1994, the Board of Directors of the Company approved and
adopted a Stock Incentive Plan (the "1994 Plan"), subject to shareholder
approval. The 1994 Plan was subsequently approved by the Company's
shareholders at a Special Meeting of Shareholders on October 23, 1995. A
total of 2,000,000 shares of the Company's common stock has been reserved for
issuance under the Plan. At June 30, 1998, the Company had 1,334,500 options
outstanding with exercise prices ranging from $.20 per share to $.67 per
share. Of these, 1,207,834 options are currently exercisable at a weighted
average exercise price of $.26 per share. The remaining 126,666 options are
exercisable in the year ended June 30, 1999, at a weighted average exercise
price of $.39 per share.
The following table sets forth certain information concerning the
exercise of incentive stock options during the last completed fiscal year by
each of the named executive officers and the fiscal year-end value of
unexercised options on an aggregated basis:
<TABLE>
TABLE 2
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
----------------------------------------------------
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs at
Acquired Value at FY-End (#) FY-End ($) (1)
on Exercise Realized Exercisable Exercisable/
Name (#) ($) (Unexercisable) Unexercisable
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael J. -0- $-0- 583,334/ $35,000 (2)/
Ellis (16,666) -0-
- ------------------------------------------------------------------------
</TABLE>
- ------------------------------
(1) The value of unexercised options is determined by calculating the
difference between the fair market value of the securities underlying the
options at fiscal year end and the exercise price of the options.
(2) Mr. Ellis has 500,000 and 100,000 options exercisable at $.22 and $.374
per share respectively. The fair market value of the securities
underlying Mr. Ellis' options at fiscal year end was $0.29 per share
based upon the average of the closing bid and ask prices of the Common
Stock as quoted on the OTC Electronic Bulletin Board. Accordingly, at
fiscal year end, Mr. Ellis' options were worth $0.07 and $0.00 per share,
respectively, or $35,000 in total.
<PAGE>
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth, as of November 23, 1998, and as adjusted
for the sale of Option Stock, the stock ownership of each person known by the
Company to be the beneficial owner of five (5%) percent or more of the
Company's common stock, all directors individually and all directors and
officers of the Company as a group. Each person has sole voting and
investment power with respect to the shares shown, except as noted.
<TABLE>
<CAPTION>
Shares Beneficially Owned
----------------------------------
Name & Address
of Beneficial Owner Number Percent (1)
- --------------------------------- ----------------------------------
<S> <C> <C>
Michael J. Ellis (2)
7464 Arapahoe Avenue, Suite B-17
Boulder, Colorado 80303 1,387,162 12.39%
C.M. Capital Corporation
525 University Ave., Suite 1500
Palo Alto, California 94301 700,000 6.25%
Robert D.S. Turner (3)
7464 Arapahoe Avenue, Suite B-17
Boulder, Colorado 80303 170,000 1.52%
Mark S. Boledovich (4)
7464 Arapahoe Avenue, Suite B-17
Boulder, Colorado 80303 362,880 3.24%
Maxim C.W. Webb (5)
875 Prospect Street, Suite 301
La Jolla, California 92037 5,250,000 46.88%
John R. Hart (5)
875 Prospect Street, Suite 301
La Jolla, California 92037 5,250,000 46.88%
All Officers and Directors
as a Group (5 Persons) 7,170,042 64.03%
- --------------------------
</TABLE>
(1) Shares not outstanding but beneficially owned by virtue of the
individuals' right to acquire them as of the date of this Report, or
within sixty (60) days of such date, are treated as outstanding when
determining the percent of the class owned by such individual and when
determining the percent of the class owned by the group.
(2) Includes Incentive Stock Options exercisable to acquire up to 500,000
shares and 83,334 shares of the Registrant's Common Stock at an exercise
price of $.22 and $.374 per share, respectively. Does not include
Incentive Stock Options exercisable to acquire up to 16,666 shares of the
Registrant's Common Stock at an exercise price of $.374 per share, which
Options are subject to future vesting.
(3) Includes Incentive Stock Options exercisable to acquire up to 25,000 and
45,000 shares of the Registrant's Common Stock at an exercise price of
$.20 and $.34 per share, respectively. Does not include Incentive Stock
Options exercisable to acquire up to 9,000 shares of the Registrant's
Common Stock at an exercise price of $.34 per share, which Options are
subject to future vesting.
(4) Includes Incentive Stock Options exercisable to acquire up to 100,000 and
62,500 shares of the Registrant's Common Stock at an exercise price of
$.20 and $.34 per share, respectively. Does not include Incentive Stock
Options exercisable to acquire up to 12,500 shares of the Registrant's
Common Stock at an exercise price of $.34 per share, which Options are
subject to future vesting.
(5) Includes 5,250,000 shares of the Company's Series A Convertible Preferred
Stock beneficially owned by Global Equity Corporation, a Canadian
corporation ("Global") and 2 private U.S. companies affiliated with
Global. Messrs. Webb and Hart currently serve as executive officers of
Global, and Mr. Hart also serves as a director of Global, and, as such,
both would be deemed to exercise voting and investment control with
respect to the shares of Preferred Stock owned by Global and the U.S.
affiliates. Messrs. Webb and Hart each disclaim beneficial ownership of
the shares of Preferred Stock owned by Global and the U.S. affiliates for
purposes of Section 16 of the Securities Exchange Act of 1934, as
amended.
<PAGE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Formation of EMSI, Inc.
-----------------------
In February, 1995, the Company formed a subsidiary corporation. The new
venture, Event Marketing Systems International, Inc. ("EMSI, Inc."), markets
software and hardware products to the sports industry. EMSI, Inc. is owned
80% by SISCOM and 20% by four individuals. The four individual owners include
Michael J. Ellis, who is also the president and founder of SISCOM, Cord
Periera, who is executive vice president of Diamond Sports, Douglas Piper, co-
founder and president of S.R.O Partners, and Kenneth Wilson, president of
Wilson Sports Marketing.
Global Equity Corporation Transaction
-------------------------------------
On September 12, 1996, the Company entered into an agreement to sell
4,000,000 shares of Series A Convertible Preferred Stock ("Series A Preferred
Shares") to Global Equity Corporation ("Global") for $1,000,000 (the "Global
Agreement"). The Company is obligated to pay a 7% non-cumulative annual
dividend on all of the outstanding Series A Preferred Shares. Each of the
Series A Preferred Shares is convertible into a share of the Company's common
stock on a one-for-one basis commencing the earlier of (I) one year from the
date of issuance or (ii) the effective date of a registration statement
registering for sale the shares of common stock issuable upon conversion of
the Preferred Shares, and ending three years from the date of issuance.
Pursuant to the terms of the Global Agreement, the Company has agreed that no
dividends will be paid on the Company's existing common stock, no
distributions will be made on the Company's common stock, and no shares of the
Company's common stock will be redeemed, retired, or otherwise acquired for
valuable consideration until all declared dividends on the Series A Preferred
Shares have been paid or the Company has set aside a sufficient amount to pay
them. The holders of Series A Preferred Shares have voting rights that are
identical to the voting rights of holders of common stock.
Global Equity Corporation (f/k/a The Ondaatje Corporation), is a Canadian
corporation having its principal offices in Toronto, Ontario, Canada. As part
of the sale of the Series A Preferred Shares, and so long as Global owns any
Series A Preferred Shares, the Company has agreed to take all necessary action
to establish the size of its Board of Directors at five (5) directors and to
take all necessary and appropriate action to elect or appoint to the Company's
Board of Directors two representatives designated by Global. Following
consummation of the sale of the Series A Preferred Shares, Global designated
Messrs. Webb and Hart as its representatives. Messrs. Webb and Hart were
thereafter appointed to the Company's Board of Directors effective November
13, 1996, following the voluntary resignations of Charles Powell and Anthony
Accetta as directors. Mr. Webb is currently Senior Investment Analyst for
Global, and Mr. Hart currently serves as Global's President and CEO.
Issuance of Series A-1 Convertible Preferred Stock
--------------------------------------------------
On February 12, 1998, the Company issued 1,250,000 shares of Series A-1
Convertible Preferred Stock ("Series A-1 Preferred Shares") to two (2)
entities affiliated with Global Equity Corporation for consideration totaling
$500,000. The terms and preferences of the Series A-1 Preferred Shares are
identical to the terms and preferences of the Series A Preferred Shares.
<PAGE>
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
------------------------------------------------------
FINANCIAL STATEMENTS
The following financial statements are filed as part of this report:
1. Report of Independent Auditors;
2. Audited Consolidated Balance Sheet as of June 30, 1998;
3. Audited Consolidated Statements of Operations as of June 30, 1998
and 1997;
4. Audited Consolidated Statement of Stockholders' Equity for the
period from July 1, 1996 through June 30, 1998;
5. Audited Consolidated Statements of Cash Flows for the years ended
June 30, 1998 and 1997;
6. Notes to Consolidated Financial Statements.
EXHIBITS
The following Exhibits are filed as part of this Report pursuant to Item
601 of Regulation S-B:
Exhibit No. Title
- ----------- -----
*3.1 Amended and Restated Articles of Incorporation
*3.1a Articles of Amendment to Articles of Incorporation
*3.2 Certificate of Trade or Assumed Name
*3.3 By-laws
*4.1 Specimen Common Stock Certificate
*4.2 1987 Non-Statutory Stock Option Plan
*4.3 1988 Incentive Stock Option Plan, incorporated by reference
from the Company's Registration Statement on Form S-8 filed
with the Commission in June, 1989
*4.4 1989 Employee Qualified Stock Purchase Plan, incorporated by
reference from the Company's Registration Statement on form S-8
filed with the Commission in March, 1990
*4.5 1994 Stock Incentive Plan
**4.6 Certificate of Designation and Preferences related to Series A
Convertible Preferred Stock
**4.7 Certificate of Designation and Preferences related to Series A-
1 Convertible Preferred Stock
*10.0 Lease Agreement
*10.1 Cross-Receipt between the Company and C.M. Capital Corporation
**27.0 Financial Data Schedule
- ---------------------------------
* Incorporated by reference from the Company's General Form for
Registration of Securities of Small Business Issuers on Form 10-SB, as
amended, SEC file number 0-12541.
** Filed herewith.
REPORTS ON FORM 8-K
The Registrant did not file any Current Reports on Form 8-K during the Fourth
Quarter ended June 30, 1998.
<PAGE>
<PAGE>
Siscom, Inc. and Subsidiary
Consolidated Financial Statements
For the Years Ended
June 30, 1998 and 1997
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheet - June 30, 1998 . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Operations - For the Years Ended
June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Stockholders' Equity - For the Period
from July 1, 1996 through June 30, 1998. . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows - For the Years Ended
June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-8
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
SISCOM, Inc.
Boulder, Colorado
We have audited the accompanying consolidated balance sheet of SISCOM, Inc.
and Subsidiary as of June 30, 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended June 30,
1998 and 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SISCOM,
Inc. and Subsidiary as of June 30, 1998, and the results of their operations
and their cash flows for the years ended June 30, 1998 and 1997, in conformity
with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
September 18, 1998
<PAGE>
<PAGE>
SISCOM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 80,000
Accounts receivable trade, less allowance for
doubtful accounts of $2,400 124,300
Inventory 16,700
Prepaid expenses 3,300
-------------
Total current assets 224,300
PROPERTY AND EQUIPMENT:
Computer equipment 805,400
Office furniture and equipment 85,700
Less accumulated depreciation (547,400)
-------------
Net property and equipment 343,700
SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $2,485,600 447,500
OTHER ASSETS 3,500
-------------
TOTAL ASSETS $ 1,019,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 62,000
Accrued liabilities and other 29,500
Unearned revenue 65,400
-------------
Total current liabilities 156,900
COMMITMENTS (NOTE 7)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 100,000,000
shares authorized;
Series A convertible preferred stock, no par
value, 4,000,000 shares authorized, issued
and outstanding 1,000,000
Series A-1 convertible preferred stock, no par
value, 1,250,000 shares authorized, issued
and outstanding 500,000
Common stock, no par value; 100,000,000 shares
authorized; 5,131,973 shares issued and outstanding 1,950,900
Accumulated deficit (2,588,800)
-------------
Total stockholders' equity 862,100
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,019,000
=============
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
<PAGE>
SISCOM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
NET REVENUES:
Software and related services $ 863,100 $ 713,600
Hardware 273,700 124,600
------------- -------------
Total revenues 1,136,800 838,200
COSTS AND EXPENSES:
Costs of sales 773,700 467,000
Operating, general and administrative 700,600 522,600
Depreciation 127,800 89,600
Minority interest - (2,500)
------------- -------------
Total expenses 1,602,100 1,076,700
------------- -------------
OTHER INCOME -
Interest income 5,200 20,100
------------- -------------
NET LOSS $ (460,100) $ (218,400)
============= =============
NET LOSS PER COMMON SHARE (BASIC AND DILUTED) $ (0.09) $ (0.04)
============= =============
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENTS OUTSTANDING 5,113,000 5,074,000
============= =============
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
<PAGE>
SISCOM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 1, 1996 THROUGH JUNE 30, 1998
<TABLE>
<CAPTION>
TOTAL
PREFERRED STOCK COMMON STOCK STOCK-
------------------------- ------------------------- ACCUMULATED HOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
----------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, July 1, 1996 - $ - 5,067,687 $ 1,931,400 $(1,910,300) $ 21,100
Proceeds from exercise
of warrants - - 30,000 7,500 - 7,500
Issuance of preferred
stock 4,000,000 1,000,000 - - - 1,000,000
Net loss - - - - (218,400) (218,400)
----------- ------------- ----------- ------------- ------------- -------------
BALANCES, June 30, 1997 4,000,000 1,000,000 5,097,687 1,938,900 (2,128,700) 810,200
Exercise of incentive
stock options - - 34,286 12,000 - 12,000
Issuance of preferred
stock 1,250,000 500,000 - - - 500,000
Net loss - - - - (460,100) (460,100)
----------- ------------- ----------- ------------- ------------- -------------
BALANCES, June 30, 1998 5,250,000 $ 1,500,000 5,131,973 $ 1,950,900 $(2,588,800) $ 862,100
=========== ============= =========== ============= ============= =============
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
<PAGE>
SISCOM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
----------------------------
1998 1997
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (460,100) $ (218,400)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 384,800 282,600
Issuance of common stock for services 12,000 -
Minority interest - (2,500)
Loss on impairment of asset - 25,000
Changes in operating assets and liabilities:
Receivables 93,800 (184,200)
Inventories 11,200 (6,000)
Prepaid expenses and other 8,600 1,800
Accounts payable 24,600 (137,300)
Accrued liabilities (13,100) (137,300)
Unearned revenue (115,600) (12,500)
------------- -------------
Net cash used in operating activities (53,800) (388,800)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (191,900) (281,700)
Capitalized software development costs (345,600) (254,700)
------------- -------------
Net cash used in investing activities (537,500) (536,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of common
stock options - 7,500
Proceeds from issuance of preferred stock 500,000 1,000,000
------------- -------------
Net cash provided by financing activities 500,000 1,007,500
------------- -------------
NET (DECREASE) INCREASE IN CASH (91,300) 82,300
CASH AND CASH EQUIVALENTS,
at beginning of period 171,300 89,000
------------- -------------
CASH AND CASH EQUIVALENTS,
at end of period $ 80,000 $ 171,300
============= =============
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
<PAGE>
SISCOM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION - SISCOM, Inc.
(SISCOM) was incorporated in the State of Colorado on September 29, 1982.
SISCOM operates as a software development company that provides computer
based products and services to the electronic media and sports industry.
In 1995, SISCOM formed a new subsidiary, called Event Marketing Systems
International, Inc. (EMSI). Operations of EMSI were insignificant in
1997 and 1998. The consolidated financial statements include the
accounts of SISCOM and EMSI. SISCOM and EMSI are collectively referred
to as the "Company." All significant intercompany accounts and
transactions have been eliminated in consolidation.
INVENTORY - Inventory consists of finished goods. The cost of finished
goods is based on specific identification.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the straight-
line method over the estimated useful lives of the respective assets
(approximately 5 years). The cost of normal maintenance and repairs is
charged to operating expenses as incurred. Material expenditures which
increase the life of an asset are capitalized and depreciated over the
estimated remaining useful life of the asset. The cost of property and
equipment sold, or otherwise disposed of, and the related accumulated
depreciation or amortization are removed from the accounts, and any gains
or losses are reflected in current operations.
SOFTWARE DEVELOPMENT COSTS - The Company capitalizes costs of producing
software to be sold, leased, or otherwise marketed, incurred subsequent
to establishing technological feasibility in accordance with Financial
Accounting Standards Statement No. 86.
Amortization of capitalized software development costs is computed on a
product-by-product basis. The annual amortization is the greater of the
amount computed using the ratio of current gross revenue for a product to
the total of current and anticipated future gross revenue for that
product or the straight-line method, not to exceed three years. In
addition, management periodically compares the unamortized capitalized
costs for each product to the net realizable value of that product. The
amount by which the unamortized capitalized costs exceed the net
realizable value is charged to operations.
The total amount charged to expense in the statements of operations for
amortization of capitalized software costs which is included in cost of
sales was $253,000 and $193,000 for the years ended June 30, 1998 and
1997, respectively.
Costs incurred in researching, designing and planning for the development
of new software are classified as research and development expenses and
are charged to operations as incurred. Such amounts have been immaterial
for the periods presented.
UNEARNED REVENUE - Unearned revenue primarily represents payments
received on deferred maintenance contracts that has not been earned. The
amounts are amortized into revenue on a monthly basis, using the
straight-line method, over the life of the contract.
REVENUE RECOGNITION - Revenue from the sale of computer equipment and the
licensing of the Company's proprietary software to end users,
predominantly in the broadcast and sports industries, is recognized when
the software is delivered and the Company has substantially performed all
material obligations relating to the sale agreement and collectibility is
deemed probable by management. Revenue from software services is
recognized ratably over its contractual period or as the services are
performed.
Costs for maintenance and customer support are charged to expense when
the related revenue is recognized or when those costs are incurred,
whichever occurs first. The Company has adopted Statement of Position
97-2 "Software Revenue Recognition," as of the beginning of fiscal 1998
noting no material effect to the financial statements.
INCOME TAXES - The Company accounts for income taxes on the liability
method. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents. The
Company paid no income taxes during the two year period ended June 30,
1998.
USE OF ESTIMATES - The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles requires the Company's management to make estimates and
assumptions that affect the amounts reported in these consolidated
financial statements and accompanying notes. Actual results could differ
from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS - During the year ended June 30, 1997,
the Company adopted Financial Accounting Standards Board Statement 121
"Impairment of Long-Lived Assets" (FAS 121). In the event that facts and
circumstances indicate that the carrying value of assets may be impaired,
an evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with
the asset would be compared to the asset's carrying amount to determine
if a write-down to market value or discounted cash flow value is
required. No impairment expense was recognized for the years ended
June 30, 1997 and 1998.
STOCK-BASED COMPENSATION - During the year ended June 30, 1997, the
Company adopted Financial Accounting Standards Board Statement 123
"Accounting for Stock-Based Compensation" (FAS 123). FAS 123 encourages,
but does not require, companies to recognize compensation expense for
grants of stock, stock options, and other equity instruments to employees
based on fair value. Companies that do not adopt the fair value
accounting rules must disclose the impact of adopting the new method in
the notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be accounted
for on the fair value method. The Company has elected not to adopt the
fair value accounting prescribed by FAS 123 for employees, and is subject
only to the disclosure requirements prescribed by FAS 123.
LOSS PER SHARE - Loss per share is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (FAS 128). FAS 128 replaced the presentation of
primary and fully diluted earnings (loss) per share (EPS) with a
presentation of basic EPS and diluted EPS. Basic EPS is calculated by
dividing the income or loss available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. Basic and diluted EPS were the same for
1998 and 1997 because the Company had losses from operations and
therefore, the effect of all potential common stock was anti-dilutive.
NEW PRONOUNCEMENTS - Statement of Financial Accounting Standards 130
"Reporting Comprehensive Income" was issued in 1997. Statement 130
establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments
by owners and distributions to owners. Among other disclosures,
Statement 130 requires that all components of comprehensive income shall
be classified based on their nature and shall be reported in the
financial statements in the period in which they are recognized. A total
amount for comprehensive income shall be displayed in the financial
statements where the components of other comprehensive income are
reported. This statement is effective for the Company's financial
statements for the year ended June 30, 1999 and is not expected to have a
material effect on the Company's financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997. This statement establishes
standards for the way public business enterprises report information
about operating segments. It also establishes standards for related
disclosure about products and services, geographical areas and major
customers. This statement is effective for the Company's financial
statements for the year ended June 30, 1999 and the adoption of this
standard is not expected to have a material effect on the Company's
financial statements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued in February 1998. This statement
revises the disclosure requirement for pensions and other postretirement
benefits. This statement is effective for the Company's financial
statements for the year ended June 30, 1999 and the adoption of this
standard is not expected to have a material effect on the Company's
financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998. This statement establishes
accounting and reporting standards for derivative instruments and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value. This statement is effective
for the Company's financial statements for the year ended June 30, 2001
and the adoption of this standard is not expected to have a material
effect on the Company's financial statements.
2. LIQUIDITY:
---------
As reflected in the accompanying financial statements, the Company has
incurred losses in each of the last two years and has an accumulated
deficit as of June 30, 1998 of approximately $2,600,000. Furthermore,
the Company has limited working capital. During the past two years, the
Company has sold preferred stock to an affiliated group of entities,
which has provided funding for operations and for investment in its
software development program.
The Company also has limited liabilities and long-term commitments. In
the past, it has sustained operations with limited working capital and
believes it can continue its operations into the future. The Company is
also continuing its efforts to return to profitability, and may also seek
additional capital infusions in the future.
3. STOCKHOLDERS' EQUITY:
--------------------
PREFERRED STOCK - The Company has authorized 100,000,000 shares of
preferred stock. On September 9, 1996, the Company issued
4,000,000 shares of no par value Series A convertible preferred stock
(Series A) to an investor for consideration of $1,000,000. Series A has
noncumulative dividends at an annual rate of $.0175 per share, which will
only be paid out of the net profits or surplus of the Company as
determined by the Board of Directors. At June 30, 1998, no dividends
were declared or payable. No dividends will be paid on the common stock,
no distributions will be made on the common stock, and no shares of
common stock will be redeemed, retired, or otherwise acquired for
valuable consideration until all declared dividends on the Series A have
been paid, or the Company has set aside a sufficient amount to pay them.
The Series A has a liquidation preference of $.25 per share. The total
liquidation preference was $1,000,000 at June 30, 1998. The holders of
Series A have voting rights that are identical to the voting rights of
holders of common stock. At the option of the holder, the shares of
Series A are convertible into shares of the Company's common stock on a
one-for-one basis. The Series A is convertible during the period
commencing the earlier of one year from the date of issuance, or the
effective date of a registration statement registering for sale the
shares of common stock issuable upon conversion of the Series A, and
ending three years from the date of issuance. Holders of Series A have
the right to demand that the Company file a registration statement to
register for sale the shares of common stock received upon conversion.
All costs of such registration shall be paid by the Company. Conversion
values shall be adjusted for stock splits and combinations.
As part of the sale of the Series A shares, two representatives of the
purchaser replaced two representatives on the Company's Board of
Directors. Furthermore, among other things, the Company shall not issue
new common stock or stock options or incur additional debt without the
approval of the designated representatives of the Series A holders.
On February 12, 1998, the Company issued 1,250,000 shares of no par value
Series A-1 convertible preferred stock (Series A-1) to entities
affiliated with the holder of the Series A convertible preferred for
consideration of $500,000. Series A-1 has the same terms as Series A.
The Series A-1 has a total liquidation preference of $500,000 at June 30,
1998.
STOCK ISSUANCES - In June 1994, the Company sold 440,000 units for
$110,000. Each unit consisted of one share of the Company's common stock
and one common stock purchase warrant (warrant). Each warrant is
exercisable through June 1999 to purchase one additional share of the
Company's common stock at an exercise price of $1.00 per share.
In November 1994, the Company sold 200,000 units for $50,000. Each unit
consisted of one share of the Company's common stock and one common stock
purchase warrant. Each warrant is exercisable through November 1999 to
purchase one additional share of the Company's common stock at an
exercise price of $1.00.
In May 1995, the Company completed a private placement offering of
490,000 units at $.50 per unit for a total of $245,000 less issuance
costs of $19,000. Each unit consisted of one share of restricted common
stock and one common stock purchase warrant which expired unexercised in
January 1998 at an exercise price of $1.00 per share. In September 1995,
the Company granted a warrant to purchase 49,000 units at $.50 per unit
to certain persons who assisted in this offering. The warrant is
exercisable through April 2000.
WARRANTS PRICES
---------- ----------
Warrants outstanding at
June 30, 1998 are as follows:
June 1994 offering 440,000 $1.00
November 1994 offering 200,000 1.00
May 1995 offering 49,000 1.00
----------
689,000
==========
In 1989, the Company adopted an Employee Qualified Stock Purchase Plan
(`89 Plan). All full time employees of the Company who have completed
six months of employment and own less than five percent of the Company's
common stock are eligible to participate in the `89 Plan. The `89 Plan,
makes available 60,000 shares of the Company's authorized but unissued
shares of stock. As of June 30, 1998, 2,000 shares had been purchased
under the `89 Plan. The purchase price of the common stock purchased
under the `89 Plan will generally be 85% of the market value of the
Company's common stock.
STOCK OPTION PLAN - In 1987, the Company adopted a nonqualified stock
option plan (the "87 Plan") which 157,500 shares of the Company's common
stock reserved for issuance. The 87 Plan expires in 1997. In 1988, the
Company adopted a qualified stock plan (the "88 Plan") which has
130,000 shares of the Company's stock reserved for issuance. The 88 Plan
expires in 1998. As of June 30, 1998, there were no options outstanding
under the 87 Plan or the 88 Plan.
In 1995, the Company's shareholders approved a stock incentive plan (the
"Plan"). Under the Plan, the Company is authorized to grant options for
shares of the Company's common stock. A total of 2,000,000 shares of the
Company's common stock has been reserved for issuance under the Plan.
The stock option activity for the years ended June 30, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
Non-Qualified Qualified
--------------------- -------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Price Per of Price Per
Shares Share Share Share
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding, July 1, 1996 492,500 $ .24 1,260,000 $ .27
Granted 120,000 .34 50,000 .67
Exercised - - - -
Expired (225,000) .28 (142,000) .41
---------- ----------
Outstanding, June 30, 1997 387,500 .25 1,168,000 .27
Granted - - - -
Exercised - - (34,286) .35
Expired - - (186,714) .26
---------- ----------
Outstanding, June 30, 1998 387,500 $ .25 947,000 $ .28
========== ==========
</TABLE>
The 1,334,500 options outstanding at June 30, 1998 had exercise prices
ranging from $.20 to $.67. 1,207,834 options are currently exercisable
at a weighted average exercise price of $.26. Remaining options become
exercisable as follows:
<TABLE>
<CAPTION>
Exercisable Weighted
In Year Number Average
Ended of Exercise
June 30, Options Price
------------ ---------- ----------
<S> <C> <C> <C>
1999 126,666 $.39
</TABLE>
For options granted during the year ended 1997, the weighted average
market price of the Company's common stock was approximately equal to the
weighted average exercise price. No options were issued during the year
ended June 30, 1998. The weighted average remaining contractual life for
all options outstanding at June 30, 1998, was approximately 2.4 years.
If not previously exercised, options outstanding at June 30, 1998 will
expire as follows:
<TABLE>
<CAPTION>
Weighted
Year Number Average
Ended of Exercise
June 30, Shares Price
------------ ---------- ----------
<S> <C> <C> <C>
1999 50,000 $ .20
2000 830,000 .23
2001 107,500 .37
2002 125,000 .20
2003 172,000 .34
2004 50,000 .67
</TABLE>
PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options
granted to employees and directors. Accordingly, no compensation cost
has been recorded for grants of options to employees and directors where
the exercise price is not less than the fair market value of the
Company's common stock on the measurement date. Had compensation cost
been determined using the fair value method pursuant to FAS 123, the
Company's net loss and net loss per share would have increased to the pro
forma amounts indicated in the following table:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------
1997 1998
---------- ----------
<S> <C> <C>
Net loss:
As reported $ (218,400) $ (460,100)
Pro forma (246,900) (460,100)
Net loss per common share:
As reported $ (.04) $ (.09)
Pro forma (.05) (.09)
</TABLE>
The fair value of all options granted was estimated as of the date of
grant using the Black-Scholes option pricing model using the following
weighted average assumptions:
<TABLE>
<CAPTION>
Year Ended
June 30,
1997
------------
<S> <C> <C>
Estimated fair value per option $ .23
Expected volatility 102%
Risk-free interest rate 7%
Expected dividends -
Expected term (in years) 7
</TABLE>
4. INCOME TAXES:
------------
The net deferred tax asset is comprised of the following at June 30,
1998:
<TABLE>
<CAPTION>
LONG-TERM
---------------
<S> <C> <C>
Deferred tax asset (liability):
Net operating loss carryforward and
general business tax credit $ 1,806,000
Capitalized software basis differences (158,000)
---------------
Net deferred tax asset 1,648,000
Less valuation allowance (1,648,000)
---------------
$ -
===============
</TABLE>
The Company has accumulated net operating loss carryforwards of
approximately $4,843,000 for income tax purposes as of June 30, 1998.
The Company also has general business tax credit carryforwards of
$139,000. These amounts expire periodically through 2013 if not utilized
sooner. The Company's effective tax rate for the years ended June 30,
1998 and 1997 was 0% due to the Company's net losses for those years.
The net increase in the valuation allowance of $36,000 from June 30,
1997 to June 30, 1998, was entirely due to the change in the net
operating loss.
5. RETIREMENT PLAN:
---------------
The Company has established a defined contribution retirement plan.
Employees obtain eligibility in the plan after one year of service.
Eligible employees are allowed to defer a portion of their pay up to the
lesser of (i) the maximum amount allowed pursuant to IRS regulations or
(ii) 15% of their annual salary. The Company may match up to 50% of
employee contributions, limited to the smaller of 6% of an employee's
salary or 10% of the Company's pretax earnings. The Company made no
matching contributions to the plan for fiscal years 1998 or 1997.
Participants are entitled, upon termination or retirement, to their
vested portion of the retirement fund assets.
6. MAJOR CUSTOMERS AND SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:
-------------------------------------------------------------
As a result of large turnkey software sales, which included hardware,
software, and related services, the following customers comprised greater
than 10% of total revenue:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
CUSTOMER 1998 1997
-------- ------ ------
<S> <C> <C> <C>
A 17% 36%
</TABLE>
Substantially, all revenues and receivables are derived from sales to the
electronic media and sports industries. The Company's customers are
generally geographically located in the United States. At June 30, 1998,
the Company had accounts receivable of approximately $55,000 due from two
customers, including $19,800 due from customer "A" listed above.
Financial instruments that subject the Company to concentrations of
credit risk consist primarily of trade receivables. Trade receivables
are generally not collateralized.
7. COMMITMENTS:
-----------
OFFICE LEASE - The Company leases its office space under a noncancellable
operating lease which expires on August 31, 1998. Subsequently, this
lease was renewed for a one-year term for approximately $42,000 per year.
Total rental expense was $40,500 and $40,100 for the years ended June 30,
1998 and 1997, respectively.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SISCOM, INC.
Date: November 25, 1998 By: /s/ Michael J. Ellis
----------------- ---------------------------------
Michael J. Ellis, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature: Position: Date:
/s/ Michael J. Ellis Chairman of the Board, 11/25/98
- --------------------------- President and
Michael J. Ellis Chief Executive Officer
/s/ Mark S. Boledovich Director, Acting Chief 11/25/98
- --------------------------- Financial Officer
Mark S. Boledovich
/s/ Robert D. S. Turner Director 11/25/98
- ---------------------------
Robert D. S. Turner
/s/ Maxim C.W. Webb Director 11/25/98
- ---------------------------
Maxim C.W. Webb
/s/ John R. Hart Director 11/24/98
- ---------------------------
John R. Hart
CERTIFICATE OF DESIGNATION OF
RIGHTS AND PREFERENCES OF SERIES A
CONVERTIBLE PREFERRED STOCK
OF SATELLITE INFORMATION SYSTEMS COMPANY
- ------------------------------------------------------------------------------
Pursuant to Section 7-106-102 of the
General Corporation Law of the State of Colorado
- ------------------------------------------------------------------------------
SATELLITE INFORMATION SYSTEMS COMPANY, a corporation organized and
existing under the laws of the State of Colorado (the "Company"), DOES HEREBY
CERTIFY that pursuant to the authority contained in its Articles of
Incorporation, as amended, and in accordance with the provisions of the
General Corporation Law of the State of Colorado, the Company's Board of
Directors has duly adopted the following resolution creating a series of the
class of its authorized Preferred Stock, designated as Series A Convertible
Preferred Stock:
RESOLVED THAT:
Whereas, by virtue of the authority contained in its Articles of
Incorporation, as amended, the Company has the authority to issue One
Hundred Million (100,000,000) shares of no par value Preferred Stock, the
designation and amount thereof and series, together with the powers,
preferences, rights, qualifications, limitations or restrictions thereof,
to be determined by the Board of Directors pursuant to the applicable law
of the State of Colorado;
Now therefore, the Company's Board of Directors hereby establishes a
series of the class of Preferred Stock authorized to be issued by the
Company as above stated, with the designations and amounts thereof,
together with the voting powers, preferences and relative, participating,
optional and other special rights of the shares of each such series, and
the qualifications, limitations or restrictions thereof, to be as
follows:
1. DESIGNATIONS AND AMOUNTS. Four Million (4,000,000) shares of the
Company's authorized Preferred Stock are designated as Series A
Convertible Preferred Stock.
2. DEFINITIONS.
For the purposes of this Resolution the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean SATELLITE INFORMATION SYSTEMS COMPANY, a
Colorado corporation.
(c) "Original Issue Date" for a series of Preferred Stock shall
mean the date on which the first share of such series of Preferred
Stock was originally issued.
(d) "Preferred Stock" shall refer to Series A Convertible Preferred
Stock.
(e) "Common Stock" shall refer to the Company's no par value common
stock.
(f) "Subsidiary" shall mean any corporation at least 50% of whose
outstanding voting stock shall at the time be owned directly or
indirectly by the Company or by one or more Subsidiaries.
3. DIVIDENDS.
The holders of outstanding Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, preferential
non-cumulative dividends in cash at the annual rate of $.0175 per share,
payable in equal quarterly installments on the last day of March, June,
September and December of each year. Dividends on Preferred Stock will
be declared and paid only out of the net profits or surplus of the
Company as determined by the Board of Directors. The determination at
any time of the amount of net profits or surplus available for dividends
will be binding and conclusive upon the holdings of the Preferred Stock
of the Company outstanding at the time. Any declared and unpaid
dividends on Preferred Stock will not bear interest. Holders of
Preferred Stock will not receive any dividends other than the preferred
dividends provided for in this paragraph 3, and will not participate with
the Common Stock in the payments of dividends. No dividends will be paid
or set apart for payment on the Common Stock, no distribution will be
made on the Common Stock (other than the dividend payable in Common
Stock) and no shares of Common Shares will be redeemed, retired or
otherwise acquired for valuable consideration (except upon conversion of
the Preferred Stock) unless full dividends on Preferred Stock for all
past years and for the current year have been declared and the
Corporation has paid those dividends or has set aside a sum sufficient to
pay them.
4. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution, or winding up of
the Company, whether voluntary or involuntary, the holders of each
share of Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Company available for distribution to
its shareholders, before any payment or declaration and setting
apart for payment of any amount shall be made in respect to any
outstanding preferred stock ranking junior to the Preferred Stock or
the Common Stock, an amount equal to $.25 per share. If upon any
liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary, the assets to be distributed to the
holders of the Preferred Stock shall be insufficient to permit the
payment to such shareholders of the full preferential amount
aforesaid, then all of the assets of the Company available to be
distributed shall be distributed ratably to the holders of the
Preferred Stock.
(b) After the payment or distribution to the holders of the
Preferred Stock of the full preferential amounts aforesaid, the
holders of any preferred stock rank junior to the Preferred Stock
and the Common Stock then outstanding shall be entitled to receive
all of the remaining assets of the Company.
(c) Neither a consolidation, merger or reorganization of the
Company, a sale or other transfer of all or substantially all of its
assets, nor a sale of fifty percent (50%) or more of the Company's
capital stock then issued and outstanding nor the purchase or
redemption by the Company of stock of any class, nor the payment of
a dividend or distribution from net profits or surplus of the
Company shall be treated as or deemed to be a liquidation hereunder.
5. REDEMPTION.
Neither the Company nor any holder of Preferred Stock shall have the
right to redeem, or demand the redemption of, as the case may be, any of
the outstanding Preferred Stock.
6. VOTING RIGHTS.
At every meeting of the stockholders of the Company, each holder of
Preferred Stock shall be entitled to one vote for each share of Preferred
Stock standing in the name of the holder on the books of the Company,
with the identical voting rights as a holder of a share of Common Stock
of the Company, except as expressly provided for herein. Except as
otherwise provided by law, the Preferred Stock and any other class of
stock of the Company having voting rights shall vote together as one
class. The holders of Preferred Stock are entitled to receive notice of
all meetings of the stockholders of the Company, to the same extent and
in the same manner as the holders of the Common Stock of the Company.
7. CONVERSION.
The Preferred Stock shall have the following conversion rights (the
"Conversion Rights"):
(a) OPTIONAL CONVERSION. For the period commencing the earlier of
(i) one (1) year from the date of issuance or (ii) the effective
date of a Registration Statement registering for sale under the
Securities Act of 1933, as amended (the "Securities Act"), the
shares of Common Stock issuable upon conversion of the Preferred
Stock (the "Conversion Stock"), and ending three (3) years from the
date of issuance, holders of outstanding shares of Preferred Stock
shall have an option to convert all, but not less than all of the
shares of Preferred Stock into shares of the Company's Common Stock
(the "Conversion Stock"), at a conversion value of 25/100 Dollars
($.25) per share of Common Stock ("Conversion Value"). Initially,
each share of Preferred Stock shall be convertible into one (1)
share of Common Stock.
(b) AUTOMATIC CONVERSION. The foregoing notwithstanding, the
outstanding shares of Preferred Stock shall be automatically
converted into shares of Common Stock upon the effective date of a
Registration Statement ("Registration Statement") which shall be
filed by the Company with the Securities and Exchange Commission
("Commission") upon the written demand of the holder of the
Preferred Stock registering for sale the issuance of the Conversion
Stock. In the event of such automatic conversion, the conversion
value shall be $.25 per share.
(c) REGISTRATION RIGHTS. Holders of the Preferred Stock shall have
a one-time demand registration right to have registered under the
Securities Act the Conversion Stock on a Registration Statement on
Form S-3 pursuant to which the Company agrees to be caused to be
filed with the Commission within ninety (90) days following the date
of such demand and to keep such Registration Statement effective for
a period of not less than sixty (60) days. All costs of preparing,
filing and maintaining the effectiveness of the Registration
Statement shall be borne by the Company. The respective rights and
obligations of the Company and holders of the Preferred Stock with
respect to such registration rights shall be governed by a separate
Registration Rights Agreement. Notwithstanding, Holder shall have
the right to withdraw its registration demand without prejudice at
any time prior to the effective date of the Registration Statement
if, in its sole judgment, such withdraw is in its best interest.
(d) MECHANICS OF CONVERSION. The conversion of all outstanding
shares of Preferred Stock to Common Stock shall occur automatically
and without further consideration upon the effective date of the
Registration Statement ("Triggering Event"). The Company shall,
within ten (10) days of the Triggering Event, provide written
notice, first class postage pre-paid, to each holder of record of
the Preferred Stock to be converted, at his post office address last
shown on the records of the Company, of the conversion (the
"Conversion Notice"). The Conversion Notice shall state:
(i) That all of the holder's outstanding shares of Preferred
Stock were converted;
(ii) The number of shares of Preferred Stock held by the holder
that were converted;
(iii) The effective date of the Conversion (the "Conversion
Date") and the number of shares of Common Stock which the
holder will receive; and
(iv) That the holder is to surrender to the Company, in the
manner and at the place designated, his certificate or
certificates representing the shares of Preferred Stock
converted.
Thereafter, each holder of Preferred Stock to be converted shall
surrender the certificate or certificates representing such shares
to the Company, in the manner and at the place designated in the
Conversion Notice, and thereupon the requisite number of shares of
Common Stock shall be issued in the name of the person whose name
appears on the surrendered certificate or certificates as the owner
thereof, and each surrendered certificate shall be canceled and
retired. Notwithstanding that the certificates evidencing any of
the shares of Preferred Stock shall not have been surrendered, all
rights with respect to such shares shall forthwith after the
Conversion Date, terminate, except only the right of the holders to
receive the appropriate number of shares of Common Stock upon
surrender of their certificate or certificates therefor.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company
shall at any time or from time to time after the Original Issue Date
for a series of the Preferred Stock effect a subdivision of the
outstanding Common Stock, the Conversion Value then in effect
immediately before that subdivision shall be proportionately
decreased, and conversely, if the Company shall at any time or from
time to time after the Original Issue Date for a series of the
Preferred Stock combine the outstanding shares of Common Stock, the
Conversion Value then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this
Paragraph 7(d) shall become effective at the close of business on
the date the subdivision or combination becomes effective.
(f) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Preferred Stock
shall be changed into the same or a different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets provided
for elsewhere in this Paragraph 7), then and in each such event the
holder of each share of Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares
of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Preferred
Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further
adjustments as provided herein.
(g) REORGANIZATION, MERGERS, CONSOLIDATIONS, OR SALES OF ASSETS.
If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision,
combination, reclassification, or exchange of shares provided for
elsewhere in this Paragraph 7) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or
substantially all of the company's assets to any other person, then,
as a part of such reorganization, merger, consolidation, or sale,
provision shall be made so that the holders of the Preferred Stock
shall thereafter be entitled to receive upon conversion of the
Preferred Stock, the number of shares of stock or other securities
or property of the Company, or of the successor corporation
resulting form such merger or consolidation or sale, to which a
holder of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, merger, consolidation, or
sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Paragraph 7 with respect to
the rights of the holders of the Preferred Stock after the
reorganization, merger, consolidation, or sale to the end that the
provisions of this Paragraph 7 (including adjustment of the
Conversion Value then in effect and the number of shares purchasable
upon conversion of the Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
(h) DEFINITION. The term "Additional Shares of Common Stock" as
used herein shall mean all shares of Common Stock issued or deemed
issued (including a right or option to purchase Common Stock, or
shares of stock or an obligation convertible into Common Stock) by
the Company after the Original Issue Date for a series of Preferred
Stock, whether or not subsequently reacquired or retired by the
Company, other than (1) shares of Common Stock, and (2) shares or
other securities issued to employees, officers, directors,
consultants or other persons performing services for the Company
pursuant to any stock offering, option, plan, or arrangement
approved by the Board of Directors of the Company, to the extent
such issuances are permitted under Section 4.02 and 4.05 of that
Agreement for Purchase and Sale of Preferred Stock dated August 30,
1996.
(i) NOTICES OF RECORD DATE. In the event of (I) any taking by the
Company of a record of the holders of any class or series of
securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution or (ii)
any reclassification or recapitalization of the capital stock of the
Company, any merger or consolidation of the Company, or any transfer
of all or substantially all of the assets of the Company to any
other corporation, entity, or person, or any voluntary or
involuntary dissolution, liquidation, or winding up of the Company,
the Company shall mail to each holder of Preferred Stock at least 30
days prior to the record date specified therein, a notice specifying
(A) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend
or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation, or winding up is expected to become effective, and at
the time, if any is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation, or winding up.
(j) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled,
the Company shall pay cash equal to the product of such fraction
multiplied by the fair market value of one share of the Company's
Common Stock on the date of conversion, as determined in good faith
by the Board.
(k) NOTICES. Any notice required by the provisions of this
Paragraph 7 to be given to the holder of shares of the Preferred
Stock shall be deemed given when personally delivered to such holder
or five (5) business days after the same has been deposited in the
United States mail, certified or registered mail, return receipt
requested, postage prepaid, and addressed to each holder of record
at his address appearing on the books of the Company.
(l) PAYMENT OF TAXES. The Company will pay all taxes and other
governmental charges that may be imposed in respect of the issue or
delivery of shares of Common Stock upon conversion of shares of
Preferred Stock.
(m) NO DILUTION OR IMPAIRMENT. The Company shall not amend its
Articles of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue, or
sale of securities or any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to
protect the conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
8. NO PREEMPTIVE RIGHTS.
No holder of the Series A Preferred Stock of the Corporation shall
be entitled, as of right, to purchase or subscribe for any part of the
unissued stock of the Corporation or of any stock of the Corporation to
be issued by reason of any increase of the authorized capital stock of
the Corporation, or to purchase or subscribe for any bonds, certificates
of indebtedness, debentures or other securities convertible into or
carrying options or warrants to purchase stock or other securities of the
Corporation or to purchase or subscribe for any stock of the Corporation
purchased by the Corporation or by its nominee or nominees, or to have
any other preemptive rights now or hereafter defined by the laws of the
State of Colorado.
9. NO REISSUANCE OF PREFERRED STOCK.
No share or shares of Preferred Stock acquired by the Company by
reason of purchase, conversion, or otherwise shall be reissued, and all
such shares shall be canceled, retired, and eliminated from the shares
which the Company shall be authorized to issue.
IN WITNESS WHEREOF, said SATELLITE INFORMATION SYSTEMS COMPANY, has
caused this Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock to be duly executed by its President and attested
by its Secretary and has caused its corporate seal to be affixed hereto, this
_______ day of _________________________, 1996.
SISCOM, INC.
Attest
By:
- ------------------------------ -----------------------------------
Secretary Michael Ellis, President
[Corporate Seal]
CERTIFICATE OF DESIGNATION OF
RIGHTS AND PREFERENCES OF SERIES A-1
CONVERTIBLE PREFERRED STOCK
OF SISCOM, INC.
- ------------------------------------------------------------------------------
Pursuant to Section 7-106-102 of the
General Corporation Law of the State of Colorado
- ------------------------------------------------------------------------------
SISCOM, INC., a corporation organized and existing under the laws of the
State of Colorado (the "Company"), DOES HEREBY CERTIFY that pursuant to the
authority contained in its Articles of Incorporation, as amended, and in
accordance with the provisions of the General Corporation Law of the State of
Colorado, the Company's Board of Directors has duly adopted the following
resolution creating a series of the class of its authorized Preferred Stock,
designated as Series A-1 Convertible Preferred Stock:
RESOLVED THAT:
Whereas, by virtue of the authority contained in its Articles of
Incorporation, as amended, the Company has the authority to issue One
Hundred Million (100,000,000) shares of no par value Preferred Stock, the
designation and amount thereof and series, together with the powers,
preferences, rights, qualifications, limitations or restrictions thereof,
to be determined by the Board of Directors pursuant to the applicable law
of the State of Colorado;
Now therefore, the Company's Board of Directors hereby establishes a
series of the class of Preferred Stock authorized to be issued by the
Company as above stated, with the designations and amounts thereof,
together with the voting powers, preferences and relative, participating,
optional and other special rights of the shares of each such series, and
the qualifications, limitations or restrictions thereof, to be as
follows:
1. DESIGNATIONS AND AMOUNTS. One Million Two Hundred Fifty Thousand
(1,250,000) shares of the Company's authorized Preferred Stock are
designated as Series A-1 Convertible Preferred Stock.
2. DEFINITIONS.
For the purposes of this Resolution the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean SISCOM, INC, a Colorado corporation.
(c) "Original Issue Date" for a series of Preferred Stock shall
mean the date on which the first share of such series of Preferred
Stock was originally issued.
(d) "Preferred Stock" shall refer to Series A-1 Convertible
Preferred Stock.
(e) "Common Stock" shall refer to the Company's no par value common
stock.
(f) "Subsidiary" shall mean any corporation at least 50% of whose
outstanding voting stock shall at the time be owned directly or
indirectly by the Company or by one or more Subsidiaries.
3. DIVIDENDS.
The holders of outstanding Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, preferential
non-cumulative dividends in cash at the annual rate of $.028 per share,
payable in equal quarterly installments on the last day of March, June,
September and December of each year. Dividends on Preferred Stock will
be declared and paid only out of the net profits or surplus of the
Company as determined by the Board of Directors. The determination at
any time of the amount of net profits or surplus available for dividends
will be binding and conclusive upon the holdings of the Preferred Stock
of the Company outstanding at the time. Any declared and unpaid
dividends on Preferred Stock will not bear interest. Holders of
Preferred Stock will not receive any dividends other than the preferred
dividends provided for in this paragraph 3, and will not participate with
the Common Stock in the payments of dividends. No dividends will be paid
or set apart for payment on the Common Stock, no distribution will be
made on the Common Stock (other than the dividend payable in Common
Stock) and no shares of Common Shares will be redeemed, retired or
otherwise acquired for valuable consideration (except upon conversion of
the Preferred Stock) unless full dividends on Preferred Stock for all
past years and for the current year have been declared and the
Corporation has paid those dividends or has set aside a sum sufficient to
pay them.
4. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution, or winding up of
the Company, whether voluntary or involuntary, the holders of each
share of Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Company available for distribution to
its shareholders, before any payment or declaration and setting
apart for payment of any amount shall be made in respect to any
outstanding preferred stock ranking junior to the Preferred Stock or
the Common Stock, an amount equal to $.40 per share. For purposes
of this Certificate, the Preferred Stock shall be of a ranking and
priority equal to the Company's outstanding Series A Convertible
Preferred Stock and shall participate in any liquidation,
dissolution or winding up of the Company on a pro-rata basis with
holders of each share of the Company's outstanding Series A
Convertible Preferred Stock. If upon any liquidation, dissolution,
or winding up of the Company, whether voluntary or involuntary, the
assets to be distributed to the holders of the Preferred Stock shall
be insufficient to permit the payment to such shareholders of the
full preferential amount aforesaid, then all of the assets of the
Company available to be distributed shall be distributed ratably to
the holders of the Preferred Stock, and holders of the Series A
Convertible Preferred Stock.
(b) After the payment or distribution to the holders of the
Preferred Stock and holders of the Series A Convertible Preferred
Stock, of the full preferential amounts aforesaid, the holders of
any preferred stock rank junior to the Preferred Stock and the
Common Stock then outstanding shall be entitled to receive all of
the remaining assets of the Company.
(c) Neither a consolidation, merger or reorganization of the
Company, a sale or other transfer of all or substantially all of its
assets, nor a sale of fifty percent (50%) or more of the Company's
capital stock then issued and outstanding nor the purchase or
redemption by the Company of stock of any class, nor the payment of
a dividend or distribution from net profits or surplus of the
Company shall be treated as or deemed to be a liquidation hereunder.
5. REDEMPTION.
Neither the Company nor any holder of Preferred Stock shall have the
right to redeem, or demand the redemption of, as the case may be, any of
the outstanding Preferred Stock.
6. VOTING RIGHTS.
At every meeting of the stockholders of the Company, each holder of
Preferred Stock shall be entitled to one vote for each share of Preferred
Stock standing in the name of the holder on the books of the Company,
with the identical voting rights as a holder of a share of Common Stock
of the Company, except as expressly provided for herein. Except as
otherwise provided by law, the Preferred Stock and any other class of
stock of the Company having voting rights shall vote together as one
class. The holders of Preferred Stock are entitled to receive notice of
all meetings of the stockholders of the Company, to the same extent and
in the same manner as the holders of the Common Stock of the Company.
7. CONVERSION.
The Preferred Stock shall have the following conversion rights (the
"Conversion Rights"):
(a) OPTIONAL CONVERSION. For the period commencing the earlier of
(i) one (1) year from the date of issuance or (ii) the effective
date of a Registration Statement registering for sale under the
Securities Act of 1933, as amended (the "Securities Act"), the
shares of Common Stock issuable upon conversion of the Preferred
Stock (the "Conversion Stock"), and ending three (3) years from the
date of issuance, holders of outstanding shares of Preferred Stock
shall have an option to convert all, but not less than all of the
shares of Preferred Stock into shares of the Company's Common Stock
(the "Conversion Stock"), at a conversion value of 40/100 Dollars
($.40) per share of Common Stock ("Conversion Value"). Initially,
each share of Preferred Stock shall be convertible into one (1)
share of Common Stock.
(b) AUTOMATIC CONVERSION. The foregoing notwithstanding, the
outstanding shares of Preferred Stock shall be automatically
converted into shares of Common Stock upon the effective date of a
Registration Statement ("Registration Statement") which shall be
filed by the Company with the Securities and Exchange Commission
("Commission") upon the written demand of the holders of the
Preferred Stock registering for sale the issuance of the Conversion
Stock. In the event of such automatic conversion, the conversion
value shall be $.40 per share.
(c) REGISTRATION RIGHTS. Holders of the Preferred Stock shall have
a one-time demand registration right to have registered under the
Securities Act the Conversion Stock on a Registration Statement on
Form S-3 pursuant to which the Company agrees to be caused to be
filed with the Commission within ninety (90) days following the date
of such demand and to keep such Registration Statement effective for
a period of not less than sixty (60) days. All costs of preparing,
filing and maintaining the effectiveness of the Registration
Statement shall be borne by the Company. The respective rights and
obligations of the Company and holders of the Preferred Stock with
respect to such registration rights shall be governed by a separate
Registration Rights Agreement. Notwithstanding, Holder shall have
the right to withdraw its registration demand without prejudice at
any time prior to the effective date of the Registration Statement
if, in its sole judgment, such withdraw is in its best interest.
(d) MECHANICS OF CONVERSION. The conversion of all outstanding
shares of Preferred Stock to Common Stock shall occur automatically
and without further consideration upon the effective date of the
Registration Statement ("Triggering Event"). The Company shall,
within ten (10) days of the Triggering Event, provide written
notice, first class postage pre-paid, to each holder of record of
the Preferred Stock to be converted, at his post office address last
shown on the records of the Company, of the conversion (the
"Conversion Notice"). The Conversion Notice shall state:
(i) That all of the holder's outstanding shares of Preferred
Stock were converted;
(ii) The number of shares of Preferred Stock held by the holder
that were converted;
(iii) The effective date of the Conversion (the "Conversion
Date") and the number of shares of Common Stock which the
holder will receive; and
(iv) That the holder is to surrender to the Company, in the
manner and at the place designated, his certificate or
certificates representing the shares of Preferred Stock
converted.
Thereafter, each holder of Preferred Stock to be converted shall
surrender the certificate or certificates representing such shares
to the Company, in the manner and at the place designated in the
Conversion Notice, and thereupon the requisite number of shares of
Common Stock shall be issued in the name of the person whose name
appears on the surrendered certificate or certificates as the owner
thereof, and each surrendered certificate shall be canceled and
retired. Notwithstanding that the certificates evidencing any of
the shares of Preferred Stock shall not have been surrendered, all
rights with respect to such shares shall forthwith after the
Conversion Date, terminate, except only the right of the holders to
receive the appropriate number of shares of Common Stock upon
surrender of their certificate or certificates therefor.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company
shall at any time or from time to time after the Original Issue Date
for a series of the Preferred Stock effect a subdivision of the
outstanding Common Stock, the Conversion Value then in effect
immediately before that subdivision shall be proportionately
decreased, and conversely, if the Company shall at any time or from
time to time after the Original Issue Date for a series of the
Preferred Stock combine the outstanding shares of Common Stock, the
Conversion Value then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this
Paragraph 7(e) shall become effective at the close of business on
the date the subdivision or combination becomes effective.
(f) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Preferred Stock
shall be changed into the same or a different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets provided
for elsewhere in this Paragraph 7), then and in each such event the
holder of each share of Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares
of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Preferred
Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further
adjustments as provided herein.
(g) REORGANIZATION, MERGERS, CONSOLIDATIONS, OR SALES OF ASSETS.
If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision,
combination, reclassification, or exchange of shares provided for
elsewhere in this Paragraph 7) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or
substantially all of the company's assets to any other person, then,
as a part of such reorganization, merger, consolidation, or sale,
provision shall be made so that the holders of the Preferred Stock
shall thereafter be entitled to receive upon conversion of the
Preferred Stock, the number of shares of stock or other securities
or property of the Company, or of the successor corporation
resulting form such merger or consolidation or sale, to which a
holder of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, merger, consolidation, or
sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Paragraph 7 with respect to
the rights of the holders of the Preferred Stock after the
reorganization, merger, consolidation, or sale to the end that the
provisions of this Paragraph 7 (including adjustment of the
Conversion Value then in effect and the number of shares purchasable
upon conversion of the Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
(h) DEFINITION. The term "Additional Shares of Common Stock" as
used herein shall mean all shares of Common Stock issued or deemed
issued (including a right or option to purchase Common Stock, or
shares of stock or an obligation convertible into Common Stock) by
the Company after the Original Issue Date for a series of Preferred
Stock, whether or not subsequently reacquired or retired by the
Company, other than (1) shares of Common Stock, and (2) shares or
other securities issued to employees, officers, directors,
consultants or other persons performing services for the Company
pursuant to any stock offering, option, plan, or arrangement
approved by the Board of Directors of the Company, to the extent
such issuances are permitted under Section 4.02 and 4.05 of that
Agreement for Purchase and Sale of Preferred Stock dated _________
_____________________________, 1998.
(i) NOTICES OF RECORD DATE. In the event of (i) any taking by the
Company of a record of the holders of any class or series of
securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution or (ii)
any reclassification or recapitalization of the capital stock of the
Company, any merger or consolidation of the Company, or any transfer
of all or substantially all of the assets of the Company to any
other corporation, entity, or person, or any voluntary or
involuntary dissolution, liquidation, or winding up of the Company,
the Company shall mail to each holder of Preferred Stock at least 30
days prior to the record date specified therein, a notice specifying
(A) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend
or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation, or winding up is expected to become effective, and (C)
the time, if any is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation, or winding up.
(j) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled,
the Company shall pay cash equal to the product of such fraction
multiplied by the fair market value of one share of the Company's
Common Stock on the date of conversion, as determined in good faith
by the Board.
(k) NOTICES. Any notice required by the provisions of this
Paragraph 7 to be given to the holder of shares of the Preferred
Stock shall be deemed given when personally delivered to such holder
or five (5) business days after the same has been deposited in the
United States mail, certified or registered mail, return receipt
requested, postage prepaid, and addressed to each holder of record
at his address appearing on the books of the Company.
(l) PAYMENT OF TAXES. The Company will pay all taxes and other
governmental charges that may be imposed in respect of the issue or
delivery of shares of Common Stock upon conversion of shares of
Preferred Stock.
(m) NO DILUTION OR IMPAIRMENT. The Company shall not amend its
Articles of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue, or
sale of securities or any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to
protect the conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
8. NO PREEMPTIVE RIGHTS.
No holder of the Series A-1 Preferred Stock of the Corporation shall
be entitled, as of right, to purchase or subscribe for any part of the
unissued stock of the Corporation or of any stock of the Corporation to
be issued by reason of any increase of the authorized capital stock of
the Corporation, or to purchase or subscribe for any bonds, certificates
of indebtedness, debentures or other securities convertible into or
carrying options or warrants to purchase stock or other securities of the
Corporation or to purchase or subscribe for any stock of the Corporation
purchased by the Corporation or by its nominee or nominees, or to have
any other preemptive rights now or hereafter defined by the laws of the
State of Colorado.
9. NO REISSUANCE OF PREFERRED STOCK.
No share or shares of Preferred Stock acquired by the Company by
reason of purchase, conversion, or otherwise shall be reissued, and all
such shares shall be canceled, retired, and eliminated from the shares
which the Company shall be authorized to issue.
IN WITNESS WHEREOF, said SISCOM, INC., has caused this Certificate
of Designations, Preferences and Rights of Series A-1 Convertible Preferred
Stock to be duly executed by its President and attested by its Secretary and
has caused its corporate seal to be affixed hereto, this ____ day of
________________________, 1998.
SISCOM, INC.
Attest
By:
- ------------------------------ -----------------------------------
Secretary Michael Ellis, President
[Corporate Seal]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Statements of Operations found on
pages F-4 through F-5 of the Company's Form 10-KSB for the year ended June 30,
1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 80,000
<SECURITIES> 0
<RECEIVABLES> 126,700
<ALLOWANCES> 2,400
<INVENTORY> 16,700
<CURRENT-ASSETS> 224,300
<PP&E> 891,100
<DEPRECIATION> 547,400
<TOTAL-ASSETS> 1,019,000
<CURRENT-LIABILITIES> 156,900
<BONDS> 0
0
1,500,000
<COMMON> 1,950,900
<OTHER-SE> (2,588,800)
<TOTAL-LIABILITY-AND-EQUITY> 1,019,000
<SALES> 1,136,800
<TOTAL-REVENUES> 1,136,800
<CGS> 773,700
<TOTAL-COSTS> 1,602,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,600
<INTEREST-EXPENSE> 3,142
<INCOME-PRETAX> (460,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (460,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (460,100)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
