UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB/A
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____________ to _____________
Commission file number 0-11730
COGNIGEN NETWORKS, INC.
(Name of small business issuer in its charter)
COLORADO 84-0189377
-------------------------------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7001 Seaview Avenue, N.W., Suite 210, Seattle, Washington 98117
--------------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
(206) 297-6151
---------------------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
common stock
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes __|X|__ No ____
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of the 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. _____
State issuer's revenue for its most recent fiscal year: $3,799,713
The aggregate market value of the voting and non-voting common
equity held by non-affiliates at October 11, 2000, computed by reference
to the closing price on the OTC Bulletin Board was $15,963,408.
The number of shares outstanding of each of the issuer's classes of
common equity on October 11, 2000, was 47,002,547.
Transitional Small Business Disclosure Format Yes ____ No |X|
TABLE OF CONTENTS
PART I
Item 1. Description of Business.
PART II
Item 6. Management's Discussion and Analysis of Financial Condition or
Plan of Operation.
Item 7. Financial Statements.
PART III
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
PART I
Forward Looking Statements.
The discussion in this report contains forward-looking statements,
including, without limitation, statements relating to Cognigen Networks,
Inc. and its wholly owned subsidiary, Cognigen Switching Technologies,
Inc. ("CST"). Although we believe that the expectations reflected in the
forward looking statements are reasonable, we can give no assurance that
such expectations will prove to be correct. The forward looking
statements involve risks and uncertainties that affect our business,
financial condition and results of operations, including without
limitation, our possible inability to obtain additional financing, lack
of agent growth, the possible loss of key personnel, rate changes, fee
policy or application changes, technological changes and increased
competition. Many of these risks are beyond our control. We are not
entitled to rely on the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, or Section 21E of the Securities
Exchange Act of 1934, as amended, when making forward-looking statements.
Item 1. Description of Business.
BUSINESS
We were incorporated in May 1983 in Colorado to engage in the
cellular radio and broadcasting business. In June 1988, we changed our
name to Silverthorne Production Company and commenced operations in the
oil and gas industry. These operations were discontinued in 1989. From
1989 to 1999, we attempted to locate acquisition prospects and negotiate
an acquisition. Our pursuit of an acquisition did not materialize until
August 1999 when we acquired the assets of Inter-American
Telecommunications Holding Corporation ("ITHC"). The acquisition was
accounted for as a reverse acquisition.
We currently operate in two distinct channels of direct and
indirect sales of telecommunications and personal technology services.
The first is a multi-faceted network marketing organization, which
utilizes the Internet as a platform to provide customers and subscribers
with a variety of telecommunications and technology based products and
services. Through a network of approximately 65,000 independent
representatives, we sell direct or facilitate the sale of third party
products and services to more than 275,000 customers and subscribers
worldwide. Products such as discount domestic and international long
distance services, prepaid calling cards and paging, wireless
communications, computers and Internet-based telecommunications products
make up a major portion of our product suite. We have contractual
agreements with a wide variety of product and service vendors that
provide us with a commission percentage of any sale made through one of
our supported web sites. Our web-based marketing division sells the
products and services of industry leaders such as AT&T, WorldCom, Sprint,
Verizon and Qwest. We provide these services through our Internet
marketing division, which represents a majority of our distribution
power. The second is a recently acquired, facilities based, national and
international telecommunications services provider, CST, which provides
this same customer base and other direct clients with a wide variety of
discount international, phone card and private switching telephonic
services.
In the mid 1990's we recognized the marketing potential of the
Internet and formed what we believe is one of the first companies to
create a marketing operation based exclusively on the Internet. The
initial concept, which remains the foundation of our growth, was to
expand marketing potential by increasing the number of independent
representatives working within our corporate network while at the same
time continuing to increase the number of products and services that
these representatives could provide to our worldwide customer base. To
facilitate the manageable growth of this network and to be able to
provide the representatives with the support and marketing edge necessary
for success, we developed and deployed the "self replicating" web page.
This proprietary technology automatically created a high content,
personalized set of e-commerce web pages for each new representative, at
the time the representative becomes a member of our network.
Additionally, a 7 x 24 Internet accessible "private site" is instantly
created for the new representative. Each representative can view the
representative's records, activity and account status on which the
representative is working. The private site also contains customer
detail status, recommended training sources, frequently asked questions
("FAQs") and representative benefits. We also adopted a strategy of
enabling each representative to sell telecommunications services and to
recruit new representatives. The original representative receives a
sales commission override on sales generated by the representatives thus
recruited. Our commission structure and plan enables our representatives
to earn money without the necessity of developing a subordinate
representative base. Lately, we have been adding 3,000 to 4,000
representatives each month. Over the past 18 months, we have observed a
positive contribution correlation between the number of our
representatives and our revenue.
In addition to the Internet-based representative network and CST's
direct sales efforts, we are engaged in an effort to develop and support
a variety of affiliate program offerings. In these programs, large
affiliate organizations such as industry service providers and a variety
of membership or club related businesses can be utilized for commission
sharing. We currently have contracts for these programs that represent
affiliate/affinity populations in excess of 600,000 potential buyers. As
in any program of this nature, actual participation and buying rates will
be a small subset of the target audience, but higher than non-affiliated
web surfers.
CST is licensed by the Federal Communications Commission ("FCC") as
a global facilities-based/global resale services national and
international carrier. CST provides our customer base and other direct
clients with a wide variety of discount international, phone card and
private switching telephonic services. CST, through its multi-mode
enhanced services platform, provides its customers with discounted
domestic and international long distance voice and fax service,
international direct dialing, domestic and international prepaid calling
cards and international toll-free access. CST markets these services to
small and medium sized businesses and residential customers throughout
the world. CST has three fully programmable Cisco Summa Four VCO/4K
multi-protocol circuit switches, with a combined capability of more than
60 million minutes of traffic per month, at its headquarters in San Luis
Obispo, California. With additional modest enhancement and CST's
incumbent technology, we are well positioned to deliver the next
generation of enhanced packet telephony services to both individual
subscribers and enterprise clients. Targeted functionalities would
include services such as: VOIP, unified messaging, voice and data
conferencing and integrated wireless applications.
Competition
We compete with all of the companies for whom we sell products as
an agent, a number of companies that are network marketed
telecommunication companies, switching companies and with all providers
who retail telecommunications and personal communications products over
the Internet. Many of our competitors are larger and have greater
capital resources than do we.
Regulation
We are not currently subject to any governmental regulations as an
Internet marketer of telecommunications and technology based products and
services. CST is regulated by the FCC as a Section 214 domestic and
international facilities based carrier.
Employees
As of October 11, 2000, we had 18 full time employees and fourteen
part-time employees. In addition, as of October 11, 2000, we had three
consultants.
Item 6. Management's Discussion and Analysis or Plan of Operations
Overview
Prior to July 1, 1999 we were a publicly held shell that had no
operations. On August 20, 1999 we acquired all of the net assets of ITHC
in exchange for up to 49,041,397 shares of our common stock. These
assets primarily consisted of the operating assets of Cognigen
Corporation that had previously been acquired on July 1, 1999 by ITHC.
On April 14, 2000 we acquired all of the stock of CST in exchange for
2,041,445 shares of our common stock. These acquisitions transformed us
into a thriving telecommunications company with specialties in the sale
through the Internet of calling cards, various local and long distance
services and discount circuit switched telecommunications services. We
also provide innovative custom designed service plans.
ITHC was incorporated on July 24, 1998 in Delaware. Since its inception,
ITHC had directed its efforts toward the acquisition of assets that would
allow it to be engaged in direct and multilevel agency marketing and sale
of long distance service and products as well as the switching and transport
of voice, fax and data telephone and internet traffic and related services.
On July 1, 1999, ITHC acquired the net assets of Cognigen Corporation in
exchange for 5,500 shares of ITHC's common stock and a note payable of
$300,000. Cognigen Corporation was actively marketing long distance telephone
services over the Internet.
On July 12, 2000 we amended our Articles of Incorporation to change
our name from Silverthorne Production Company to Cognigen Networks, Inc.
Results of Operations
ITHC was a developmental stage company from its inception on July
24, 1998 through June 30, 1999. During this stage, ITHC generated no
revenues and incurred only minimal operational costs. ITHC focused its
efforts on the pursuit of the acquisition of business opportunities. On
July 1, 1999, ITHC completed the acquisition of all the net assets of
Cognigen Corporation in a transaction accounted for as a purchase.
Additionally, in a transaction accounted for as a reverse acquisition,
ITHC acquired control of us. We were a non-operating public shell
corporation. As no operations existed for ITHC for the year ended June
30, 1999, no meaningful comparisons can be made.
For purposes of this Management's Discussion and Analysis or Plan
of Operation, we believe that a discussion regarding the major components
of our results of operations for the year ended June 30, 2000 will
provide a more meaningful basis for analysis.
Fiscal Year Ended June 30, 2000
Total revenue for the year ended June 30, 2000 was $3,779,713, which
consisted of $1,138,165 of prepaid calling card revenue, and marketing
commissions of $2,598,008 related to commissions received for sales of
telecommunication products through links provided from our web site.
These revenue streams were acquired in connection with the Cognigen
Corporation acquisition. We also generated other revenue of $63,540,
which relates primarily to long distance telecommunication revenue
generated through callback services for two and a half months from our
acquisition of CST.
Our operating costs consist of prepaid cards and pins of $950,727
related to the cost of service provided by third party carriers.
Marketing commissions of $1,657,195 are commissions paid to agents
associated with the telecommunications product sales commissions received
by us through our web site links.
Selling, general and administrative (SG&A) expenses were $8,734,444
for the year ended June 30, 2000. Non-cash stock based compensation
charges of $6,052,004 are included in SG&A expenses and are related to
stock issued to employees for services valued at $30,000 and stock
options issued to non-employees for services valued at $6,022,004 using
the Black-Scholes option pricing model. The remainder of SG&A expenses
includes salaries, consulting and other professional fees, travel and
related costs, and rents for our three offices. Our management believes
that our current infrastructure can support increases in capacity of two
to three times current sales levels without having to add significant
additional costs. There can be no assurances that we will not incur
significant additional SG&A costs as a result of future growth.
Depreciation and amortization was $561,510 for the year ended June
30, 2000 and consists of depreciation on furniture and telecommunications
equipment and amortization of goodwill and customer databases. These
costs are a direct result of our business acquisitions during the year.
Interest expense was $144,492 for the year ended June 30, 2000
resulting in an increase from June 30, 1999 of $76,678, which is a direct
result of additional debt assumed in our business acquisitions during
the year.
Fiscal Year Ended June 30, 1999
During the fiscal year ended June 30, 1999, we engaged in no
significant operations other than the search for, and identification and
evaluation of, possible acquisition candidates. No revenue was received
by us during the fiscal year. We realized a net loss of $51,283 during
the fiscal year ended June 30, 1999.
Liquidity and Capital Resources
We have funded our operations to date from the sale of common stock. At
June 30, 2000 we had cash and cash equivalents of $717,344 and working
capital of $734,152.
Cash used by us for operating activities during the year ended June 30,
2000 was $2,167,135. Additional sources and uses of cash during the year
ended June 30, 2000 include net proceeds of $5,140,087 from stock
issuances, debt and capital lease payments of $1,090,914,capital
expenditures of $400,594 and acquisition costs of $745,100 related to
businesses acquired during the year.
We currently have three notes payable and various capital leases with
total outstanding balances of $943,703 at June 30, 2000. Two of the notes
are due July 1, 2001 and one is due February 12, 2001. We have
maturities of capital leases and notes payable of $421,551 required
during the next twelve months
Cash generated from operations was not sufficient to meet our working
capital requirements for the year ended June 30, 2000, and may not be
sufficient to meet our working capital requirements for the foreseeable
future. As a result, we are exploring various bridge financing and/or
additional equity financing to meet current operating requirements until
operations can generate sufficient cash to become self-sustaining. There
can be no assurances that we will be able to secure additional debt or
equity financing or that operations will produce adequate cash flows to
allow us to meet all of our future obligations. However, management
believes that we will be successful in producing sufficient cash flows
from all collective sources to continue for the next twelve months.
We have no significant planned capital expenditures covering the next
twelve months.
We maintain two customer databases containing archived names with
historical records of long distance telecommunication service users, to
which we intend to devote substantial efforts during the next twelve
months to transform these names into active CST customer accounts. We
have been in negotiations with a telemarketing firm to assist in the
transformation of these names into active accounts. We anticipate an
initial cost of approximately $93,000 for these telemarketing services
and have received a verbal commitment from a third party to assist in
funding these telemarketing costs, as necessary.
We have also entered into an option agreement with a joint venture
consisting of the sellers of the customer databases, which provides that
if certain targeted levels of active customers cannot be transformed from
the databases, we have has the option to have our original investment in
these databases be refunded through the forgiveness of the remaining debt
outstanding and the return of our shares. We believe this agreement is a
major step in protecting the recoverability of our original investment in
these databases.
Item 7. Financial Statements.
Reference is made to the financial statements, the reports thereon
and the notes thereto included as a part of this Annual Report on Form
10-KSB, which financial statements, reports and notes are incorporated
herein by reference.
COGNIGEN NETWORKS, INC.
Financial Statements
June 30, 2000
COGNIGEN NETWORKS, INC.
Table of Contents
Independent Auditors' Reports
Consolidated Financial Statements
Consolidated Balance Sheet
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Cognigen Networks, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheet of Cognigen Networks,
Inc. and subsidiary as of June 30, 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides 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 Cognigen Networks, Inc.
and subsidiaries as of June 30, 2000, and the results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
The Company has corrected a previous error in the 2000 financial statements
relating to the amortization of its customer lists as described in Note 3.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
August 25, 2000, except Note 13,
as to which the date is October 10, 2000
Denver, Colorado
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Inter-American Telecommunications
Holding Corporation
Seattle, Washington
We have audited the accompanying consolidated statements of operations, cash flows,
and changes in stockholders' equity for the period from inception (July 24, 1998)
through June 30, 1999 of Inter-American Telecommunications Holding Corporation (a
development stage company). These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also included
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of its operations, its
cash flows and its changes in stockholders' equity for the period from inception
(July 24, 1998) through June 30, 1999 in conformity with generally accepted
accounting principles.
Denver, Colorado
January 20, 2000
/s/ Comiskey & Company
Comiskey & Company
PROFESSIONAL CORPORATION
COGNIGEN NETWORKS, INC.
Consolidated Balance Sheet
June 30, 2000
(Restated)
Assets
Current assets
Cash ........................................................ $ 717,344
Accounts receivable, net of allowance for doubtful accounts
of $5,000 .................................................. 61,046
Commissions receivable, net of allowance for doubtful
accounts of $25,000 ........................................ 538,163
Employee receivable ......................................... 1,661
Inventory ................................................... 133,486
Other current assets ........................................ 417,028
Deferred tax asset - current --
------------
Total current assets .................................. 1,868,728
------------
Property, plant and equipment, net of accumulated depreciation
of $363,121 .................................................... 486,291
------------
Other assets
Deposits and other assets ................................... 88,552
Goodwill, net of $154,917 of amortization ................... 3,655,017
Customer databases, net of $300,000 of amortization ......... 1,000,000
Deferred tax asset - non current ............................ --
------------
Total other assets .................................... 4,743,569
------------
Total assets .................................................... $ 7,098,588
============
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Accounts payable ............................................ $ 97,420
Other accrued liabilities ................................... 108,324
Interest payable ............................................ 239,421
Commissions payable ......................................... 326,681
Payroll taxes payable ....................................... 21,179
Current portion of capital leases ........................... 106,551
Current portion of notes payable ............................ 315,000
------------
Total current liabilities ............................. 1,214,576
Long-term portion of capital leases ............................. 12,152
Long-term portion of notes payable .............................. 510,000
------------
Total liabilities ..................................... 1,736,728
Commitments and Contingencies
Stockholders' (deficit) equity
Common stock $.001 par value, 50,000,000 shares
authorized; 46,980,547 issued and outstanding at
June 30, 2000, and 37,298,444 to be issued
shares (2000) ................................................ 84,278
Additional paid-in capital .................................. 13,594,051
Accumulated deficit ......................................... (8,316,469)
------------
Total stockholders' (deficit) equity .................. 5,361,860
------------
Total liabilities and stockholders' (deficit) equity ............ $ 7,098,588
============
See notes to consolidated financial statements.
COGNIGEN NETWORKS, INC.
Consolidated Statements of Operations
For the Years Ended
June 30,
------------------------------
1999 2000
------------- ------------
(Restated)
Revenue
Prepaid cards and pins .............. $ -- $ 1,138,165
Marketing commissions ............... -- 2,598,008
Other ............................... -- 63,540
------------ ------------
Total revenue ................. -- 3,799,713
------------ ------------
Operating expenses
Prepaid cards and pins .............. -- 950,727
Marketing commissions ............... -- 1,657,195
Selling, general and administrative . -- 8,734,444
Depreciation and amortization ....... -- 561,510
------------ ------------
Total operating expenses ...... -- 11,903,876
------------ ------------
Loss from operations .................... -- (8,104,163)
Interest expense ........................ (67,814) (144,492)
------------ ------------
Loss before income taxes ................ (67,814) (8,248,655)
Income taxes ............................ 16,531 (16,531)
------------ ------------
Net loss ................................ $ (51,283) $ (8,265,186)
============ ============
Loss per common share - basic and diluted $ -- $ (0.11)
============ ============
Weighted average number of common shares
outstanding - basic and diluted ......... 11,377,137 78,549,437
============ ============
See notes to consolidated financial statements.
COGNIGEN NETWORKS, INC.
Consolidated Statements of Stockholders' Equity
From July 24, 1998 through June 30, 2000
Total
Common Stock Additional Stockholders'
------------------------- Paid-in Accumulated (Deficit)
Shares Amount Capital Deficit Equity
----------- ----------- ----------- ----------- -----------
Balance July 24, 1998 (inception) - $ - $ - $ - $ -
Common stock issued for intangible assets 11,377,137 20 - - 20
Net loss for the period July 24, 1998 to June 30, 1999 - - - (51,283) (51,283)
----------- ----------- ----------- ----------- -----------
Balance June 30, 1999 11,377,137 20 - (51,283) (51,263)
Stock issued in connection with Cognigen acquisition
and employment agreements 42,664,260 55 30,000 - 30,055
Reverse acquisition 15,757,047 69,723 (261,957) - (192,234)
Common stock issued for cash net of $727,474 in expenses 12,489,102 12,489 5,127,598 - 5,140,087
Value of options issued for services - - 6,022,004 - 6,022,004
Retirement of stock at cost (50,000) (50) (18,950) (19,000)
Stock issued in connection with acquisition of Cognigen 2,041,445 2,041 2,695,356 - 2,697,397
Switching
Net loss - - - (8,265,186) (8,265,186)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 84,278,991 $ 84,278 $13,594,051 $(8,316,469) $5,361,860
=========== =========== =========== =========== ===========
See notes to consolidated financial statements.
COGNIGEN NETWORKS, INC.
Consolidated Statements of Cash Flows
June 30,
1999 2000
------------ ------------
(Restated)
Cash flows from operating activities
Net loss ....................................... $ (51,283) $(8,265,186)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization .................. -- 561,510
Stock options granted to non-employees and stock
issued to employees for services .............. -- 6,052,004
Deferred taxes ................................. (16,531) 16,531
Changes in assets and liabilities
Receivables ................................... -- 218,461
Commission receivable ......................... -- (484,149)
Inventory ..................................... -- (108,410)
Other current assets .......................... -- (340,120)
Accounts payable .............................. -- 53,276
Other accrued expenses ........................ 67,814 218,919
Other assets .................................. -- (89,971)
----------- -----------
51,283 6,098,051
----------- -----------
Net cash used in operations ................. -- (2,167,135)
----------- -----------
Cash flows from investing activities
Capital expenditures ........................... -- (400,594)
Cash paid in business acquisitions net of cash .
acquired ..................................... -- (555,100)
----------- -----------
Net cash used in investing activities ....... -- (955,694)
----------- -----------
Cash flows from financing activities
Net proceeds from stock issuance ............... -- 5,140,087
Distribution related to reverse acquisition .... -- (190,000)
Payments on notes payable ...................... -- (1,090,000)
Payment on capital leases ...................... -- (914)
Retirement of stock ............................ -- (19,000)
----------- -----------
Net cash used in financing activities ....... -- 3,840,173
----------- -----------
Net increase in cash ............................. -- 717,344
Cash and cash equivalents - beginning of period .. -- --
----------- -----------
Cash and cash equivalents - end of period ........ $ -- $ 717,344
=========== ===========
Cash paid for interest was $19,834 (2000) and $0 (1999).
Cash paid for income taxes was $0 in 2000 and 1999.
Non-cash investing and financing activities (Note 9).
See notes to consolidated financial statements.
COGNIGEN NETWORKS, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
The Company was incorporated in May 1983 in the State of Colorado to engage in the
cellular radio and broadcasting business and to engage in any other lawful activity
permitted under Colorado law. In June 1988, the Company changed its name to
Silverthorne Production Company (Silverthorne) and commenced operations in the oil
and gas industry. These operations were discontinued in 1989. Since 1989,
Silverthorne has attempted to locate acquisition prospects and negotiate an
acquisition. Silverthorne's pursuit of an acquisition did not materialize until
August 20, 1999, with the purchase of the assets of Inter-American
Telecommunications Holding Corporation (ITHC), which was accounted for as a reverse
acquisition. The surviving entity changed its name to Cognigen Networks, Inc. in
July 12, 2000.
Cognigen Networks, Inc. (the Company) is engaged in the business of providing
telecommunications products and services to worldwide markets. The Company's
activities include selling prepaid calling cards, providing call switching
services, and Internet marketing of telecommunications products and services,
pagers, and computers.
Principles of Consolidation
These consolidated financial statements include the accounts of Inter-American
Telecommunications Corporation (ITHC), Cognigen Corporation (Cognigen), and the
Company. Also included are the accounts and results of operations of Cognigen
Switching Technologies, Inc. (Cognigen Switching) from April 15, 2000 through
year-end. All significant intercompany balances and transactions have been
eliminated in consolidation.
The comparative June 30, 1999, financial statements reflect those of ITHC, the
accounting acquirer, in the reverse acquisition (Note 8). ITHC was in the
development stage in prior years.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and in checking and savings accounts at financial institutions. On occasion
these balances exceed federally insured limits. At June 30, 2000, the Company had
approximately $709,000 in excess of federally insured limits.
Inventories
Inventory consists of advertising supplies and prepaid calling cards held for
resale and is valued at the lower of cost or market. Calling cards are purchased
from a variety of vendors at a discount from the face value. Excise tax of 3% of
the face value is paid at the time of purchase. When the calling card is sold, the
excise tax is collected and offset against the prepaid excise tax.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method for financial reporting purposes at rates based on the
following estimated useful lives:
Years
--------
Furniture and fixtures 3 - 7
Computer equipment 3 - 5
Equipment 3 - 5
Leasehold improvements 3 - 5
Capitalized software 3 - 5
Software developed to support the self-replicating Web pages used to market
telecommunication services and administer agents' sales and related commissions has
been capitalized according to the provisions of AICPA Statement of Position 98-1
"Accounting for Costs of Computer Software Developed or Obtained for Internal Use".
Intangible Assets
Intangible assets are stated at cost and consist of goodwill and customer
databases. Goodwill is amortized using the straight-line method over five years.
Customer databases will be amortized over five years.
Valuation of Long-Lived Assets
The Company assesses valuation of long-lived assets in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of. The Company
periodically evaluates the carrying value of long-lived assets to be held and used,
including goodwill and other intangible assets, when events and circumstances
warrant such a review. The carrying value of a long-lived asset is considered
impaired when the anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair market
value of the long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Commissions Receivable
Commissions receivable represent amounts due from providers for telecommunication
services used by subscribers. Typically providers pay commissions due to the
Company forty-five days after the usage month-end to allow for billing and
collection.
An allowance for doubtful accounts of $0 and $25,000 at June 30, 1999 and 2000,
respectively, has been established by the Company to provide for potential
uncollectible accounts and is deemed to be adequate by management based on
historical results.
Commissions Payable
Commissions payable represent amounts due to agents as commission related to the
usage for which the Company is due commission income from its providers. It is the
Company's policy to pay commissions to its agents only after receiving commissions
due from its providers. This policy results in approximately two months commission
payable at any point in time.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Revenue Recognition
The Company records commission income when the underlying telecommunication service
is rendered. Commission income does not include amounts paid separately to carriers
for telecommunication services provided.
Calling card revenue is recorded when the calling cards are shipped. The Company's
policy is to delay shipment of calling cards for a two-week period after receipt of
cash to allow for processing. This delay results in deferred revenue, which is
recorded as a liability until the calling cards are shipped. Calling card revenue
includes amounts paid for the cost of the telecommunications services provided by
third-party carriers.
Revenue from long distance phone services is recorded when services are rendered.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Loss Per Share
Loss per common share has been computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period. Shares
issued in the initial capitalization of the Company have been treated as
outstanding since inception.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising costs for the years
ended June 30, 2000 and 1999, were $200,127 and $0, respectively.
Recently Issued Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair market value. Gains or losses resulting from changes
in the values of those derivatives are accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The key criterion for
hedge accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. Management believes that
the adoption of SFAS No. 133 will have no material effect on the Company's
financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation" ("FIN 44"), which was effective July 1,
2000, except that certain conclusions in this Interpretation, which cover specific
events that occur after either December 15, 1998 or January 12, 2000 are recognized
on a prospective basis from July 1, 2000. This Interpretation clarifies the
application of APB Opinion 25 for certain issues related to stock issued to
employees. The Company believes its existing stock based compensation policies and
procedures are in compliance with FIN 44, and therefore, the adoption of FIN 44 had
no material impact on the Company's financial condition, results of operations or
cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") 101, which provides guidance on applying generally
accepted accounting principles to selected revenue recognition issues. Management
believes that the Company's revenue recognition policies are in accordance with SAB
101.
Note 2 - Basis of Presentation
All common stock share amounts have been retroactively adjusted to reflect the
ratio of shares issued by the Company in connection with the reverse acquisition of
ITHC (Note 7). The ratio of shares issued of 5,688.57 shares of the Company to
each share of ITHC stock represents 54,041,397 newly issued shares and shares to be
issued in exchange for 9,500 shares of ITHC common stock.
All per share amounts reflect the 37,298,444 shares the Company has a legal
obligation to issue in the future in connection with the reverse acquisition of
ITHC, and have been treated as outstanding from the date of acquisition (Note 12).
Note 3 - Amortization of Customer Databases
The Company changed its method of amortizing customer databases during fiscal
2000. Previously the Company did not begin to amortize its customer databases
until the migration of these names into active customers had begun. However,
effective July 1, 1999 as a result of the significant uncertainties surrounding the
commencement of the migration process, the Company has reflected amortization of
these databases over their estimated remaining useful lives of 4.33 years (through
November 1, 2003). The effects of this correction on previously reported amounts
was as follows:
Net Loss Stockholders'
Loss Per Share Equity
----------- ------------ -------------
June 30, 2000, as previously reported $(7,965,186) $ (.10) $ 5,661,860
Correction to amortization expense (300,000) (.01) (300,000)
----------- ------------ -------------
June 30, 2000, as adjusted $(8,265,186) $ (.11) $ 5,361,860
=========== ============ =============
The effect of this correction on previously reported quarterly amounts was $75,000
of additional amortization expense as follows:
Net Loss Stockholders'
Loss Per Share Equity
----------- ------------ -------------
Three months ended September 30, 1999,
as reported $(6,270,675) $ (.26) $ 206,896
=========== ============ =============
Three months ended September 30, 1999,
as adjusted $(6,345,675) $ (.26) $ 131,896
=========== ============ =============
Three months ended December 31, 1999,
as reported $ (347,414) $ (.01) $ 4,132,413
=========== ============ =============
Three months ended December 31, 1999,
as adjusted $ (422,414) $ (.01) $ 3,982,413
=========== ============ =============
Six months ended December 31, 1999, as
reported $(6,618,089) $ (.23) $ 4,132,413
=========== ============ =============
Six months ended December 31, 1999, as
adjusted $(6,768,089) $ (.24) $ 3,982,413
=========== ============ =============
Three months ended March 31, 2000, as
reported $ (527,989) $ (.01) $ 3,617,291
=========== ============ =============
Three months ended March 31, 2000, as
adjusted $ (602,989) $ (.01) $ 3,392,291
=========== ============ =============
Nine months ended March 31, 2000, as
reported $(7,146,078) $ (.09) $ 3,617,291
=========== ============ =============
Nine months ended March 31, 2000, as
adjusted $(7,371,078) $ (.10) $ 3,392,291
=========== ============ =============
Note 4 - Property and Equipment
Property and Equipment consists of the following:
June 30,
2000
------------
Furniture and fixtures $ 19,063
Computer equipment 137,905
Equipment 373,281
Leasehold Improvements 180,996
Software 138,167
------------
849,412
Less accumulated depreciation (363,121)
------------
Total $ 486,291
============
Note 5 - Notes Payable
Notes payable consists of the following:
June 30,
--------------------------
1999 2000
---------- ----------
8% unsecured promissory notes payable to a related
entity, principal and interest due upon maturity at
July 1, 2000. $ 500,000 $ 200,000
8% unsecured promissory note payable to a related
entity, principal and interest due upon maturity at
July 1, 2000. 800,000 310,000
Subsequent to year-end, the above notes were extended
to July 1, 2001.
12% secured promissory note payable to a related
entity, principal and interest due upon maturity at
February 12, 2001. - 315,000
---------- ----------
1,300,000 825,000
Less current portion (700,000) (315,000)
---------- ----------
$ 600,000 $ 510,000
========== ==========
Note 6 - Capital Lease Obligations
The Company leases certain equipment under non-cancelable lease agreements. The
monthly payments on these leases range from $332 to $7,227, including interest, and
these leases expire in various years through 2003. The property under capital
leases as of June 30, 2000, has a cost of $266,378 and accumulated depreciation of
$185,953.
The future minimum lease payments under capital leases and the net present values
of the future minimum lease payments are as follows:
Year Ending June 30, Amount
-------------------- ------------
2001 $ 114,417
2002 13,024
2003 3,372
------------
Total 130,813
Less amount representing interest (12,110)
------------
Present value of minimum lease payments 118,703
Less current portion (106,551)
------------
Long-term capital lease obligation $ 12,152
============
Note 7 - Income Taxes
Deferred tax liabilities and assets are determined based on the difference between
the financial statement assets and liabilities and tax basis assets and liabilities
using the tax rates in effect for the year in which the differences occur. The
measurement of deferred tax assets is reduced, if necessary, by the amount of any
tax benefits that, based on available evidence, are not expected to be realized.
The components of the provision for income tax expense (benefit) are as follows:
June 30,
------------------------
1999 2000
----------- --------
Current $ - $ -
Deferred (16,531) 16,531
--------- ---------
$ (16,531) $ 16,531
========= =========
The deferred income tax assets and liabilities result primarily from differing
depreciation and amortization periods of certain assets, provision for doubtful
accounts, provision for product returns and allowances, net operating loss
carryforwards and the recognition of certain expenses for financial statement
purposes and not for tax purposes. The Company has approximately $1,913,000 of net
operating loss carryforwards, which expire through 2020 if unused.
The net current and long-term deferred tax liabilities in the accompanying balance
sheet include the following items:
June 30,
------------------------
1999 2000
----------- --------
Current deferred tax asset $ - $ 9,325
Current deferred tax liability - -
Valuation allowance - (9,325)
=========== =========
$ - $ -
----------- --------
Long-term deferred tax asset $ 16,531 $ 713,487
Long-term deferred tax liability - -
Valuation allowance - (713,487)
----------- --------
$ 16,531 $ -
=========== =========
Rate Reconciliation
The reconciliation of income tax expense (benefit) by applying the Federal
statutory rates to the Company's effective income tax rate is as follows:
June 30,
------------------------
1999 2000
----------- --------
Federal statutory rate (25.0)% (34.0)%
State tax on income, net of federal income tax benefit (3.3) (3.3)
Nondeductible expenses 3.9 28.1
Valuation allowance - 9.4
----------- --------
(24.4)% 0.2%
=========== ========
Note 8 - Business Acquisitions
Acquisition of Customer Databases
On November 4, 1998, ITHC acquired a customer database of 54,034 individual
subscribers from TelKiosk Inc. (TelKiosk) in exchange for 500 (2,844,285, as
adjusted), shares of ITHC common stock, and a $500,000 promissory note payable
November 4, 1999 (and subsequently extended until July 1, 2001 as to the remaining
balance due). TelKiosk is partially owned by a former officer and director of
ITHC. This is an electronically archived database containing 54,034 individual,
comma-delimited records of residential and business accounts of long distance
telephone subscribers using the callback or call-reorigination system. The
domiciles of these accounts are located primarily outside the United States,
including Japan, Italy, France, Argentina, Brazil, Spain, Israel, Russia and CIS
countries, Guatemala, Venezuela and Singapore. The customers in the database use
primarily U.S. origination - foreign termination callback long distance services.
Also on November 4, 1998, ITHC acquired a customer database of 41,415 individual
subscribers from Combined Telecommunications Consultancy, Ltd. (CTC) in exchange
for 1,000 (5,688,570, as adjusted), shares of ITHC common stock and an $800,000
promissory note payable November 4, 1999 (and subsequently extended until July 1,
2001 as to the remaining balance due). CTC is partially owned by a former officer
and director of ITHC. This is an electronically archived database containing
41,415 individual, comma-delimited records of residential and business accounts of
long distance telephone subscribers. The domiciles of these accounts are all
located within the United States. Approximately 90% of these accounts have an
affinity to a foreign country, and the accounts are held by persons of Russian,
Romanian, Czech, Slovakian, Slovenian, Polish, Bulgarian, German, Japanese and
Filipino national origin.
These customer databases were originally compiled in October 1998. The databases
were originally purchased by CTC and Telkiosk in an arm's length transaction from
an independent international long distance reseller and customer base
consolidator. The customer databases were acquired in connection with the initial
capitalization of ITHC with the customer databases being recorded at $1,300,000
representing predecessor cost. The Company's plans for the solicitation process
are currently underway and the Company entered into an option agreement with an
entity formed by the sellers of its customer databases (Note 13). The agreement
provides that if the Company has not been able to establish at least 5,000 active
telecommunications subscribers from the combined databases by March 30, 2001, the
entity will repurchase the customer databases from the Company allowing the Company
to recover its investment in these databases.
Total shares issued in connection with the acquisition of these customer databases
and the initial capitalization of ITHC were 2,000 (11,377,140 as adjusted),
including 500 (2,844,285 as adjusted) shares issued to ITC in connection with its
anticipated backroom support function. The 2,000 (unadjusted) shares issued were
recorded at their nominal par value ($.001) of $20.
Cognigen Acquisition
On July 1, 1999, ITHC entered into an agreement with Cognigen to purchase all of
Cognigen's net assets. The purchase price included 31,286,894 shares, as adjusted,
of ITHC common stock and a $300,000 note payable. Additionally, ITHC entered into
a four-year employment contract with the founder of Cognigen, which provides for an
annual base salary of $175,000. The transaction was accounted for as a purchase.
ITHC acquired net assets of $86,285 and recorded goodwill of $213,770. The goodwill
is being amortized over a life of 5 years.
Reverse Acquisition
On August 20, 1999, the Company completed the acquisition of all of the net assets
of ITHC in exchange for up to 49,041,397 shares of the Company's common stock. For
financial statement purposes, this business combination was accounted for as an
additional capitalization of ITHC (a reverse acquisition in which ITHC was the
accounting acquirer). ITHC is considered the surviving entity and the historical
financial statements prior to the acquisition are those of ITHC. The 15,757,047
shares reflected in the statement of stockholders' equity reflect those shares of
Company's common stock outstanding immediately prior to the reverse acquisition.
The Company's net book value prior to the transaction was $0. The issuance of the
stock must be completed in two closings due to the limited amount of authorized
stock available for issuance under the Company's articles of incorporation. The
first closing resulted in the issuance of 11,742,953 shares while the remaining
37,298,444 shares will be issued after the authorized number of shares is increased
or after a reverse stock split is effected. The Company issued 5,000,000 shares of
the Company's common stock as finders' fees in connection with the transaction to
unrelated individuals. The shares were valued at $1,900,000, or $.38 per share,
and reported on a net basis in additional paid-in-capital.
Additionally on August 20, 1999, ITHC purchased 12,602,431 shares of the Company's
common stock for a price of $190,000 from certain existing shareholders of the
Company. This was recorded as a charge to paid-in capital in the amount of
$190,000.
The Company is the legal survivor and changed its name to Cognigen Networks, Inc.
in July 2000.
Cognigen Switching Acquisition
On April 15, 2000, the Company purchased the outstanding stock of Cognigen
Switching (f.k.a. Aquila International Telecommunications, Inc.) for 2,041,445
shares and $590,000 in previous cash advances to Cognigen Switching for a total
purchase price of $3,287,397. This transaction was accounted for as a purchase.
Intangible assets acquired are amortized over five years. The results of
operations have been included from the date of acquisition forward in the
accompanying financial statements.
Purchase Price Allocation and Pro Forma Results
The combined aggregate purchase price of the Company's acquisition of Cognigen
Switching $(3,287,397) and Cognigen $(300,055) have been allocated to the assets
acquired and liabilities assumed based on the fair market values on the date of
acquisition, as follows:
Cash $ 34,900
Accounts receivable 318,521
Property and equipment 205,777
Goodwill - Cognigen 213,770
Goodwill - Cognigen Switching 3,596,164
Deposits and other 103,719
Accounts payable (41,910)
Accrued expenses (408,872)
Debt (434,617)
----------
$3,587,452
==========
The following table depicts the unaudited pro forma results of the Company giving
effect to the Company's two acquisitions in 1999 and 2000 as if they occurred on
July 1, 1998. The unaudited pro forma information is not necessarily indicative of
the results of operations of the Company had these acquisitions occurred at the
beginning of the years presented, nor is it necessarily indicative of future
results.
June 30,
---------------------------
1999 2000
----------- -----------
(unaudited)
Revenue $ 1,808,939 $ 4,033,864
=========== ===========
Net loss $(1,600,073) $(9,017,938)
=========== ===========
Loss per share $ (.05) $ (.11)
=========== ===========
Note 9 - Stockholders' Equity
Stock Issuances
In connection with certain ITHC executive employment agreements 11,377,366 as
adjusted shares of ITHC stock valued at $30,000 were issued in July 1999 for
services provided by those key employees. In addition, 31,286,894 shares of ITHC
stock were issued in connection with the acquisition of the assets of Cognigen
(Note 7).
During the 6 months ended December 31, 1999, the Company received subscriptions for
12,489,102 shares of the Company's common stock at prices of $0.38 per share
(11,562,302 shares) and $1.60 per share (926,800 shares) from various persons.
These shares were issued by March 31, 2000. The Company agreed to pay a fee of 12%
of the total proceeds received from the sale of the common stock to a distributor
and issue warrants to purchase up to a maximum of 1,500,000 shares of the Company's
common stock to various persons in connection with the sales. These warrants were
valued at $347,400 based on a value of $.23 per warrant. This fee was accounted
for as a cost of the sale of those common shares. The Company paid a total of
$727,474 related to the total fee due and other expenses associated with the
offering.
Stock Options
In August 1999, the Company issued 32,400,000 options entitling the holders to
purchase the Company's common stock at $0.46 per share. The options vested
immediately and expire five years from the date issued. Most of these options
cannot be exercised until the Company amends it articles of incorporation or
affects a reverse split of its common stock so that it has sufficient shares
available for issuance upon the exercise of these options. 26,000,000 of these
options were issued to non-employees for various professional services provided (of
which 12,000,000 were issued to a trust of which the founder is a beneficiary)
while the remaining options were issued to employees and directors. The Company
has adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock options issued to employees and
directors. $6,022,004 of compensation expense was recorded in connection with the
options granted to non-employees based on a value of $.23 per option. Assumptions
used in the valuation of stock options include volatility of 109%, 3-year lives,
dividend yield of 0% and a risk-free rate of 5.5%. The weighted average remaining
lives are 2.17 years with weighted average exercise prices of $.46.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for stock options issued.
Had compensation cost for the Company's stock options issued been determined based
on the fair value at the grant date for awards consistent with the provisions of
SFAS No. 123, the Company's net loss and loss per share would have been increased
to the pro forma amounts indicated below:
June 30,
---------------------------
1999 2000
----------- -----------
Net loss - as reported $(51,283) $(8,265,180)
Net loss - pro forma $(51,283) $(9,777,529)
Basic loss per share - as reported $ (0.0) $ (0.11)
Basic loss per share - pro forma $ (0.0) $ (0.12)
Note 10 - Non-Cash Investing and Financing Activities
During the year ended June 30, 2000:
The Company acquired net assets of $86,230 and recorded goodwill in the amount of
$213,770 by issuing a note for $300,000 in connection with a business acquisition
(Note 8).
The Company acquired the outstanding common stock of a business by issuing
2,041,445 shares valued at $2,697,397 and paying cash of $590,000 (Note 8).
During the year ended June 30, 1999:
The Company issued notes totaling $1,300,000 in exchange for two long-distance
telephone subscriber databases valued at $1,300,000 (Note 8).
Note 11 - Operating Leases
The Company leases office space under operating lease agreements, which provide for
aggregate monthly payments of $11,274 and expire through March 2003.
Year Ending June 30, Amount
-------------------- --------
2001 $ 87,688
2002 62,049
2003 12,514
--------
$162,251
========
Rent expense under these operating leases totaled $59,478 and $0 during the years
ended June 30, 2000 and 1999, respectively.
Note 12 - Commitments and Contingencies
Commitments
Employment Agreements
During the year ended June 30, 2000, the Company entered into an employment
agreement with one key employee. This employment agreement runs over a three-year
period starting in October of 1999 and provides for an annual salary of $125,000.
If the Company terminates the agreement without cause it would be obligated to pay
all remaining amounts under the remaining terms of the contract.
In August of 2000, the Company entered into additional employment agreements with
other key employees. Under these agreements, the employees are paid an annual
salary ranging from $100,000 to $120,000, receive bonuses of $100,000 each, which
have been pre-paid and are earned prorata over the two-year terms of the agreements
and the agreements are subject to termination with cause (as defined). If the
employee terminates the employee's agreement without cause or if the Company
terminates the agreement with cause, the employee would be obligated to pay all
remaining amounts due under the remaining terms of the agreement.
Consulting Agreements
The Company also has consulting agreements with two individuals, which provide for
annual compensation of $175,000 and $120,000 and have terms of four and three
years, respectively.
Contingencies
The Company has an obligation to issue 37,298,444 shares of common stock in
connection with the reverse acquisition described in Note 7. The Company also has
32,400,000 stock options and warrants to purchase up to 1,500,000 shares of the
Company's common stock outstanding. Currently, the Company does not have
sufficient authorized capital to legally issue these additional common shares. The
holders of options and warrants and those entitled to receive shares in a second
future closing are aware of the Company's lack of authorized capital. The Company
is using its best efforts to obtain shareholder approval at a meeting of
shareholders to increase the authorized capital of the Company. Management does
not believe this condition will have a material adverse effect as the Company's
financial condition.
Note 13 - Subsequent Events
Investment in Customer Databases
In October 2000, the Company entered into an option agreement with an entity formed
by the sellers of its customer databases described in Note 8. The agreement
provides that if the Company has not been able to establish at least 5,000 active
telecommunication subscribers from the combined databases by March 30, 2001, the
Company has the option to require the entity to repurchase the customer databases
from the Company in an amount not below its original investment in such databases
through the forgiveness of any outstanding remaining debt and accrued interest
which totaled approximately $604,000 at October 2000, with the remainder of the
balance made up by the return of Company shares held by the sellers at the then
market value. This agreement was reached in an effort by management to protect the
Company and its shareholders interests in such customer databases. If the
transformation of at least 5,000 names into active customers is not reached by the
Company, the Company will be able to recover its original investment in these
databases collectively. Management of the Company believes it will be successful
in the activation of at least 5,000 customer names. Management believes that the
signing of this agreement was a positive step in protecting the investment the
Company and its shareholders have made in acquiring these databases.
PART III
Item 10. Executive Compensation.
The following table provides certain information pertaining to the
compensation we and our subsidiary paid during our last three fiscal
years for services rendered by David L. Jackson, Jimmy L. Boswell and
Darrell H. Hughes, all of whom were our chief executive officers for
certain periods during our fiscal year ended June 30, 2000.
Annual Compensation
Long Term
Compensation
Awards
-------------
Fiscal Other
Year Annual Securities
Name and Ended Compen- Underlying All Other
Principal Position June 30 Salary($) Bonus($) sation($) Options(#) Compensation($)
------------------ --------- --------- --------- ---------- ----------- ----------------
David L. Jackson 2000 $ 29,000 -- -- -- -- 1,600,000(a) $24,000(b)
President and 1999 -- -- -- -- -- -- -- -- -- --
Treasurer until 1998 -- -- -- -- -- -- -- -- -- --
August 20, 1999
and Vice
President and
Secretary
thereafter
Jimmy L. Boswell 2000 $103,333 -- -- -- -- 1,600,000(a) -- --
President and 1999 -- -- -- -- -- -- -- -- -- --
Chief 1998 -- -- -- -- -- -- -- -- -- --
Operating
Officer from
August 20, 1999,
through June 30,
2000
Darrell H. Hughes 2000 $ 88,542 -- -- -- -- 1,600,000(a) -- --
President since 1999 -- -- -- -- -- -- -- -- -- --
July 2000 and Chief 1998 -- -- -- -- -- -- -- -- -- --
Executive Officer since
October 13, 1999
(a) On August 25, 1999, Messrs. Jackson, Boswell and Hughes were
each granted a five-year option to purchase 1,600,000 shares of our
common stock at an exercise price of $0.46. Each option is currently
exercisable. However, we do not have a sufficient number of shares of
our common stock authorized for such persons to be able to exercise their
options. We plan to hold a shareholders meeting in the next few months
to propose the adoption of an amendment to our Articles of Incorporation
to increase the number of shares of common stock we are authorized to
issue.
(b) The $24,000 was paid as consulting fees prior to the time Mr.
Jackson became one of our employees.
Option Grants To Executive Officers
The following table sets forth the individual grants of stock
options made by us during our last fiscal year ended June 30, 2000, to
Messrs. Jackson, Boswell and Hughes:
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in
Name Granted Fiscal Year Exercise Price Expiration Date
------------------ ------------ -------------- ------------------ ----------------
David L. Jackson 1,600,000 25% $0.46 8/25/2004
Jimmy L. Boswell 1,600,000 25% $0.46 8/25/2004
Darrell H. Hughes 1,600,000 25% $0.46 8/25/2004
The following table provides information with respect to the
unexercised options to purchase our common stock held by Messrs. Jackson,
Boswell and Hughes as of June 30, 2000, the end of our last fiscal year:
Number of Securities
Underlying Unexercised
Options at Fiscal Year Value of Unexercised In-the-Money
End Options at Fiscal Year End
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
---------------- ------------------------- ----------------------------------
David L. Jackson 1,600,000 / 0 $864,000 / $0
Jimmy L. Boswell 1,600,000 / 0 $864,000 / $0
Darrell H. Hughes 1,600,000 / 0 $864,000 / $0
(1) Calculated by multiplying the difference between the exercise
price and the closing bid price of $1.00 per share on June 30, 2000 by
the applicable number shares. Does not give consideration to commissions
or other expenses of sale.
Messrs. Jackson, Boswell and Hughes did not exercise any options to
purchase shares of our common stock during the fiscal year ended June 30,
2000.
Stock Option Plan
We plan to adopt an incentive and non-statutory option plan. The
plan will authorize the granting of options to our officers, directors,
employees and consultants to purchase shares of our common stock.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of October 11, 2000, the number
of shares of our outstanding common stock beneficially owned by each of
our current directors, sets forth the number of shares of our outstanding
common stock beneficially owned by all of our current executive officers
and directors as a group, and sets forth the number of shares of our
outstanding common stock owned by each person who owned of record, or was
known to own beneficially, more than five percent of the outstanding
shares of our common stock:
Amount and Nature of
Beneficial
Name and Address Ownership (1) Percent of Class
---------------------------- --------------------- ------------------
Jimmy L. Boswell 2,618,468(2) 5.4%
Suite 304
3220 South Higuera Street
San Luis Obispo, CA 93401
Troy D. Carl - 0.0%
6751-B Academy Road, N.E.
Albuquerque, New Mexico 87109
Darrell H. Hughes
Suite 210 4,148,883(3) 8.5%
7001 Seaview Avenue N.W.
Seattle, WA 98117
David L. Jackson 2,460,471(4) 5.1%
3707 Calle Cortejo
Rancho Santa Fe, CA 92091
David G. Lucas 2,618,468(5) 5.4%
Suite 304
3220 South Higuera Street
San Luis Obispo, CA 93401
All current executive officers
and directors as a group
(5 persons) 11,846,290(6) 22.2%
persons)
Cognigen Corporation
2608 Second Avenue, Suite 108 13,492,864(7) 28.7%
Seattle, Washington 98121
Kevin E. Anderson
2608 Second Avenue, Suite 108 24,492,864(8) 42.2%
Seattle, Washington 98120
Anderson Family Trust #1
2608 Second Avenue, Suite 108 24,492,864(8)(9) 42.2%
Seattle, Washington 98120
Peter Tilyou
2608 Second Avenue, Suite 108 28,492,656(10)(11) 42.2%
Seattle, Washington 98120
(1)...Except as indicated below, each person has sole and voting
and/or investment power over the shares listed.
(2)...Includes 1,600,000 shares underlying an option. Mr. Boswell
currently owns approximately 2.6% of the outstanding common stock of
ITHC. Pursuant to the terms of the agreement whereby we acquired the
assets of ITHC, ITHC will be entitled to receive 37,298,444 shares of our
common stock. At this time, we do not have a sufficient number of shares
of common stock authorized to issue the 37,298,444 shares of our common
stock to ITHC. We plan to hold a shareholders' meeting in the next few
months to propose the adoption of an amendment to our Articles of
Incorporation to increase our authorized common stock. Mr. Boswell does
not have sole or shared voting and/or investment power over the shares of
our common stock that will be owned by ITHC. Therefore, Mr. Boswell
disclaims beneficial ownership of the approximate 981,535 shares of our
common stock that will be represented by Mr. Boswell's ownership of
approximately 2.6% of the outstanding common stock of ITHC. The 981,535
shares are not included in the above table.
(3)...Includes 1,600,000 shares underlying an option. Mr. Hughes
currently owns approximately 10.5% of the outstanding common stock of
ITHC. Pursuant to the terms of the agreement whereby we acquired the
assets of ITHC, ITHC will be entitled to receive 37,298,444 shares of our
common stock. At this time, we do not have a sufficient number of shares
of common stock authorized to issue the 37,298,444 shares of our common
stock to ITHC. We plan to hold a shareholders' meeting in the next few
months to propose the adoption of an amendment to our Articles of
Incorporation to increase our authorized common stock. Mr. Hughes does
not have sole or shared voting and/or investment power over the shares of
our common stock that will be owned by ITHC. Therefore, Mr. Hughes
disclaims beneficial ownership of the approximate 3,926,150 shares of our
common stock that will be represented by Mr. Hughes' ownership of
approximately 10.5% of the outstanding common stock of ITHC. The
3,926,150 shares are not included in the above table.
(4)...Includes 1,600,000 shares underlying an option. Mr. Jackson
currently owns approximately 3.5% of the outstanding common stock of
ITHC. Pursuant to the terms of the agreement whereby we acquired the
assets of ITHC, ITHC will be entitled to receive 37,298,444 shares of our
common stock. At this time, we do not have a sufficient number of shares
of common stock authorized to issue the 37,298,444 shares of our common
stock to ITHC. We plan to hold a shareholders' meeting in the next few
months to propose the adoption of an amendment to our Articles of
Incorporation to increase our authorized common stock. Mr. Jackson does
not have sole or shared voting and/or investment power over the shares of
our common stock that will be owned by ITHC. Therefore, Mr. Jackson
disclaims beneficial ownership of the approximate 1,295,629 shares of our
common stock that will be represented by Mr. Jackson's ownership of
approximately 3.5% of the outstanding common stock of ITHC. The
1,295,629 shares are not included in the above table.
(5)...Includes 1,600,000 shares underlying an option. Mr. Lucas
currently owns approximately 2.6% of the outstanding common stock of
ITHC. Pursuant to the terms of the agreement whereby we acquired the
assets of ITHC, ITHC will be entitled to receive 37,298,444 shares of our
common stock. At this time, we do not have a sufficient number of shares
of common stock authorized to issue the 37,298,444 shares of our common
stock to ITHC. We plan to hold a shareholders' meeting in the next few
months to propose the adoption of an amendment to our Articles of
Incorporation to increase our authorized common stock. Mr. Lucas does
not have sole or shared voting and/or investment power over the shares of
our common stock that will be owned by ITHC. Therefore, Mr. Lucas
disclaims beneficial ownership of the approximate 981,535 shares of our
common stock that will be represented by Mr. Lucas's ownership of
approximately 2.6% of the outstanding common stock of ITHC. The 981,535
shares are not included in the above table.
(6)...Includes the shares specified in the above footnotes.
(7)...Cognigen Corporation currently owns approximately 57.9% of
the outstanding common stock of ITHC. Pursuant to the terms of the
agreement whereby we acquired the assets of ITHC, ITHC will be entitled
to receive 37,298,444 shares of our common stock. At this time, we do
not have a sufficient number of shares of common stock authorized to
issue the 37,298,444 shares of our common stock to ITHC. We plan to hold
a shareholders' meeting in the next few months to propose the adoption of
an amendment to our Articles of Incorporation to increase our authorized
common stock. Cognigen Corporation will be deemed to beneficially own
the 37,298,444 shares of our common stock that will be represented by
Cognigen Corporation's ownership of approximately 57.9% of the
outstanding common stock of ITHC. The 37,298,444 shares are not included
in the above table.
(8)...Includes the shares owned by Cognigen Corporation and
11,000,000 shares of our common stock underlying an option owned by the
Anderson Family Trust #1. Kevin E. Anderson has the sole voting and
investment power over the shares of our common stock owned by ITHC.
Kevin E. Anderson and members of his family are the beneficiaries of the
Anderson Family Trust #1 which owns approximately 98.9% of the
outstanding common stock of Cognigen Corporation. Therefore, Mr.
Anderson may be deemed to beneficially own the 13,290,864 shares of our
common stock that Cognigen Corporation may be deemed to beneficially own.
(9)...Represents the 24,290,864 shares that Kevin E. Anderson may
be deemed to beneficially own.
(10)..Includes the shares owned by the Anderson Family Trust #1,
915,080 shares owned by Telkiosk, Inc., 750,000 shares underlying an
option owned by Telkiosk, 1,288,712 shares owned by Combined
Telecommunications Consultancy, Ltd. ("CTC") and 1,000,000 shares
underlying an option owned by CTC. Peter Tilyou is the sole trustee, but
not a beneficiary, of the Anderson Family Trust #1. As managing
officer/director of CTC and Telkiosk, Mr. Tilyou has voting and
investment power over the shares of our common stock beneficially owned
by CTC and Telkiosk. Mr. Tilyou is the beneficial owner of 33% of the
outstanding shares of Telkiosk and 25% of the outstanding shares of CTC.
(11)..The information pertaining to the shares of our common stock
beneficially owned by CTC and Telkiosk and the information pertaining to
Peter Tilyou's relationship to both and to the Anderson Family Trust #1
is based on our shareholder records and information provided to us by
Peter Tilyou.
............On August 20, 1999, we completed the first closing of the
acquisition of all of the assets of ITHC in exchange for 29,242,953
shares of our common stock. On December 27, 1999, we agreed with ITHC
that the total number of shares of our common stock that were to be
issued at the first closing was 11,742,953 shares rather than 29,242,953
shares and the total number of shares to be issued at the second closing
was 37,298,444 shares. Further, we and ITHC made it clear that we were
acquiring all of the assets and assuming all of the liabilities of ITHC
as of August 20, 1999.
As a result of ITHC's receipt of the 11,742,953 shares of our
common stock and a previous purchase of 12,602,431 shares of our common
stock by ITHC from David L. Jackson, Patricia A. Jackson, Karrie R.
Jackson and Eric J. Sunsvold for a total of $190,000, ITHC owned
24,345,384 shares, or what would have been approximately 75% of our
outstanding shares of common stock on August 20, 1999. We loaned ITHC
$190,000 to purchase the 12,602,431 shares. The loan has not yet been
repaid. In May 2000, ITHC distributed the remaining 24,195,384 shares
pro rata to its shareholders.
The second closing between us and ITHC will be held at such time as
we have enough additional shares authorized to complete the issuance of
the additional 37,298,444 shares to ITHC. We understand that ITHC will
then distribute the 37,298,444 shares pro rata to its shareholders.
The assets of ITHC consisted of electronically archived customer
databases consisting of approximately 95,000 individual residential and
business long-distance telephone service subscriber accounts; agency,
reseller and other agreements and contracts ITHC had with carriers,
switched resellers, unswitched resellers, consolidators or other
providers of long-distance and local telephone service; ITHC's accounts
receivable, commissions receivable, future commissions that may be
payable from any of the carriers, switched resellers, unswitched
resellers, consolidators or other providers of long-distance and local
telephone service; ITHC's computer software, proprietary programs and
applications, computers, monitors, peripherals, printers, copiers,
telephone PABX systems, office furniture and fixtures, office leases;
customer data bases, customer lists and print and electronic records
relating to customers; ITHC's inventories and orders for prepaid
telephone cards; ITHC's new accounts; ITHC's websites, pages, links and
agreements as well as ITHC's Internet domains and email addresses;
agreements with ITHC's agents and subagents; exclusive use and control of
the name "Cognigen" and its attendant copyright, trade name and trademark
and service mark registrations; ITHC's intellectual property; ITHC's
lines of credit with carriers, prepaid card providers, switched
resellers, switchless resellers and other providers of local and
long-distance phone service, ITHC's cash and all of the outstanding stock
of Inter-American Telecommunications Corporation, a non-operating
subsidiary of ITHC.
ITHC, which was incorporated in July 1998, acquired the assets it
transferred to us for a total of $1,600,000 in promissory notes, which
were assumed by us, and 7,500 shares of ITHC's common stock. ITHC
originally acquired the assets in 1998 and 1999 from Inter-American
Telecommunications Corporation, Telkiosk, CTC and Cognigen Corporation,
all of which were incorporated in 1998.
ITHC, through Cognigen Corporation, its e-commerce division, was a
major marketer of long-distance telecommunications services. Operating
on the Internet via thousands of Web sites, Cognigen Corporation marketed
both domestic and international long-distance telephone service as well
as prepaid calling cards through a network of approximately 40,000
independent agents to approximately 157,000 subscribers worldwide.
On August 20, 1999, and on December 27, 1999, Jimmy L. Boswell and
David G. Lucas were directors, officers and owners of less than 5% of the
outstanding common stock of ITHC. Further, on August 20, 1999, David L.
Jackson and his wife were our sole directors and officers. On December
27, 1999, David L. Jackson was a director of ITHC and owned less than 5%
of the outstanding common stock of ITHC. As of December 27, 1999,
Darrell H. Hughes was an officer of ITHC and owned approximately 10.5% of
the outstanding common stock of ITHC. As of August 20, 1999, and as of
December 27, 1999, Cognigen Corporation owned approximately 64.7% and
57.9%, respectively, of the outstanding common stock of ITHC,
Inter-American Telecommunications Corp. and Telkiosk, Inc. each owned
approximately 5.9% and 5.3%, respectively, of the outstanding common
stock of ITHC, and CTC owned approximately 7.9% and 7.1%, respectively,
of the outstanding common stock of ITHC. As of August 20, 1999, and as
of December 27, 1999, Kevin E. Anderson, through the Anderson Family
Trust #1 which owns approximately 98.9% of the outstanding common stock
of Cognigen Corporation, controlled us and ITHC. Peter Tilyou is the
sole trustee of the Anderson Family Trust #1 but is not a beneficiary of
the trust.
We believe that the transaction between us and ITHC on December
27, 1999, at which time we may be deemed to have been affiliated with
ITHC, was at least as fair to us as we could have obtained from an
unaffiliated third party. We did not obtain a fairness opinion in
connection with the August 20, 1999 or December 27, 1999 transactions
with ITHC.
On September 14, 1999, Peter Tilyou, pursuant to the authority
previously granted to him by ITHC, amended an agreement dated as of
September 1, 1999 between ITHC and CCRI Corp. The agreement specified
the compensation CCRI Corp. was to receive for assisting ITHC in raising
capital. The amendment provided that CCRI Corp. would receive a bonus of
200,000 shares of our common stock. Of the 200,000 shares, 50,000 shares
were to be unrestricted. It was later determined that CCRI Corp. would
assist us in raising additional capital and that ITHC would not raise any
capital. When CCRI Corp. did assist us in raising additional capital, we
felt obligated to provide CCRI Corp. with the compensation and bonus that
ITHC had agreed to pay. We were unable on November 10 and 11, 1999, to
provide the 50,000 shares of our unrestricted common stock for delivery
to the two persons affiliated with CCRI Corp. As an accommodation to us,
Peter Tilyou, as Managing Director of Combined Telecommunications
Consultancy, Ltd. ("CTC"), arranged for CTC to deliver 50,000
unrestricted shares of our common stock to the two persons affiliated
with CCRI Corp. In May 2000, Peter Tilyou on behalf of CTC requested
that we reimburse CTC for the value of the 50,000 shares of our common
stock. The reimbursement request was based upon the closing prices of
our common stock on November 10 and 11, 1999. A total of $175,000 was
paid to CTC.
We also believe that the transaction between us and CTC was at
least as fair to us as we could have obtained from an independent third
party.
On August 25, 1999, we granted five-year options to purchase
approximately 32,400,000 shares of our common stock at $0.46 per share to
various persons including the Anderson Family Trust #1 (12,000,000
shares) which is affiliated with us and of which Kevin E. Anderson and
his family are the sole beneficiaries, Jimmy L. Boswell (1,600,000
shares), CTC (4,000,000 shares), Darrell H. Hughes (1,600,000 shares),
Inter-American Telecommunications Corp. (800,000 shares), David L.
Jackson (1,600,000 shares), David G. Lucas (1,600,000 shares) and
Telkiosk, Inc. (800,000 shares).
On July 22, 1999, ITHC and CST entered into a Carrier Service
Agreement that was assumed by us in connection with the acquisition by us
of all of the assets of ITHC. Under the terms of the three-year
agreement, ITHC agreed to migrate to CST domestic and international
dial-around and callback long distance subscribers pursuant to a
telemarketing campaign to be conducted with ITHC's personnel. CST agreed
to provide office space, long distance telephone service, PABX and
telephone handsets, at its cost, to support up to 12 telemarketing
personnel and workstations. ITHC agreed to provide the computer
terminals and peripherals, furniture and fixtures required for the
telemarketing personnel. CST also agreed to provide customer service
personnel. CST agreed to charge ITHC a rate to each destination equal to
CST's cost plus 15%. The rate charged by CST included all switching
services. CST also agreed to provide all accounting services in
connection with the agreement. All accounts sent to CST by ITHC remained
the property of ITHC. ITHC provided CST with advance payments of
approximately $570,000 to help cover CST's cost in providing long
distance services for telemarketing, customer service and carrier
transport for the accounts of ITHC that migrate to CST.
On April 25, 2000, the CST shareholders transferred all of the
outstanding CST shares of common stock to us in exchange for a total of
2,041,445 shares of our common stock. The number of shares of our common
stock issued to the CST shareholders in exchange for CTS shares was
determined by negotiations between CST's shareholders and us and was
based on the market price of our common stock, which on April 25, 2000
had a closing price of $1.00 per share, the fact our common stock issued
in the exchange was not to be registered and estimates of the value of
CST's assets, staff, technology, revenue-producing capabilities and
physical location. CST's assets that were acquired by us pursuant to the
exchange included a facility lease, equipment leases and CST's customer
base.
Jimmy L. Boswell was our President and is our Executive Vice
President and Chief Operating Officer and is Chairman of the Board,
President and Chief Executive Officer of CST. Mr. Boswell was one of the
CST shareholders. Prior to the exchange, Mr. Boswell beneficially owned
approximately 18.7% of the CST shares. Pursuant to the exchange, Mr.
Boswell received 381,750 shares of our common stock. Immediately
following the exchange, Mr. Boswell beneficially owned a total of
1,981,750 shares of our common stock, including 1,600,000 shares
underlying an option. In addition, a promissory note in the amount of
approximately $87,547.50 that was payable to Mr. Boswell by CST was
terminated as a part of the exchange.
David G. Lucas is our Treasurer and Chief Financial Officer and is
a Director, Vice President and Chief Financial Office of CST. Mr. Lucas
was one of the CST shareholders. Prior to the exchange, Mr. Lucas
beneficially owned approximately 18.7% of the CST shares. Pursuant to
exchange, Mr. Lucas received 381,750 shares of our common stock.
Immediately following the exchange, Mr. Lucas beneficially owned a total
of 1,981,750 shares of our common stock, including 1,600,000 shares
underlying an option. In addition, a promissory note in the amount of
approximately $49,176.92 that was payable to Mr. Lucas by CST was
terminated as a part of the exchange.
Two of the other CST shareholders were our employees. Otherwise,
the other CST shareholders had no affiliation with us.
We believe that the transaction between us and the CST shareholders
was at least as fair to us as we could have obtained from an unaffiliated
party. We did not obtain a fairness opinion in connection with the
transaction.
On October 11, 2000, we entered into an agreement with JVTEL, a
joint venture between Telkiosk and CTC, that gives us the option to sell
to JVTEL a database of off-shore and domestic telephone service
subscribers that we acquired from ITHC. According to the terms of the
agreement, in the event that we have not activated a minimum of 5,000 of
the accounts by March 30, 2001, we have the option to sell the accounts
to JVTEL for $1,300,000. The $1,300,000 will be paid to us in such
number of shares of our common stock that is equal to $1,300,000, less
the forgiveness of debt and interest due to JVTEL on March 30, 2001,
divided by the closing bid price of our common stock on March 30, 2001.
We have employment agreements with Jimmy L. Boswell, Darrell H.
Hughes and David G. Lucas pursuant to which they are paid annual salaries
of $120,000, $125,000 and $90,000, respectively. In addition, Messrs.
Boswell and Lucas, who have employment agreements that commenced on
August 1, 2000, and that terminate on July 31, 2000, were each paid
$100,000 as an initial bonus in connection with their employment
agreements. The initial bonus is deemed earned on a pro rata basis over
the two-year period of each employment agreement in the amount of $4,167
per month. An early termination of the employment agreements by the
employees without cause or by us with cause obligates the employees to
return the unearned portions of their initial bonuses to us. In
addition, between December 1999 and March 31, 2000, we paid David L.
Jackson a fee of $6,000 per month for providing services to us. On April
1, 2000, David L. Jackson became one of our employees with an annual
salary of $120,000. We also have assumed agreements with Kevin E.
Anderson and Peter Tilyou pursuant to which Kevin E. Anderson Consulting,
Inc. and CTC are paid or are to be paid consulting fees of $14,583 and
$10,000 per month, respectively.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: January 18, 2001
COGNIGEN NETWORKS, INC.
/s/ Darrell H. Hughes
---------------------------------
Darrell H. Hughes, Chairman of
the Board, President and Chief
Executive Officer
/s/ David G. Lucas
---------------------------------
David G. Lucas
Treasurer, Chief Financial
Officer and Principal
Accounting Officer
In accordance with the Exchange Act, this report has been signed by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
SIGNATURE TITLE DATE
------------------ ------------ ------------------
/s/ Jimmy L. Boswell
--------------------
Jimmy L. Boswell Director January 18, 2001
/s/ Troy D. Carl
--------------------
Troy D. Carl Director January 18, 2001
/s/ Darrell H. Hughes
--------------------
Darrell H. Hughes Director January 18, 2001
/s/ David L. Jackson
--------------------
David L. Jackson Director January 18, 2001
/s/ David G. Lucas
--------------------
David G. Lucas Director January 18, 2001
