UNITED STATES
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 For the Fiscal Year Ended June 30, 1998
Commission File No. 0-12116
ComTec International, Inc.
--------------------------
(Name of Small Business Issuer in its charter)
New Mexico 75-2456757
---------- ----------
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
9350 East Arapahoe Road, Suite 340, Englewood, Colorado 80112
(Address of principal executive offices)
(303) 662-1198
(Issuer's Telephone Number Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
(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 No x
--- ---
Checkif 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 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 the aggregate market value of the voting stock (common stock) held by
non-affiliates computed by reference to the price at which the stock was sold or
the average bid and asked price of such stock , as of a specified date within
the past sixty days. As of June 15, 1999, the aggregate market value of the
Company's Common Stock held by non-affiliates was $2,381,000 as of the close of
business on June 15, 1999.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Number of shares outstanding of each of the
issuer's classes of Common stock as of
June 15, 1999 was 46,070,019 shares.
State issuer's revenues for its most recent fiscal year. $0
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required
to be filed by Sections 12, 13 or 15(d) of the
Exchange Act after the distribution of securities under a plan
confirmed by a court
Yes X No
---- ----
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
FORM 10-KSB ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1998
COMTEC INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS...........................................3
Item 2. DESCRIPTION OF PROPERTY..........................................19
Item 3. LEGAL PROCEEDINGS................................................19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............21
PART II
Item 5. MARKET FOR COMMON STOCK EQUITY AND RELATED
STOCKHOLDER MATTERS.........................................22
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........24
Item 6a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......31
Item 7. FINANCIAL STATEMENTS.............................................31
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE....................................31
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT...........32
Item 10. EXECUTIVE COMPENSATION...........................................35
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..............................................38
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................40
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.................................42
SIGNATURE PAGE................................................................45
INDEPENDENT AUDITOR'S REPORT AND CONSOLIDATED
FINANCIAL STATEMENTS, JUNE 30, 1998 AND 1997.................................F-1
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT:
1. General Corporate
-----------------
ComTec International, Inc., together with its subsidiaries (collectively
"the Company"), is a holder of 900 megahertz ("MHz" ) band frequencies for
commercial specialized mobile radio ("SMR") service in seven metropolitan trade
areas ("MTA's") in southeastern USA.
ComTec International Inc. was incorporated on July 6, 1983 in the State of
New Mexico, originally under the name of Nisus Video, Inc. It is a fully
reporting 12(g), 34 Act publicly traded company. The Company has undergone many
changes to date as a result of certain reorganizations. Historical changes are
more fully disclosed in prior 34 Act filings. The Company's principal office is
located at 9350 East Arapahoe Road, Suite 340, Englewood, Colorado 80112; its
telephone number is (303) 662-1198; its facsimile number is (303) 662-8485. The
Company is currently authorized to issue 100,000,000 common shares, $0.001 par
value and 10,000,000 preferred shares, $0.001 par value. The Company has one
wholly owned operating subsidiary, American Wireless Network, Inc. ("AWN"),
three inactive wholly owned subsidiaries, and a seventy percent investment
interest in an additional inactive subsidiary.
On May 10, 1995, pursuant to the terms and conditions of a written
agreement, the control of the Company was acquired by the shareholders of
Keystone Holding Corporation ("KHC"), a privately owned Colorado corporation
under the control of Donald G. Mack, solely in exchange for voting securities of
the Company. In connection with this acquisition, 2,245,794 shares of the
Company's common stock were issued to KHC in exchange for the following major
assets of KHC: (1) a commercial revenue producing property valued at $392,214,
and (2) a satellite uplink system valued at $290,000 (net of depreciation). In
connection with the revenue producing property there was a $347,645 liability.
Mr. Mack has subsequently filed litigation against the Company related to
alleged compensation entitlements and the Company has filed counterclaims
against Mr. Mack. (SEE ITEM 3, LEGAL PROCEEDINGS - LITIGATION WITH FORMER
OFFICER AND DIRECTOR and ITEM 12, CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.)
As a result of this transaction, the Company experienced a complete change
of management control. On October 27, 1995, Nattem, USA, Inc. (then the name of
the Company) changed its name to ComTec International, Inc., and planned to
develop various telecommunications services and products, principally in the
areas of Specialized Mobile Radio (SMR). During the past two fiscal years, the
Company departed from the strictly SMR business strategy to include now
terminated ventures in prepaid phone cards and giant LED screens.
On March 28, 1997, the Shareholders of the Company approved a proposal to
give the Company's Board of Directors authority to institute a reverse stock
split of from 3 for 1 to 100 for 1 at the discretion of the Board of Directors
until December 31, 1997. On December 26, 1997, the Board of Directors of the
Company acted pursuant to shareholder authority granted at the Annual Meeting of
Shareholders held March 28, 1997, to declare a one for five reverse stock split
of the Company's $.001 par value common stock effective 12:01 A.M. January 31,
1998. All share data and per share data is stated to reflect the reverse stock
split.
3
<PAGE>
2. Current Operations
------------------
OPERATING SUBSIDIARY
On December 3, 1996, the Company formed American Wireless Network, Inc.
('AWN"), a wholly owned subsidiary of the Company, to pursue opportunities in
the Specialized Mobile Radio (SMR) industry. In connection with this
transaction, the Company transferred all SMR radio licenses under ownership and
control of the Company to AWN (in exchange for 500,000 shares of common stock in
AWN). On December 22, 1996 AWN issued an additional 143,000 shares of common
stock to three additional Company affiliated entities. In March of 1997, the
Company exchanged for stock in the Company all shares of AWN held outside of the
Company. As of March 31, 1997, and currently the Company owns all of the
outstanding common stock of AWN. Since December 5, 1997, AWN has operated SMR
sites in seven MTA's in the southeastern U.S.A., operating specialized mobile
radio licenses purchased from Centennial Communications Corp. in a transaction
which final closing occurred on July 6, 1998.
PURCHASE OF SPECIALIZED MOBILE RADIO COMMUNICATIONS SYSTEMS
On December 5, 1997, the Company through AWN, began operations as a
provider of SMR two-way communication services. By an agreement executed on
December 4, 1997, AWN, a wholly owned subsidiary of ComTec International, Inc.
(the "Company"), acquired management control of Specialized Mobile Radio ("SMR")
related assets and licenses owned by Centennial Communications Corp. of Denver,
Colorado in seven MTA's located in southeastern USA. The transaction was an arms
length purchase and sale transaction, negotiated by the representatives of each
party to the agreement.
The Company and Centennial Communications Corp., a Colorado Corporation,
initially entered into a letter of intent dated as of October 16, 1997, and a
formal agreement was entered into on December 4, 1997, between AWN, a Colorado
Corporation and Centennial Communications Corp. (the "Agreement") whereby AWN
acquired management control on December 5, 1997, of the SMR assets and SMR
licenses owned by Centennial Communications Corp. together with the SMR related
business limited to and located in the seven following USA MTA's: Birmingham,
Alabama; Knoxville, Memphis, and Nashville, Tennessee; Oklahoma City and Tulsa,
Oklahoma; and New Orleans, Louisiana. The assets acquired by the Agreement
include SMR licenses issued by the Federal Communications Commission ("FCC"),
radio equipment and antennas, tower site leases and the customer base of
Centennial Communications Corp. in the seven acquired markets. Since the
acquisition, AWN has continued to utilize the assets acquired in the transaction
for the same purposes, that of commercial sale of air time to business users as
was utilized by Centennial Communications Corp. Transfer of title to the assets
and licenses occurred at a second closing on July 6, 1998. Until transfer of
legal title of the assets to AWN on July 6, 1998, the seven markets were
operated by AWN pursuant to a management agreement. The total purchase price of
the assets was $3,035,700, consisting of cash deposit of $200,000 in October
1997, payment of $1,000,800 in cash on December 4, 1997, a promissory note from
AWN to Centennial Communications Corp. in the amount of $444,200 (which was paid
on July 6, 1998) and assumption of FCC notes totaling $1,390,700 by AWN.
Prior to this acquisition, neither the Company nor its subsidiary, AWN, had
any affiliation with Centennial Communications Corp. nor any of its officers,
directors, affiliated companies or shareholders.
4
<PAGE>
PRINCIPAL OFFICE OF REGISTRANT
On December 15, 1997, the Company relocated its principal offices to Suite
340, 9350 East Arapahoe Road, Englewood, Colorado, 80112. The Company's phone
number is (303)-662-1198. The Company's operating subsidiary, AWN, which is also
located at such address, entered into a three-year lease for the premises, said
lease ending November 30, 2000.
INACTIVE SUBSIDIARIES
Custom Concepts, Inc. was incorporated as a Colorado Corporation in
November 1997 as an additional subsidiary of the Company. Custom Concepts, Inc.
is currently inactive with no defined business plan and has no material assets.
On January 14, 1998, the name of CTI Real Estate, Inc. a subsidiary of the
Company which held real estate formerly owned by the Company, was changed to
AmNet Resources, Ltd. ("AmNet"). AmNet has no active operations or material
assets. AmNet is currently inactive with no defined business plan and has no
material assets.
International Media Group, Ltd. ("IMG") was formed as a Colorado
Corporation in March of 1997 with a business plan to operate and market as a
public advertising media the use of giant LED screens. The Company has entered
into an agreement to dispose of the LED screens. IMG has no active operations or
material assets. IMG is currently inactive with no defined business plan and has
no material assets.
3. Change in Management
--------------------
The Company has undergone a complete change in management over the past two
years. The Company has undergone management restructure to the extent that no
Director, Officer, Management Executive, or employee associated with the Company
at July 1, 1997 is now associated with the Company.
Current management of the Company consists of the President and CEO, James
J. Krejci, an MBA, formerly a top executive with Jones Intercable, Inc./Jones
International, Ltd. associated companies; the Chief Financial Officer and
Secretary/Treasurer, Gordon Dihle, an attorney and CPA; and the Controller,
Michael Bunch, a CPA and MBA.
Daniel Melnick was appointed as a Director of the Company by the Board of
Directors at the annual meeting of the Board of Directors of the Company held on
March 28, 1997. Mr. Melnick had no previous affiliation with the Company. On
August 26, 1998, Mr. Melnick was removed as a director by a special meeting of
shareholders. Mr. Melnick had not actively participated in the affairs of the
Company.
On October 8, 1997, Clifford S. Perlman resigned as a Director and Chairman
of the Board of the Company and in all capacities as a Director and Officer of
the Company's subsidiaries.
Michael Bunch, a CPA and MBA, became the organization's controller in
tandem with the appointment of Gordon Dihle, as CFO and as a Company Director in
the initial management restructure which took place on October 8, 1997,
following the resignation of Clifford S. Perlman.
Clarence Leist, a former OneComm Manager, was appointed Chief Network
Operations Engineer in November, 1997.
5
<PAGE>
James J. Krejci began employment with the Company on February 17, 1998, and
in conjunction therewith, was named CEO of AWN and Chief Operations Officer of
the Company.
On May 8, 1998, J. Kent Millington, an individual previously unaffiliated
with the Company, and Clarence Leist were appointed to the Board of Directors.
On May 8, 1998, Gordon Dihle, in conjunction with the appointment of J.
Kent Millington and Clarence Leist as new members of the Board of Directors,
resigned as Chief Financial Officer and in all capacities as an officer and
member of the Board of Directors of the Company and all subsidiaries thereof.
On May 11, 1998, Clarence Leist resigned as a member of the Board of
Directors of the Company. On July 1, 1998, Clarence Leist resigned as Chief
Network Operations Engineer and all other capacities with the Company.
With respect to the resignations by each of the individuals named above,
there was no disagreement with any person so named on any administrative,
operational or technology issues or public disclosure which disagreement, if not
resolved to the satisfaction of this officer, would have caused him to make
reference to the subject matter in connection with this report.
On June 23, 1998, Donald G. Mack resigned as President and CEO of the
Company and in all officer and director capacities with subsidiaries of the
Company. Mr. Mack remained as a Director of the Company. Mr. Mack's resignation
letter stated that his resignation was not a waiver of any rights or claims to
any compensation, stock, options, bonuses or accrued amounts of cash, loans or
guarantees made on behalf of the Company under the terms and conditions of his
employment contract. Mr. Mack's resignation letter did not request that any
disagreement be reported or disclosed in the Company's regulatory filings. Mr.
Mack has subsequently filed litigation against the Company related to alleged
compensation entitlements and the Company has filed counterclaims against Mr.
Mack. (See "ITEM 3, LEGAL PROCEEDINGS - LITIGATION WITH FORMER OFFICER AND
DIRECTOR.")
On August 26, 1998, pursuant to a call for a special meeting by
shareholders owning in excess of 10% of the Company's common stock, and
presented to the shareholders by a notice and proxy mailed by the Company's
independent transfer agent on August 11, 1998, a special meeting and election of
all shareholders of the Company was held with the following proposed purposes:
remove Donald G. Mack from the Board of Directors for cause; remove Daniel
Melnick from the Board of Directors; elect James J. Krejci to the Board of
Directors and elect Gordon D. Dihle to the Board of Directors.
As a result of the Special Meeting of Shareholders held August 26, 1998,
Donald G. Mack and Daniel Melnick were removed as Directors of the Company. In
the same special shareholders meeting, James J. Krejci and Gordon D. Dihle were
elected to the Company's Board of Directors until the next annual meeting of the
Shareholders. As of August 26, 1998, the Company's Board of Directors consisted
of J. Kent Millington (appointed May 8, 1998), James J. Krejci and Gordon D.
Dihle.
Prior to the Special Meeting of Shareholders held August 26, 1998, by a
letter dated August 21, Donald G. Mack tendered his resignation as a Director of
the Company and as an officer and director of any of its subsidiaries.
Previously, on June 23, 1998, Mr. Mack had tendered his resignation as an
officer of the Company and as an officer and director of any of its
subsidiaries. Mr. Mack's resignation letter stated that his resignation was not
a waiver of any rights or claims to any compensation, stock, options, bonuses or
accrued amounts of cash, loans or guarantees made on behalf of the Company under
the terms and conditions of his employment contract. Mr. Mack's resignation
letter did not request that any disagreement be reported or disclosed in the
Company's regulatory filings. Mr. Mack was officially
6
<PAGE>
removed as a Director of the Company by the Special Meeting of Shareholders held
August 26, 1998. Mr. Mack has subsequently filed litigation against the Company
related to alleged compensation entitlements and the Company has filed
counterclaims against Mr. Mack. (See "ITEM 3, LEGAL PROCEEDINGS - LITIGATION
WITH FORMER OFFICER AND DIRECTOR.")
J. Kent Millington who was appointed May 8, 1998, resigned from the board
of directors effective September 2, 1998. With respect to the resignations by
Mr. Millington, there was no disagreement with Mr. Millington on any
administrative, operational or technology issues or public disclosure which
disagreement, if not resolved to the satisfaction of this officer, would have
caused him to make reference to the subject matter in connection with this
report.
At a Special Board of Directors meeting held September 2, 1998, the
following officers were appointed by the Board of Directors: James J. Krejci as
President, CEO and Chairman of the Board of Directors and Gordon D. Dihle as
Secretary and Treasurer. Michael Bunch remained as the organization's
controller.
On September 30, 1998, Marc Maassen, an individual previously unaffiliated
with the Company or current management was appointed to the Board of Directors
as an outside director.
4. Asset Forfeitures, Dispositions and Terminations of Contract Rights
-------------------------------------------------------------------
On July 27, 1995, the Company entered into an agreement to acquire all of
the outstanding voting stock of John Sandy Productions, Inc. (JSP) a privately
held corporation under the sole control of John Santucci. The business purpose
of this video production company was to obtain in-house marketing and media
production expertise to support the Company's marketing of its future
telecommunication services. Based on a settlement agreement executed in October
1997, the Company has agreed to terminate the original purchase agreement of JSP
with John Santucci and the Company and JSP mutually released any claims against
the other. For accounting purposes, the Company's total cash investment
($40,000) in JSP had been recorded in other assets since June 30, 1996. This
amount was charged to operations in the year ended June 30, 1998.
As of June 30, 1996, the Company reported that it controlled management
option agreements on 185 SMR licenses obtained through the Omni-Range
acquisition, some of which were partially constructed. These channels were not
revenue producing. The Company defaulted on its payment obligation for the
channels since the original compensation involved a subordinated mortgage on a
building previously held by the Company, which building transferred to the
original lien-holder in foreclosure proceedings cumulating in December 1997. The
Company has forfeited any rights to the Omni-Range channels.
In July 1997, an Adverse Summary Judgment and Decree in Foreclosure was
issued against the Company's wholly owned subsidiary, CCI Real Estate, Inc.,
which as of the current date has eliminated any equity or ownership by the
Company of real estate located at 10855 East Bethany Drive, Aurora, Colorado. In
the case of Sunset Life Insurance Company of America vs. CTI Real Estate, Inc.,
Arapahoe County District Court, Case No. 96 CV 741, the Court issued an order
dated July 18, 1997, entering Summary Judgment and Decree in Foreclosure against
CTI Real Estate, Inc., a subsidiary of ComTec International, Inc. This suit, a
foreclosure action on the Company's building at 10855 East Bethany Drive,
Aurora, Colorado was filed in September 1996 in the District Court for Arapahoe
County, Colorado. A notice of Sheriff's sale dated August 11, 1997, set a
Sheriff's sale for September 23, 1997, in Littleton, Colorado. The sale was held
and CTI Real Estate, Inc.'s redemption period has expired. The Company
7
<PAGE>
was unable to sell or redeem the property and all equity was lost. Ancillary
litigation was either settled separately or merged and concluded with the
foreclosure. (See "ITEM 3, LEGAL PROCEEDINGS.")
On January 14, 1998, the name of CTI Real Estate, Inc., a subsidiary of the
Company which held real estate formerly owned by the Company, was changed to
AmNet Resources, Ltd. ("AmNet"). AmNet has no active operations or material
assets.
DCL ASSOCIATES SMR LICENSE OPTIONS CANCELLATION
On August 6, 1996, the Company acquired option agreements to manage 1,380
800 MHz SMR channels in 20 states from a group of 34 associated licenses ("the
DCL options"). The August 6, 1996 agreement was recorded as a purchase of
license rights by the Company at a purchase price of $1,597,000 in the Company's
September 30, 1996 10QSB and subsequently increased with subsequent stock
issuances. As a result of disputes which began in February 1997, DLC Associates,
Inc. notified the Company that DCL Associates, Inc. and additional parties
("DCL") considered the Company to be in default of its obligations under the
option agreements. On August 7, 1997, the Company filed a Complaint for
declaratory relief and damages in United States District Court for the District
of Colorado, Denver, Colorado, Case 97-1685 seeking a court ruling that option
agreements entered into by and between the Company and the Defendants,
consisting of DCL Associates, Inc. and thirty three additional Defendants, were
legal, valid and enforceable agreements. The Defendants filed an answer and
counterclaim March 30, 1998, denying that the option agreements, subcontract
agreement and management agreement entered into by the Defendants and the
Company remained valid and further alleging failure of performance, failure of
consideration and inequitable conduct on the part of the Company. The entire DCL
option transaction and associated litigation was terminated by legal settlement
on June 22, 1998. The opportunity to purchase two DCL licenses for $925,000 cash
as provided by the settlement agreement expired on July 1, 1998. In the same
settlement, all of the stock previously issued to DCL Associates, Inc. by the
Company in payment of such options, consisting of 1,361,786 common shares
(including 662,786 common shares issued in exchange for 39,767 shares of Series
C Preferred Stock) has been returned to the Company and cancelled. The Company
had issued 39,767 shares of Series C Preferred Stock with a stated value of
$10.00 in connection with the DCL options acquired per the closing agreement
dated August 6, 1996, and these shares were converted to 662,786 shares of
common stock pursuant to the DCL option agreement. The net result of the entire
transaction in retrospect is the loss of the actual cash paid to DCL Associates
of approximately $150,000. The Company has no further interest or claim to the
DCL options or assets associated therewith. (See "ITEM 3, LEGAL PROCEEDINGS.")
DISPOSITION OF LED SCREEN ASSETS
On December 31, 1998, the Company disposed of six (6) giant light-emitting
diode (LED) screens by sale to Lanstar Computer Products, Inc., a Texas
Corporation, located in Dallas, Texas. The giant LED screens are used to provide
computer active light presentation programs, adaptable for indoor or outdoor use
for sporting events, advertising displays and other theatrical applications.
Pursuant to the Purchase Agreement entered into between the Company and Lanstar
Computer Products, Inc., the LED screens were sold to Lanstar Computer Products,
Inc. (which may be considered an affiliate of the Company) in exchange for a
Promissory Note payable to the Company in the amount of two million four hundred
thousand dollars ($2,400,000). The promissory note is to be secured by an
agreement utilizing the assets sold as security for the promissory note. The
entire principal of the promissory note is due December 31, 1999. The promissory
note, a general obligation of Lanstar Computer Products, Inc., bears simple
interest at the rate of eight percent (8%) per annum payable quarterly. The
Buyer, Lanstar Computer Products, Inc., is a Texas Corporation located at 13707
Gamma Road, Dallas, Texas 75244. Prior to this disposition, neither the Company,
nor any of its subsidiaries, directors, officers or persons associated with the
8
<PAGE>
Company's officers and directors had any relationship with Lanstar Computer
Products, Inc. or any of its officers or directors. Lewis D. Rowe, who is not an
officer or director of the Company, but who is listed as an affiliate of the
Company in the Company's June 30, 1997 and 1998 Form 10-KSB reports as a person
known by the Company to own beneficially more than 5% of the Company's $.001 par
value common stock, may also be considered to be an affiliate of Lanstar
Computer Products, Inc., a non-public company. The LED Screens had been on
consignment for sale since August 1998. No determination as to the
collectability of the promissory note has been made.
AGREEMENT FOR DISPOSITION OF LICENSES
On April 15, 1999, AWN executed an Asset Acquisition Agreement with S.E.
900, Inc., ("Buyer") a Delaware corporation to be formed as a subsidiary of an
unaffiliated company. The purpose of the Asset Acquisition Agreement is to
facilitate the future sale by American Wireless Network, Inc. to S.E. 900, Inc.
of specifically identified 900 MHz licenses and American Wireless Network,
Inc.'s customer base and customer lists associated with the specified 900 MHz
licenses. The sale is subject to certain conditions and events, including final
and unappealable regulatory approvals relating to the transfer of the licenses
to the Buyer. In consideration for the sale, the Buyer is to assume
approximately $1,400,000 of American Wireless Network, Inc.'s debt to the
Federal Communications Commission related to the licenses and issue common
shares of Buyer representing a seven and one half percent interest in S.E. 900,
Inc. to American Wireless Network, Inc. The agreement also includes a lease of
SMR related equipment owned by AWN to S.E. 900, Inc. The 900 MHz licenses and
American Wireless Network, Inc.'s customer base and customer lists associated
with the specified 900 MHz licenses to be sold to S.E. 900, Inc. were purchased
by American Wireless Network, Inc. on July 6, 1998, as a part of the acquisition
of divisional segment assets from Centennial Communications Corp. which was
reported in Item 2 of Form 8-K's dated December 26, 1997, and September 3, 1998,
and Items 2 and 7 of the Form 8-K/A and Exhibits thereto dated February 9, 1999.
5. Discontinued Subsidiary Operations
----------------------------------
TTI COMMUNICATIONS CORPORATION
The Company in conjunction with three additional 10% shareholders invested
in a subsidiary, TTI Communications Corporation, a long-distance
telecommunication business, on February 12, 1997. This partially owned
subsidiary began operations approximately February 19, 1997, and by March 31,
1997, was functionally operational but operating at a substantial loss. TTI
Communications Corporation continued to incur substantial operating losses until
the time the Company's interest in TTI Communications Corporation and all
operations was terminated on approximately December 2, 1997. This business
resold long distance telephone service through prepaid phone cards. The Company
had a 70% interest in TTI Communications Corporation, the remaining 30% interest
in the subsidiary is owned 10% each by two unaffiliated individuals and one
unrelated limited liability company. On December 2, 1997, the Company disposed
of its entire interest in TTI Communications Corporation.
INTERNATIONAL MEDIA GROUP, LTD.
The Company organized a new subsidiary, International Media Group, Ltd. on
March 20, 1997. International Media Group, Ltd. ("IMG") was formed with a
preliminary business plan to operate and market as a public advertising media
the use of giant LED screens. On approximately March 31, 1997, the Company
obtained possession (through agreements to acquire for future issuance of common
stock in a nonpublic exchange) of six (6) giant light-emitting diode (LED)
screens. The giant LED screens provide active light presentation programs,
adaptable for indoor or outdoor use for sporting events,
9
<PAGE>
advertising displays and other theatrical applications. The acquisition required
the issuance of 5,000,000 shares of the common stock of the Company. The stock
exchange portion of the transaction, facilitated through Geneva Reinsurance
Company, Ltd., a corporation organized outside of the United States of America,
resulted in issuance of 5,000,000 shares of common stock to ten different
entities, none of which are residents of the U.S.A., on March 23, 1998. The
Company intended, through its wholly owned subsidiary, International Media
Group, Ltd., to lease out the screens for short-term (one to six week) events.
Efforts at leasing and utilizing the LED screens resulted in substantial
operating losses to the Company's subsidiary, IMG, through which leasing and
operation of the LED screens was to take place. IMG is currently inactive.
6. Terminated Financing Proposals
------------------------------
PROPOSED UNDERWRITING WITHDRAWN
On October 23, 1996, the Company made a $25,000 deposit and obtained a
letter of intent outlining a future firm commitment by National Securities,
Inc., an NASD member broker dealer, to underwrite a $25 million debt and a $15
million common stock secondary offering. National Securities, Inc. requested and
suggested certain changes in the finance, operations and structure of the
Company but did not move forward with any type of underwriting process. The
Company has been refunded its $25,000 deposit. There are no currently existing
agreements for underwriting a public or private offering of the Company's
securities with any NASD member broker dealer.
PRIVATE PLACEMENT WITHDRAWN
During the quarter ended September 30, 1996, the Company entered into a
letter of intent with American Investments Services, Inc. ("AIS"), an NASD
member broker dealer, wherein the Company and AIS proposed a private placement
to be undertaken by AIS. AIS subsequently cancelled the letter of intent and
ended its preliminary efforts with respect to the proposed private placement.
There are no currently existing agreements for underwriting a private offering
of the Company's securities with any NASD member broker dealer.
(b) BUSINESS OF ISSUER:
American Wireless Network, Inc. ("AWN"), a wholly owned subsidiary of the
Company, was incorporated under the laws of the State of Colorado on December 3,
1996, to act as the wireless communications operating entity for the Company.
The Company's operations are conducted through AWN.
During the fiscal year ended June 30, 1998, and through the present the
Company continued as a developmental stage entity focused on developing its
wireless SMR business plan. Prior to December 1997, activities had been
concentrated on creating and executing the Company's strategic business plan,
raising private financing, efforts to acquire other entities and operations,
developing a management and support staff to execute its business plan, and
maintaining reporting compliance for various federal government agencies, such
as the SEC and FCC. The Company's most significant accomplishment to date is the
action of its current management in completing the final closing on July 6,
1998, of the purchase of FCC licenses and operation of thirteen operating SMR
systems located in seven southeastern U.S.A. MTA's.
10
<PAGE>
Current Status and Operations
- -----------------------------
On December 5, 1997, AWN completed the initial phase of a purchase
agreement whereby AWN purchased seven operating SMR systems for $3,035,700. The
wireless communications assets and associated business acquired from Centennial
Communications Corp. lay within the following seven MTA's: Birmingham, Alabama;
Knoxville, Tennessee; Memphis, Tennessee; Nashville, Tennessee; New Orleans,
Louisiana; Oklahoma City, Oklahoma; and Tulsa, Oklahoma. The recently acquired
systems are relatively new. The 105 operating channels had approximately 1400
subscribers, generating recurring monthly revenues of approximately $20,000 on
the purchase date. These operating systems have a total of 14 sites, 105
constructed channels and cover seven of the U.S.A's 51 MTA's, including nine
cities located in four southeastern United States encompassing a total
population of 17.4 million, of which the seven systems are presently capable of
covering approximately 5.9 million population. On April 15, 1999, AWN executed
an Asset Acquisition Agreement with S.E. 900, Inc. ("Buyer"), a Delaware
corporation, to be formed as a subsidiary of an unaffiliated company. The
purpose of the Asset Acquisition Agreement is to facilitate the future sale by
American Wireless Network, Inc. to S.E. 900, Inc. of specifically identified 900
MHz licenses and American Wireless Network, Inc.'s customer base and customer
lists associated with the specified 900 MHz licenses. The sale and an associated
lease of SMR related equipment owned by AWN is subject to certain conditions and
events, including final and unappealable regulatory approvals relating to the
transfer of the licenses to the Buyer. In consideration for the sale, the Buyer
is to assume approximately $1,400,000 of American Wireless Network, Inc.'s debt
to the Federal Communications Commission related to the licenses and issue
common shares of Buyer representing a seven and one half percent interest in
S.E. 900, Inc. to AWN.
At present AWN operates the seven SMR communications systems from its
office in Englewood, Colorado. AWN's SMR communication services are sold to
individual customers through an independent dealer network of local two-way
radio communications equipment vendors ("Dealers"). The Dealers maintain the
local relationships with the customers. AWN acts as the direct billing provider
of SMR communications to the customer base provided by the Dealers. AWN is
responsible for local telephone lines, equipment maintenance, tower site
rentals, customer loading, coding and billing and all customer service and
financial relationships. AWN also has all responsibility for maintaining its SMR
licenses, making payments to the FCC on its licenses and funding all equipment
additions and system improvements. Under the current operation and level of
usage, expenses of operating the system significantly exceed revenues from the
systems.
The Specialized Mobile Radio Industry
- -------------------------------------
SMR, considered "private carriage," was designed to serve the business
community. With the birth of SMR, the government saw an opportunity to
deregulate the business communications industry by creating a viable new
marketplace and, at the same time, decrease the cost of providing fleet dispatch
service to small businesses. Cellular was designed to be a mobile outgrowth of
the public telephone system. Like the public telephone system, cellular systems
are regulated by the FCC and public service commissions of respective state
governments. Cellular, considered "common carriage" by the FCC, was designed to
serve the mobile public
The establishment of "private carrier" systems allows a third-party
entrepreneur to make a profit from a mobile communications system. Services are
provided by SMR systems to a number of different commercial entities, or "end
users," which use the system for their communications needs. Because users do
not have to invest in the base station, SMR service is available to individuals
and small businesses. Services include but are not limited to dispatch, private
voice and data networks, paging and telephone interconnect. Essentially, an SMR
is an individual or company's internal mobile communication network.
11
<PAGE>
Unlike cellular, SMR does not adhere to one equipment standard or protocol.
Currently, two major equipment manufacturers, Motorola and E.F. Johnson,
dominate the industry, each with its own protocol. Sophisticated switching
necessary to facilitate wide-area SMR systems allows dissimilar systems to
communicate with each other through the use of digital technology, allowing
individual SMR operators to build wide-area networks through roaming agreements.
Typical SMR users are businesses in need of communication with large or
small groups of employees on the road, especially those in fleet sales and
service operations. Categories of users include transportation, real estate,
construction, security services, plumbing and electrical contractors, delivery
services, taxi and limousine services, government agencies (such as public
safety, hospital, and general government agency field operations), mining
operations and messenger services.
In Management's evaluation, key factors relevant to competition in the
wireless communication industry are pricing, size of the coverage area, quality
of communication, reliability and availability of service. The Company's
potential success depends in large measure on its ability to compete with
numerous wireless service providers in each of its markets, including cellular
operators, PCS service providers, Digital SMR service providers, paging
services, and other analog SMR operators. The wireless communications industry
is highly competitive and comprised of many companies, most of which have
substantially greater financial, marketing, and other resources than the
Company. There can be no assurances that it will be able to compete successfully
in the wireless communication industry.
Since the late 1980's, Nextel Communications Inc. ("Nextel") has acquired a
large number of SMR systems and is in the process of implementing a conversion
from analog SMR technology to Motorola's digital integrated Dispatch Enhanced
Network ("iDEN") system. Other cellular operators and PCS providers are
implementing digital transmission protocols on their systems as well, primarily
to address capacity issues. Another potential wireless competitor for the
Company is Southern Company, which is implementing a digital architecture and
pursuing Nextel-like strategies on a regional or primary market basis. Southern
Company is a large utility focusing on wide-area communications for its own
vehicle fleet in the Southeastern United States, while selling excess capacity
to other businesses spanning the same geographic region. Most other analog SMR
providers within the Company's operating territory consist of locally oriented
small businesses, often passed from generation to generation.
Government Regulation
- ---------------------
The Company's operations are subject to government regulation primarily by
the FCC. The licensing, operation, assignment, and acquisition of 900 MHz SMR
licenses are regulated under the Communications Act of 1934, as amended in 1996
(the "Communications Act"). Since that time, the FCC has adopted new rules
converting interconnected SMR service from a private radio service to a
commercial mobile radio service and has proposed other new rules allowing
operational flexibility and mandating future licensing by competitive bidding.
The FCC periodically has various dockets under consideration, which could result
in changes to the FCC's rules, regulations, and policies. Certain rule,
regulation or policy changes by the FCC could potentially affect the operations
and financial standing of the Company.
All SMR and commercial mobile radio service licenses are issued as
conditional licenses. The conditional licenses become licenses without condition
only upon timely and proper completion of station construction and minimal
loading. If a licensee fails to complete construction of a station timely and
properly, the license for that station cancels automatically, without any
further action by the FCC.
12
<PAGE>
Prior to imposition of its commercial mobile radio service regulation
system, the FCC issued SMR licenses for five-year terms. Since January 2, 1995,
commercial mobile radio service licenses have been issued for ten-year terms.
Each license may be renewed at the end of the license term upon application to
the FCC. While the FCC generally grants renewal of SMR licenses in routine
fashion and the Company is aware of no reason why its licensees will not be
entitled to a similar renewal expectancy, there can be no certainty that the FCC
will continue its current renewal practices or extend them to the Company.
Regulation of radio towers. The transmitters for SMR stations typically are
located on free-standing or building roof-top towers. The towers are regulated
by both the FCC and the Federal Aviation Administration ("FAA"). The regulations
concern geographic location, height, construction and lighting standards, and
maintenance. Failure to comply with tower regulations can result in assessment
of fines against the tower owner or operator and has, historically, resulted in
fines assessed against individual licensees located on an offensive tower. The
owners of towers are responsible for compliance with FCC and FAA regulations.
The Company does not own or manage any towers.
Other Federal regulations. The Company is generally subject to the
jurisdiction of various federal agencies and instrumentalities in addition to
the FCC and the FAA including but not limited to the United States Environmental
Protection Agency, the United States Department of Labor, the United States
Occupational Safety and Health Administration, the United States Equal
Employment Opportunity Commission, the United States Securities and Exchange
Commission and others. While the Company believes that it is operating in
conformity with all material applicable rules and regulations, policies, rule
changes, and other actions of these agencies, future action by these agencies
could adversely effect the operations and financial standing of the Company.
State regulations. At present, state and local governments cannot regulate
the rates charged by SMR operators. Such governments may, however, exercise
regulatory powers over health, safety, consumer protection, taxation, and zoning
regulations with respect to SMR stations. Currently, the Company's systems are
not subject to any state or local regulatory restraint (other than generally
applicable laws and regulations). However, there can be no assurances that such
systems will not become subject to various states and local regulatory
authorities in the future.
Regulatory developments. In March 1996, the Communications Act went into
effect. This Act effected significant change in regulation and market entry for
communications service providers. Despite this effect on the telecommunications
industry as a whole, the Company does not anticipate any material adverse affect
on its business arising from the Communications Act. Legislation or materially
different rules may be proposed and enacted at any time and may have a material
adverse affect on the operations of the Company. At this time, the Company is
unaware of any pending legislation or rule-making proceedings that would have a
material adverse affect on the current operations of the Company.
Research and Development
- ------------------------
The Company has not incurred, and does not expect to incur, significant
research and development expenses in connection with the equipment for its
existing analog SMR systems.
Copyrights, Patents, Proprietary Information, and Trademarks
- ------------------------------------------------------------
The Company has no registered service marks, copyrights, or patents.
13
<PAGE>
Employees and Consultants
- -------------------------
As of the date of this filing, the Company and its wholly owned subsidiary
AWN employs a total of two (2) persons on a full time basis: James Krejci,
President and Chief Executive Officer of the Company, and Gordon Dihle, the
Secretary/Treasurer of the Company. Mike Bunch, the Controller is employed by
the Company on a part time as needed basis.
The Company periodically retains outside consultants such as attorneys,
accountants, engineers, technicians and industry consultants to perform certain
corporate administrative tasks and SMR related maintenance.
Wireless Industry
- -----------------
The wireless communications industry, which includes services such as
cellular, SMR, paging, and others, is one of the fastest growing industries in
the world. The Company currently offers mobile communications services
consisting of basic two-way dispatch. Analog SMR network systems are capable of
providing voice and data services on a single system. Pricing for SMR service is
normally based on a flat monthly fee for unlimited unit-to-unit communications.
The Company's success depends on its ability to compete with other wireless
communications providers, including cellular mobile telephone operators and
established SMR operators, in each of its existing and proposed markets.
Existing cellular and SMR operators in the Company's operating territories have
been in operation for a number of years, and have significant customer bases. In
addition to their entrenched market position, these operators have available
significantly greater financial and other resources than those available to the
Company. Larger SMR companies are currently converting to all digital formats,
which require current subscribers to purchase digital radio equipment or find
another analog system provider. The competition for new SMR subscribers within
the Company's operating territories may also include Nextel Communications
and/or other independent SMR regional operators. Nextel Communication is the
largest wireless SMR operator in the nation. The Company also faces possible
competition for digital mobile service from other radio operators for channels
that may be allocated by the FCC in the future and operators of new wireless
communications technologies such as personal communications systems ("PCS").
Risk Factors
- ------------
The securities of the Company are speculative and involve a high degree of
risk, including, but not necessarily limited to, the factors affecting operating
results described below. The statements which are not historical facts contained
in this report, including statements containing words such as "believes,"
"expects," "intends," "estimates," "anticipates," or similar expressions, are
"forward looking statements" (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risks and uncertainties including, but not
limited to, the factors set forth below (see "ITEM 1, DESCRIPTION OF BUSINESS
Forward Looking Statements" and "ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION - Forward-Looking Statements").
Limited Revenues; Limited Relevant Operating History; Significant and
Continuing Operating Losses; Negative Cash Flow; Accumulated Deficit. Since its
inception, the Company has been engaged primarily in the acquisition of FCC
Licenses and the construction of facilities to begin commercial operation of
such licenses and, therefore, has had very limited revenues from sales of its
services. Management has not included revenues in its financials since past
revenues have not been sufficient to
14
<PAGE>
be separately stated in accordance with GAAP. Accordingly, the Company has a
limited relevant operating history upon which an evaluation of its prospects can
be made. Such prospects must be considered in light of the risks, expenses and
difficulties frequently encountered in the establishment of a new business in
the wireless communications industry, which is a continually evolving industry
characterized by an increasing number of market entrants and intense
competition, as well as the risks, expenses and difficulties encountered in the
commercialization of services in new markets. The Company has incurred operating
losses in each quarter since inception and on June 30, 1998, the Company had an
accumulated deficit of approximately $11,725,300. Since such date, losses have
increased and are continuing through the date of this report. Accordingly, it is
anticipated that the Company will continue to incur significant losses. There
can be no assurance that the Company will be successful in generating revenues
at a sufficient quantity or margin or that the Company will ever achieve
profitable operations.
Significant Capital Requirements; Need for Additional Capital; Explanatory
Paragraph in Accountant's Report. The Company's capital requirements have been
and will continue to be significant. The Company has been dependent primarily on
the private placement of equity securities and debt financings. The Company
anticipates, based on its current proposed growth plans and assumptions relating
to its growth and operations, that the proceeds from the existing private
placements and borrowings and planned revenues will not be sufficient to satisfy
the Company's contemplated cash requirements for the next 12 months and that the
Company will be required to raise additional funds within the next 12 months. In
addition, in the event that the Company's plans change or its assumptions prove
to be inaccurate (due to unanticipated expenses, delays, problems, or
otherwise), the Company would be required to seek additional funding sooner than
anticipated. Any such additional funding could be in the form of additional
equity capital. The Company is currently pursuing potential funding
opportunities. However, there can be no assurance that any of such opportunities
will result in actual funding or that additional financing will be available to
the Company when needed, on commercially reasonable terms, or at all. If the
Company is unable to obtain additional financing if needed, it will likely be
required to curtail its marketing and expansion plans and possibly cease its
operations. Any additional equity financings may involve substantial dilution to
the Company's then-existing shareholders. The Company's independent public
accountants have included an explanatory paragraph in their reports on the
Company's financial statements for the years ended June 30, 1998 and 1997 which
express substantial doubt about the Company's ability to continue as a going
concern. The Company's consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Footnote 2 to the consolidated financial statements, the Company has suffered
recurring losses from operations and accumulated deficit that raises substantial
doubt about its ability to continue as a going concern.
Risk of Implementation of Analog Network; Risk of Developing Technology.
The Company's success is dependent on the commercial acceptance of its analog
SMR services. Consumer acceptance of the Company's services will be affected by
technology-based differences and also by the operational performance and
reliability of system transmissions on the Company's analog SMR network. In
addition, the development of new technology in the wireless communications
market could significantly affect the Company's ability to implement its
marketing strategy. In such an event, the Company may be required to spend
additional capital to enhance its system to compete with such new technology.
This would subject the Company to the risks normally associated with the
acquisition of additional capital. See "Significant Capital Requirements; Need
for Additional Capital; Explanatory Paragraph in Accountant's Report" above. The
use of analog wireless communications equipment for commercial and consumer
applications represents a relatively new business activity characterized by
emerging markets and an increasing number of market entrants who have introduced
or are developing an array of new wireless communications products and services,
some of which will compete against the Company's services and any other services
which may be developed by the Company. Achieving market acceptance for the
15
<PAGE>
Company's services will require substantial marketing efforts and expenditure of
funds to create awareness and demand by potential customers. The inability to
successfully complete development of a product or application or a determination
by the Company, for financial, technical or other reasons, not to complete
commercial building of licenses held by the Company, particularly in instances
in which the Company has made significant capital expenditures, could have a
material adverse affect on the Company.
Dependence on Ability to Compete; System Build-Out. The Company's success
depends on its analog mobile network's ability to compete with other wireless
communications systems in each relevant market and the Company's ability to
successfully market its wireless communications services. The Company's ability
to compete effectively with other wireless communications service providers,
however, will depend on a number of factors, including the successful deployment
of its identified market areas, the continued satisfactory performance of the
Company's technology, and the development of cost-effective direct and indirect
channels of distribution for its products and services. No assurance can be
given that such objectives will be achieved. See "Risk Factors --
Forward-Looking Statements."
While the Company believes that the mobile dispatch service currently being
provided on its analog SMR network is similar in function to and achieves
performance levels competitive with those being offered by other current
wireless communications service providers in the Company's market areas, there
are and will continue to be differences between the services provided by the
Company and by cellular and/or PCS system operators and the performance of their
respective systems. In addition, if either PCS or cellular operators provide
two-way dispatch services in the future, the Company's ability to compete may be
impaired. In addition, Nextel does provide two-way dispatch service and has
bundled several services under its digital network that the Company's system
does not provide. As a result of these differences, there can be no assurance
that services provided on the Company's networks will be competitive with those
available from other providers of mobile telephone services. The Company's
system is not currently compatible with PCS or other telecommunications systems
and, therefore, the Company will not be able to offer roaming abilities in any
market other than its current markets or markets in which it enters into
agreements with other analog SMR systems, of which there can be no certainty.
Moreover, the cellular systems in each of the Company's markets have been
operational for a number of years, currently service a significant subscriber
base and typically have significantly greater financial and other resources than
those available to the Company.
Subscriber units on the Company's network will not be compatible with
cellular or PCS systems, and vice versa. This lack of interoperability may
impede the Company's ability to attract cellular subscribers or those new mobile
telephone subscribers that desire the ability to access different service
providers in the same market. Moreover, because many of the Company's
competitors have substantially greater financial resources than the Company,
such operators may be able to offer prospective customers equipment subsidies or
discounts that are substantially greater than those, if any, that could be
offered by the Company. Thus, the Company's ability to compete based on the
price of subscriber units may be limited. The Company cannot predict the
competitive effect that any of these factors, or any combination thereof, will
have. Cellular operators and certain PCS operators and entities that have been
awarded PCS licenses each control more spectrum than is allocated for SMR
service in each of the relevant market areas. See "ITEM 1, DESCRIPTION OF
BUSINESS - Forward Looking Statements" and "ITEM 6, MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION - Forward-Looking Statements."
Management of Growth and Attraction and Retention of Key Personnel.
Management of the Company's growth may place a considerable strain on the
Company's management, operations and systems. The Company's ability to execute
its business strategy will depend in part upon its ability to
16
<PAGE>
manage the demands of a growing business. Any failure of the Company's
management team to effectively manage growth could have a material adverse
effect on the Company's business, financial condition or results of operations.
The Company's future success depends in large part on the continued service of
its key management personnel. The Company believes that its future success also
depends on its ability to attract and retain skilled technical, managerial and
marketing personnel. Competition for qualified personnel is intense. The Company
has from time to time experienced difficulties in recruiting qualified
personnel. Failure by the Company to attract and retain the personnel it
requires could have a material adverse effect on the financial condition and
results of operations of the Company.
Technological Advances and Evolving Industry Standards. The wireless
communications industry, and in particular the SMR industry, is characterized by
rapid technological developments, changes in customer requirements, evolving
industry standards and frequent new product introductions. In the future, the
Company may be required to enhance its existing systems and to develop and
introduce new products that take advantage of technological advances and respond
promptly to new customer requirements and evolving industry standards. There can
be no assurance that the Company will be able to keep pace with the rapid
evolution of the wireless communications industry.
Dependence on Governmental Regulation. The licensing, operation,
acquisition and sale of the Company's SMR licenses are regulated by the FCC. FCC
regulations have undergone significant changes during the last four years and
continue to evolve as new FCC rules and regulations are adopted pursuant to the
Omnibus Budget Reconciliation Act of 1993 and Telecommunications Act. The
Company's ability to conduct its business is dependent, in part, on its
compliance with FCC rules and regulations. See "ITEM 1, DESCRIPTION OF BUSINESS
- - Government Regulation." Future changes in regulation or legislation affecting
the Company's system, including Congress' and the FCC's recent allocation of
additional commercial mobile radio services spectrum, could materially adversely
affect The Company's business. In addition, should the FCC fail to renew any of
the Company's licenses or pass rules or regulations that limit the Company's
ability to conduct its business, this could have a material adverse affect on
the Company.
Assets Primarily Consist of Intangible FCC Licenses. The Company's assets
consist primarily of intangible assets, principally FCC licenses, the value of
which will depend significantly upon the success of the Company's business and
the growth of the SMR and wireless communications industries in general. In the
event of default on indebtedness or liquidation of the Company, there can be no
assurance that the value of these assets will be sufficient to satisfy its
obligations.
Lack of Dividend History; No Dividends. The Company has never paid
dividends on its Common Stock and intends to utilize any earnings for growth of
its business. Therefore, the Company does not intend to pay cash dividends for
the foreseeable future. This lack of dividends and a dividend history may
adversely affect the liquidity and value of the Company's Common Stock.
Possible Volatility of Market Price. The Company's Common Stock has been
traded on the OTC Bulletin Board since 1984. The Company believes that factors
such as (but not limited to) announcements of developments related to the
Company's business, fluctuations in the Company's quarterly or annual operating
results, failure to meet securities analysts' expectations, general conditions
in the international marketplace and the worldwide economy, announcements of
technological innovations or new systems or enhancements by the Company or its
competitors, developments in patents or other intellectual property rights, and
developments in the Company's relationships with clients and suppliers could
cause the price of the Company's Common Stock to fluctuate, perhaps
substantially. In recent years the stock market has experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
17
<PAGE>
affected companies. Such fluctuations could adversely affect the market price of
the Company's Common Stock.
Risks Associated with Year 2000 Issues. In light of its current
information, the Company does not anticipate delays and postponements in
finalizing and implementing Year 2000 resolutions by the middle of the fourth
quarter of 1999. Until the Company's renovation and validation phases are
substantially complete, however, the Company cannot fully and accurately
estimate any uncertainty in timely resolving its potential Year 2000 challenges
or in finalizing and implementing related Year 2000 resolutions. Additionally,
any failure by third parties which have a material relationship with the Company
to achieve full Year 2000 compliance may be a potential risk if such failure
were to adversely affect the ability of such third parties to provide any
products or services that are critical to the Company's operations. If these
third parties fail to appropriately address Year 2000 challenges, there could be
a material adverse affect on the Company's financial condition and results of
operations. Such risks include, but are not limited to: (i) inability of
subscribers to make or receive dispatch calls; (ii) inability of sites, switches
and other interfaces to accurately record call records of subscriber phone
calls; and (iii) inability of billing systems to accurately report and bill
subscribers for phone usage. Other risks associated with the inability of the
Company or material third parties to develop and deploy Year 2000 solutions in a
timely and successful manner may involve or result in conditions that could
preclude the Company from: (a) obtaining equity or debt financing; (b) deploying
an alternative technology that is Year 2000 compliant; (c) implementing
commercial buildouts in new markets or introducing new services in existing
markets; and (d) pursuing additional business opportunities. The Company cannot
independently assess the impact of Year 2000 challenges and compliance
activities and programs involving operators of utilities and other service
providers (such as electric utilities and voice and data utilities). The Company
therefore must rely on utility providers' estimates of their own Year 2000
challenges and the status of their related compliance activities and programs in
the Company's own Year 2000 assessment process. Because the Company's systems
will be dependent upon the systems of other service providers, any disruption of
operations in the computer programs of such service providers would likely have
an impact on the Company's systems. Moreover, there can be no assurance that
such impact will not have a material adverse effect on the Company's operations.
Concerns About Mobile Communications Health Risk. Allegations have been
made, but not proven, that the use of portable mobile communications devices may
pose health risks due to radio frequency emissions from such devices. The actual
or perceived risk of mobile communications devices could adversely affect the
Company through a reduced subscriber growth rate, a loss of current subscribers,
reduced network usage per subscriber or through reduced financing available to
the mobile communications industry.
Forward-Looking Statements
- --------------------------
A number of the matters and subject areas discussed in the foregoing "Risk
Factors" section and elsewhere in this 10-KSB Report that are not historical or
current facts deal with potential future circumstances and developments. The
discussion of such matters and subject areas is qualified by the inherent risks
and uncertainties surrounding future expectations generally, and also may
materially differ from the Company's actual future experience involving any one
or more of such matters and subject areas. The Company has attempted to
identify, in context, certain of the factors that it currently believes may
cause actual future experience and results to differ from the Company's current
expectations regarding the relevant matter or subject area. The operation and
results of the Company's wireless communications business also may be subject to
the effect of other risks and uncertainties in addition to the relevant
qualifying factors identified elsewhere in the foregoing "Risk Factors" section,
including, but not limited
18
<PAGE>
to, general economic conditions in the geographic areas and occupational market
segments (such as, for example, construction, delivery, and real estate
management services) that the Company is targeting for its SMR systems; the
availability of adequate quantities of system infrastructure and subscriber
equipment and components to meet the Company's systems deployment and marketing
plans and customer demand; the success of efforts to improve and satisfactorily
address any issues relating to the system's performance; the ability to achieve
market penetration and average subscriber revenue levels sufficient to provide
financial viability to the SMR system; access to sufficient debt or equity
capital to meet the Company's operating and financing needs; the quality and
price of similar or comparable wireless Communications services offered or to be
offered by the Company's competitors, including providers of cellular and PCS
service; future legislative or regulatory actions relating to SMR services,
other wireless communications services or telecommunications generally; and
other risks and uncertainties described from time to time in The Company's
reports filed with the Commission.
ITEM 2. DESCRIPTION OF PROPERTY
CORPORATE OFFICE:
AWN leases approximately 2000 square feet of executive office space at 9350
East Arapahoe Road, Suite 340, Englewood, Colorado. The office lease extends to
November 30, 2000. All corporate, administrative, accounting and operational
functions are carried out from the corporate headquarters. The Company shares
offices with AWN. As a result of recent employee reductions, this lease space is
only thirty percent utilized and more than adequate for the Company's current
needs. The Company has subleased a portion to its office space in order to
offset office overhead.
SMR Tower Sites, the Company has leased tower sites in the following
locations:
Birmingham, Alabama - three sites.
New Orleans, Louisiana - three sites.
Oklahoma City, Oklahoma - one site.
Tulsa, Oklahoma - one site.
Memphis, Tennessee - two sites.
Knoxville, Tennessee - one site.
Nashville, Tennessee - two sites.
ITEM 3. LEGAL PROCEEDINGS
During the fiscal year ended June 30, 1997, legal counsel for DLC
Associates, Inc. notified the Company that DCL Associates, Inc. and other
parties to the DCL options agreement considered the Company to be in default if
its obligations under the option agreements. On August 7, 1997, the Company
filed a Complaint for declaratory relief and damages in United States District
Court for the District of Colorado, Denver, Colorado, Case 97-1685 seeking a
court ruling that option agreements entered into by and between the Company and
the Defendants, consisting of DCL Associates, Inc. and thirty three additional
Defendants, are legal, valid and enforceable agreements. The suit involved a
dispute concerning the continuing validity of an agreement by the Company
executed August 6, 1996, wherein the Company obtained options to purchase 1389
EIW channels and 1046 non-EIW channels from DCL Associates, Inc. and the thirty
three additional Defendants ('the DCL options"). The August 6, 1996 agreement
was recorded as a purchase of license rights by the Company. The Defendants
filed an answer and counterclaim on March 30, 1998, denying that the option
agreements, subcontract agreement and management agreement entered into by the
Defendants and the Company remained valid and further alleging failure of
performance, failure of consideration and inequitable conduct on the part of the
19
<PAGE>
Company. The Defendants counterclaim alleged that the Company refused and failed
to register securities issued to the Defendants, breached post transaction
payment obligations, manipulated and inflated the bid price of its stock and
failed and refused to pay the final installment of the option price. The entire
DCL option transaction and associated litigation was terminated by a mutual
release and legal settlement on June 22, 1998. The opportunity to purchase two
DCL licenses for $925,000 cash as provided by the settlement agreement expired
on July 1, 1998. In the settlement, all of the stock previously issued to DCL
Associates, Inc. by the Company in payment of such options, consisting of
1,361,786 common shares (including 662,786 common shares issued in exchange for
39,767 shares of Series C Preferred Stock) has been returned to the Company and
cancelled. The Company had issued 39,767 shares of Series C Preferred Stock with
a stated value of $10.00 in connection with the DCL options acquired per the
closing agreement dated August 6, 1996. These shares were converted to 662,786
shares of common stock pursuant to the DCL option agreement. DCL's
representative had previously refused tender of the 662,786 common shares. The
net result of the entire transaction in retrospect is the loss of the actual
cash paid to DCL Associates of approximately $150,000. The Company has no
further interest or claim to the DCL options or assets associated therewith.
In July 1997, an Adverse Summary Judgment and Decree in Foreclosure was
issued against the Company's wholly owned subsidiary, CCI Real Estate, Inc.,
which as of the current date eliminated any equity or ownership by the Company
of real estate located at 10855 East Bethany Drive, Aurora, Colorado. In the
case of Sunset Life Insurance Company of America vs. CTI Real Estate, Inc.,
Arapahoe County District Court, Case No. 96 CV 741, the Court issued an order
dated July 18, 1997, entering Summary Judgment and Decree in Foreclosure against
CTI Real Estate, Inc., a subsidiary of ComTec International, Inc. This suit, a
foreclosure action on the Company's building at 10855 East Bethany Drive,
Aurora, Colorado, was filed in September 1996 in the District Court for Arapahoe
County, Colorado. Sunset Life Insurance Company had previously sought and
obtained the appointment of a receiver to manage the Company's building. This
suit was consolidated with Shamrock Electric Co. vs. Nattem U.S.A. Incorporated;
Keystone Holding Corp.; ComTec International; Tim Degarmo T.B.A. DBI
Construction a/k/a DBI Design Builders a/k/a Carlton Builders Inc.; David L.
Terry; Celia M. Terry; Local Service Corporation; Spelman Mortgage and
Investment Company; Kansas City Life Insurance Company; Sunset Life Insurance
Company of America; Key Communications Group; Golesh Door & Trim, Inc.; Roberta
F. Gillis, Public Trustee of Arapahoe County, and any and all occupants. A
notice of Sheriff's sale dated August 11, 1997, set a Sheriff's sale for
September 23, 1997, in Littleton, Colorado. The sale was held and CTI Real
Estate, Inc.'s redemption period has expired. The Company was unable to sell or
redeem the property and all real estate equity was lost.
On September 14, 1998, the Company received by certified mail a Complaint
filed in Superior Court of California, County of San Diego, Case No. 723581,
entitled John Brent, et al vs. ComTec International, Inc., a New Mexico
corporation, et al. The Complaint by seven named Plaintiffs alleges securities
fraud, improper sale of unregistered securities, and stock manipulation against
the Company and five individual defendants who were former officers and/or
directors of the Company, none of whom are currently associated with the
Company. The Company believes that it has meritorious defenses and will
vigorously defend against the allegations of the Complaint. Due to the
preliminary stage of the matter, further information is not available. The
Company has not yet filed an answer to the Plaintiffs' complaint. A motion to
dismiss Plaintiffs' complaint for failure to join indispensable parties
initiated by the Company is pending.
20
<PAGE>
Litigation with Former Officer and Director
- -------------------------------------------
On February 1, 1999, Donald Mack, the former CEO, President and director of
ComTec International, Inc., filed a complaint in the District Court, City and
County of Denver, State of Colorado, Civil Action Number 99CV634, Courtroom 6,
against ComTec International, Inc. ("ComTec") as well as two individual
defendants, a current officer and a shareholder of ComTec. On March 24, 1999,
ComTec filed its Answer and extensive Counterclaims against Donald Mack
("Mack"). Mack alleges that he is entitled to continued compensation and
benefits based upon a March 31, 1997 addendum to his December 26, 1995
employment contract (which expired in May of 1998). Mack further alleges that
although he resigned as an officer in June 1998, he was wrongfully induced to
resign. Mack alleges that he is due salary, car allowance, health plan payments,
life insurance payments, stock bonuses and other items from June 30, 1998
through June 30, 2002. ComTec's answer states that the March 31, 1997 addendum
is null and void as a matter of law, denies any wrongdoing or inducement and
denies any and all liability to Mack. ComTec's answer further states as
affirmative defenses that Mack's claims are barred by the doctrine of estoppel
and unclean hands; that the March 31, 1997 addendum was entered into under
circumstances of fraud and illegality; that Mack's claims are barred by failure
of consideration, fraud and illegality, waiver, failure to mitigate; that Mack's
alleged claims are setoff by the counterclaims of ComTec against Mack; and that
Mack's alleged damages, if any, are the result of Mack's own actions. ComTec
believes it has meritorious and virtuous defenses and anticipates that it will
vigorously and effectively defend against any and all claims by Mack. The
Company filed a number of Counterclaims against Mack. Among the Counterclaim
allegations of ComTec against Mack are allegations that an agreement entered
into in May of 1995, whereby Mack gained control of ComTec through an agreement
for ComTec to purchase the assets of a corporation controlled by Mack, KeyStone
Holding Corporation, was entered into with intent to defraud ComTec and its
shareholders. Among other allegations, ComTec alleges that misrepresentations
and omissions of material fact were made by Mack prior to the Keystone
transaction, that Mack used ComTec as an instrumentality for his own personal
benefit and affairs, and that Mack acted to conceal material facts regarding
Mack's ultra vires and unauthorized acts in the name of ComTec. ComTec further
alleges that Mack took unauthorized and unearned bonuses in stock of ComTec and
cash, that the execution of the employment addendum through which Mack is
alleging amounts are now due him from ComTec was accompanied by circumstances of
fraud and collusion, and that Mack made unauthorized use of ComTec's funds and
property. ComTec's claims against Mack include: intentional
misrepresentation/fraudulent inducement regarding the Keystone Transaction;
fraudulent concealment/constructive fraud; breach of warranty; breach of
fiduciary duty; conversion; fraudulent conveyance; civil theft pursuant to
C.R.S. Section 18-4-401 and 18-4-405; and securities fraud pursuant to C.R.S.
Section 11-51-501. ComTec seeks monetary damages and constructive trust as well
as Declaratory Judgment pursuant to C.R.C.P. 57. ComTec believes it has
meritorious claims and will resolutely pursue its claims against Mack. A trial
date of April 3, 2000, has been set for the matter.
Except for the foregoing, no other material legal proceedings, to which the
Company is a party or to which the property of the Company is subject, is
pending or is known by the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On August 26, 1998, pursuant to a call for a special shareholders meeting
by shareholders owning more than 10% of the Company's common stock and presented
to the shareholders by a notice and proxy mailed by the Company's independent
transfer agent on August 11, 1998, a special election of the shareholders of the
Company was held with the following proposed purposes: remove Donald G. Mack
from the Board of Directors for cause; remove Daniel Melnick from the Board of
Directors; elect James J. Krejci to the Board of Directors; and elect Gordon D.
Dihle to the Board of Directors. The necessary
21
<PAGE>
quorum of shares were voted at the special meeting. On the date of the election
there were 39,626,718 shares of $.001 par value common stock outstanding. As a
result of the Special Meeting of Shareholders held August 26, 1998, Donald G.
Mack and Daniel Melnick were removed as Directors of the Company. James J.
Krejci and Gordon D. Dihle were elected to the Company's Board of Directors
until the next annual meeting of the Shareholders. The results of the special
shareholder meeting were previously reported in the Form 8-K filed September 3,
1998.
No matters have been submitted to the shareholders since the August 26,
1998 meeting.
PART II
ITEM 5. MARKET FOR COMMON STOCK EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) MARKET INFORMATION.
The principal market of the Company's common stock, its only trading class
of equity securities, is the NASD Electronic Bulletin Board over-the-counter
market. The Company's common stock currently trades under the symbol YRLS. The
Company has approximately 600 shareholders of record. The Company's transfer
agent is General Securities Transfer Agency, Inc., 3614 Calle Del Sole NE,
Albuquerque, New Mexico 87110.
On December 26, 1997, the Board of Directors, pursuant to shareholder
approval granted at the annual meeting of shareholders held on March 28, 1997,
voted to approve a one for five (1:5) reverse stock split of the Company's $.001
par value common stock effective January 31, 1998. Financial information
contained in this report has been restated to reflect this split. All share and
per share data is stated to reflect the reverse split.
The following table indicates the quarterly high and low bid market price
ranges of the Company's common stock in the over-the-counter market on the
Electronic Bulletin Board for the fiscal years ended June 30, 1997 and June 30,
1998, as reported by the NASDAQ section of the National Association of
Securities Dealers, Inc., registered broker-dealers who have regularly been
making a market in the Company's common stock and/or information derived from
confirmations of sales and/or purchases by individuals. The information supplied
represents quotations between dealers that does not include retail markups,
markdowns or commissions, actual transactions and any adjustments for stock
dividends.
The following chart is made considering the effect of the one for five
reverse stock split effective January 31, 1998, and rounded to nearest full
penny for presentation purposes only.
BID BID
HIGH ($) LOW ($)
-------- -------
Fiscal 1998:
First Quarter: July 1, 1997 through September 30, 1997 $0.52 $0.24
Second Quarter: October 1, 1997 through December 31, 1997 $1.80 $0.22
Third Quarter: January 1, 1998 through March 31, 1998 $0.85 $0.19
Fourth Quarter: April 1, 1998 through June 30, 1998 $0.20 $0.09
22
<PAGE>
Fiscal 1997:
First Quarter: July 1, 1996 through September 30, 1996 $5.00 $0.94
Second Quarter: October 1, 1996 through December 31, 1996 $5.00 $1.25
Third Quarter: January 1, 1997 through March 31, 1997 $1.72 $0.45
Fourth Quarter: April 1, 1997 through June 30, 1997 $1.05 $0.33
On March 28, 1997, the Shareholders of the Company approved a proposal to
give the Company's Board of Directors authority to institute a reverse stock
split of from 3 for 1 to 100 for 1 at the discretion of the Board of Directors
until December 31, 1997. On December 26, 1997, the Board of Directors of the
Company acted pursuant to shareholder authority granted at the Annual Meeting of
Shareholders held March 28, 1997, to declare a one for five reverse stock split
of the Company's $.001 par value common stock effective 12:01 A.M. January 31st,
1998.
(b) HOLDERS:
As of June 15, 1999, the approximate number of holders of record of shares
of the Company's common stock, $.001 par value per share, the Company's only
class of trading securities, was believed by management to be as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, $.001 par 600
(c) DIVIDENDS:
The Company has paid no dividends during the fiscal years ended June 30,
1997 and June 30, 1997, or to the present date. Other than the requirements of
the New Mexico Business Corporation Act that dividends be paid out of capital
surplus only and that the declaration and payment of a dividend not render the
Company insolvent, there are no restrictions on the Company's present or future
ability to pay dividends.
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. There is no current plan to pay
dividends.
Unregistered Shares Issued
- --------------------------
The following shares of the Company's $.001 par value common stock were
issued without registration to the named entities during the fiscal year ended
June 30, 1998, which the Company believed to be exempt from registration
requirement as a nonpublic offering.
23
<PAGE>
Date Number of Shares Issued To Consideration
---- ---------------- --------- -------------
03/23/98 88,369 Gordon Dihle Compensation for Services
03/23/98 77,126 Dihle & Co., P.C. Compensation for Services
03/23/98 60,000 James J. Krejci Compensation for Services
03/23/98 55,147 D&D Corporation Settlement of Claims
Unregistered Shares Issued Pursuant to Regulation S During the Year Ended
- -------------------------------------------------------------------------
6/30/98
- -------
As last reported on Form 8-K's filed April 7, 1998, and September 3, 1998,
26,221,793 shares of the Company's $.001 par value common stock were issued to
entities not residents of the United States of America pursuant to Regulation S.
All of the total 26,221,793 shares of $.001 par value common stock were issued
to entities organized outside of the United States of America and entities and
persons who are not residents of the United States of America.
Unregistered Warrants Issued Pursuant to Regulation S During the Year Ended
- ----------------------------------------------------------------------------
6/30/98.
- --------
As last reported on Form 8-K's filed April 7, 1998, and September 3, 1998,
24,683,332 warrants to purchase the Company's $.001 par value common stock were
issued to entities not residents of the United States of America pursuant to
Regulation S. All of said warrants are exercisable at any time during a three
year period following issuance of the warrants at an exercise price of $2.90 per
share. All of the total 24,683,332 warrants were issued to entities organized
outside of the United States of America and entities and persons who are not
residents of the United States of America.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
- --------------------------
The foregoing and subsequent discussion contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, which are intended to be
covered by the safe harbors created thereby. These forward-looking statements
include the plans and objectives of management for future operations, including
plans and objectives relating to the possible further capitalization and
additional acquisitions of wireless communications license and operating
companies. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. Assumptions relating
to the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Form 10-KSB will prove to be
accurate. In light of the significant uncertainties inherent in the forward-
looking statements included herein, the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
24
<PAGE>
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the fiscal years ended June 30, 1998,
and June 30, 1997, which should be read in conjunction with, and is qualified in
its entirety by, the consolidated financial statements and notes thereto
included elsewhere in this report.
Statements contained herein that are not historical facts are
forward-looking statements as that term is defined by the Private Securities
Litigation Reform Act of 1995. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, the
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ from those projected. The Company cautions
investors that any forward-looking statements made by the Company are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements. Such risks and uncertainties
include, without limitation, fluctuations in demand, loss of subscribers, the
quality and price of similar or comparable wireless communications services, the
existence of well-established competitors who have substantially greater
financial resources and longer operating histories, regulatory delays or
denials, ability to complete intended market roll-out, termination of proposed
transactions, access to sources of capital, adverse results in pending or
threatened litigation, consequences of actions by the FCC, general economics and
the risks discussed under "ITEM 1, DESCRIPTION OF BUSINESS - Risk Factors" in
this report.
(a) PLAN OF OPERATION:
Since May 10, 1995, the Company's strategic business plan has, aside from
the terminated venture in the LED screens and the divested TTI prepaid phone
card investment, been concentrated on wireless telecommunications. Currently,
the Company's emphasis is on basic two-way communications services and
activities. The Company has been and continues to be in the development stage.
The Company has yet to commence its principal planned operations and from
inception of the SMR business plan (March 15, 1994) has only generated auxiliary
revenues to defray the cost of its planned operations, with only limited success
in implementing actual operations. The Company has financed its operations
during the development stage from the sale of its common stock and from issuance
of short and long-term debt.
During the fiscal year ended June 30, 1998, and through the present the
Company continued as a developmental stage entity focused on developing its
wireless SMR business plan. Prior to December 1997, activities had been
concentrated on creating and developing the Company's strategic business plan,
raising private financing, efforts to acquire other entities and operations,
developing a management and support staff to execute its business plan, and
maintaining reporting compliance for various federal government agencies, such
as the SEC and FCC. The Company's most significant accomplishment to date is the
action of its current management in completing the closing on July 6, 1998, of
the purchase of thirteen operating SMR systems located in seven southeastern
U.S.A. MTA's.
AWN, a wholly owned subsidiary of the Company, was incorporated under the
laws of the State of Colorado on December 3, 1996, to act as the wireless
communications operating entity for the Company. Authorized capital is
25,000,000 shares of no par value common stock and 5,000,000 shares of no par
value preferred stock. AWN is focused on the SMR portion of the
telecommunications industry.
Current Status and Operations
- -----------------------------
On December 5, 1997, AWN entered the initial phase of a purchase agreement
whereby AWN purchased seven operating SMR systems for $3,035,700. The wireless
communications assets and associated business acquired from Centennial
Communications Corp. lay within the following seven
25
<PAGE>
MTA's: Birmingham, Alabama; Knoxville, Tennessee; Memphis, Tennessee; Nashville,
Tennessee; New Orleans, Louisiana; Oklahoma City, Oklahoma; and Tulsa, Oklahoma.
The acquired systems are relatively new. The 105 operating channels had
approximately 1400 subscribers, generating recurring monthly revenues of
approximately $20,000 on the purchase date. These operating systems have a total
of 13 sites, 105 constructed channels and cover seven of the 51 MTA's, including
nine cities located in four southeastern United States, encompassing a total
population of 17.4 million, of which the seven systems are presently capable of
covering approximately 5.9 million population. Since December 1997, AWN has had
possession and management of the wireless communications assets and associated
business previously owned by Centennial Communications Corp. serving the above
locations.
At present AWN operates its seven SMR communications systems from its
office in Englewood, Colorado. The Company has very limited staff and currently
relies upon contracted technical support for repairs and maintenance. AWN's SMR
communication services are sold to individual customers through an independent
dealer network of local two-way radio communications equipment vendors
("Dealers"). These Dealers are paid a commission for each customer who contracts
to use AWN spectrum and the Dealers maintain the local relationships with the
customers. AWN acts as the direct billing provider of SMR communications to the
customer base provided by the Dealers. Under the present operation, AWN is
responsible for local telephone lines, equipment maintenance, tower site
rentals, customer loading, coding and billing and all customer service and
financial relationships. AWN also has all responsibility for maintaining its SMR
licenses, making payments to the FCC on its licenses and funding all equipment
additions and system improvements. The capacity of the Company's SMR
communications systems to carry users (customers) is only utilized to
approximately ten percent of capacity. Under present operation and level of
usage, expenses of operating the system significantly exceed revenues from the
systems.
Pricing for SMR service is based on a flat monthly fee for unlimited
unit-to-unit communications. SMR operators must convince small business users
that service benefits and cost savings merit conversion from cellular to SMR.
SMR systems offer many features and services that cellular carriers do not.
Essentially, an SMR is an individual or firm's internal mobile communication
system. Existing cellular and SMR operators in the Company's proposed operating
territories have been in operation for a number of years, and have significant
customer bases. In addition to their entrenched market position, these operators
have available significantly greater financial and other resources than those
available to the Company. Larger SMR companies are currently converting to all
digital formats, which require current subscribers to purchase more expensive
digital radio equipment or find another analog system provider. The competition
for new SMR subscribers within the Company's operating territories may also
include Nextel Communications and/or other independent SMR regional operators.
The Company also faces possible competition for channels that may be allocated
by the FCC in the future as well as from operators of new wireless
communications technologies such as personal communications ("PCS").
On April 15, 1999, AWN executed an Asset Acquisition Agreement with S.E.
900, Inc. ("Buyer"), a Delaware corporation to be formed as a subsidiary of an
unaffiliated company. The terms of the Asset Acquisition Agreement is
anticipated to be enacted beginning in the fiscal year ended June 30, 2000. The
purpose of the Asset Acquisition Agreement is to facilitate the future sale by
American Wireless Network, Inc. to S.E. 900, Inc. of specifically identified 900
MHz licenses and American Wireless Network, Inc.'s customer base and customer
lists associated with the specified 900 MHz licenses. The agreement also
includes the lease of SMR related equipment owned by AWN to S.E. 900, Inc. The
sale is subject to certain conditions and events, including final and
unappealable regulatory approvals relating to the transfer of the licenses to
the Buyer. In consideration for the sale, the Buyer is to assume approximately
$1,400,000 of American Wireless Network, Inc.'s debt to the Federal
Communications
26
<PAGE>
Commission related to the licenses and issue common shares of Buyer representing
a seven and one half percent interest in S.E. 900, Inc. The 900 MHz licenses and
American Wireless Network, Inc.'s customer base and customer lists associated
with the specified 900 MHz licenses to be sold to S.E. 900, Inc. were purchased
by American Wireless Network, Inc. on July 6, 1998. as a part of the acquisition
of divisional segment assets from Centennial Communications Corp. As a part of
the Asset Acquisition Agreement, the Company will assign its tower site licenses
and lease to S.E. 900, Inc., certain SMR related transmission Equipment for a
five (5) year term at the initial base rate of $33,750 per quarter for the first
year of payments, $42,000 per quarter for the second year of payments, $52,000
per quarter for the third year of payments, and $57,250 per quarter for the
fourth year of payments; provided, however, that such Equipment Lease payments
shall begin one year from the Effective Date. The Lessee shall have the option
to extend the Lease for 1 year terms (up to a total of a 3 year extension after
the termination of the original 5 year term); provided, however, that the
monthly rate will be the fair market value ("FMV") of Equipment on the date of
any extension as agreed upon by the parties provided that in the event that
Lessee and the Company cannot agree on a FMV, the FMV shall be determined by a
third party appraiser selected by the Company and Lessee. Lessee shall have the
option, within 30 days of the end of any term, to purchase the Equipment at the
then FMV as determined by the parties provided that in the event that Lessee and
the Company cannot agree on a FMV, the FMV shall be determined by a third party
appraiser selected by the Company and Lessee. In the event of the bankruptcy of
the Company, Lessee shall have the right to purchase the Equipment at its then
FMV. Management believes this agreement will relieve the Company of the now
existing negative cash flow burdens of debt service, operating deficits and
extensive maintenance costs related to the SMR systems.
Year 2000 Compliance:
- ---------------------
The year 2000 issue is the result of an antecedent method of writing
computer programs which used only two digits rather than four digits to define
the year. 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. This problem could cause computers to either shut down or provide
incorrect data or information. The Company utilizes generic software programs
developed, maintained and upgraded by independent computer software providers.
In response to the year 2000 issue, management is of the opinion that the
providers of these software programs will resolve the date sensitive issue so
that all critical systems will be in compliance prior to the year 2000. The
Company does not anticipate any material adverse impact on its business.
However, the Company cannot fully and accurately estimate any uncertainty in
timely resolving its Year 2000 challenges or in finalizing and implementing
related Year 2000 resolutions. Additionally, any failure by third parties which
have a material relationship with the Company to achieve full Year 2000
compliance may be a potential risk if such failure were to adversely affect the
ability of such third parties to provide any products or services that are
critical to the Company's operations. If these third parties fail to
appropriately address Year 2000 challenges, there could be a material adverse
affect on the Company's financial condition and results of operations. Such
risks include, but are not limited to: (i) inability of subscribers to make or
receive dispatch calls; (ii) inability of sites, switches and other interfaces
to accurately record call records of subscriber phone calls; and (iii) inability
of billing systems to accurately report and bill subscribers for phone usage.
Other risks associated with the inability of the Company or material third
parties to develop and deploy Year 2000 solutions in a timely and successful
manner may involve or result in conditions that could preclude the Company from:
(a) obtaining equity or debt financing; (b) deploying an alternative technology
that is Year 2000 compliant; (c) implementing commercial buildouts in new
markets or introducing new services in existing markets; and (d) pursuing
additional business opportunities.
27
<PAGE>
Pending Acquisitions
- --------------------
Currently there are no letters of intent or other formalized agreements to
acquire any entity or assets. The only acquisition that the Company has
accomplished to date is the purchase completed July 6, 1998, whereby AWN
purchased seven operating SMR systems for $3,035,700 from Centennial
Communications Corp.
As of June 30, 1996, the Company reported that it controlled management
option agreements on 185 SMR licenses obtained through the Omni-Range
acquisition, some of which were partially constructed. The Company defaulted on
its payment obligation for the channels since the original compensation involved
a subordinated mortgage on a building previously held by the Company, which
building transferred to the original lien-holder in foreclosure proceedings
cumulating in December 1997. The Company has forfeited any rights to the
Omni-Range channels.
On August 6, 1996, the Company acquired option agreements to manage and
build 1,380 800 MHz SMR channels in 20 states from a group of 34 associated
licensees ("the DCL options"). The August 6, 1996 agreement was recorded as a
purchase of license rights by the Company at a purchase price of $1,597,000 in
the Company's September 30, 1996 10QSB and subsequently increased with
subsequent stock issuances. During the year ended June 30, 1998, the Company
entered into litigation with the option grantor over the continuing validity of
the option agreements. The entire DCL option transaction and associated
litigation was terminated by legal settlement on June 22, 1998. The opportunity
to purchase two DCL licenses for $925,000 cash as provided by the settlement
agreement expired on July 1, 1998. In the same settlement, all of the stock
previously issued to DCL Associates, Inc. by the Company in payment of such
options, consisting of 1,361,786 common shares (including 662,786 common shares
issued in exchange for 39,767 shares of Series C Preferred Stock) has been
returned to the Company and cancelled. The net result of the entire transaction
in retrospect is the loss of the actual cash paid to DCL Associates of
approximately $150,000. The Company has no further interest or claim to the DCL
options or assets associated therewith. (SEE "ITEM 3, LEGAL PROCEEDINGS.")
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The Company reported a net loss of $3,029,900 for the year ended June 30,
1998, and a net loss of $5,115,300 for the year ended June 30, 1997, and has
reported net losses of $11,704,900 from inception (March 15, 1994) to June 30,
1998. As reported on the consolidated statements of cash flows, the Company
incurred deficient cash flows from operating activities of $1,205,300 and
$1,593,200 for the years ended June 30, 1998 and 1997, and has reported
deficient cash flows from operating activities of $3,434,600 from inception
(March 15, 1994) to June 30, 1998. To date, these losses and cash flow
deficiencies have been financed principally through the sale of common stock and
warrants ($1,168,900) and issuance of short and long-term debt ($5,579,600)
which includes related party debt. Additional capital and/or borrowings will be
necessary in order for the Company to continue in existence until attaining
profitable operations. Although a portion of convertible debt was liquidated
through the issuance of common stock, no assurances can be given that the
sources of borrowings would continue. The Company is highly leveraged and a
number of developments over the past year had material adverse affects on the
Company. The Company has a significant investment in license rights, the
recoverability of which is dependent upon the success of future events.
In December 1997, the Company acquired licenses to operate seven SMR
systems located within five states for approximately $ 3,035,700. Management
anticipates that an additional investment of several million dollars will be
needed to develop an effective sales and marketing program and fund equipment
28
<PAGE>
purchases before the seven operating systems will generate sufficient cash flow
to meet current operating expenses and overhead. In order to acquire the SMR
licenses, the Company borrowed $1,600,000 for the initial payments and working
capital. During the year ended June 30, 1998, the Company borrowed an additional
$700,000 for working capital and payments required at the final closing on the
SMR systems. As part of its plan to resolve the lack of liquidity, the Company
issued 16,000,000 common shares at $.10 per share to liquidate the $1,600,000
convertible debentures. Subsequent borrowings of $650,000 have occurred since
the year end June 30, 1998, in order meet overhead and operating costs.
Management has continued to develop a strategic business plan to raise
private financing, develop a management team, maintain reporting compliance and
seek new expansive areas in telecommunications. In order to reduce negative cash
flow the Company entered into an agreement to sell its FCC licenses to satisfy
debt requirements and, in a plan anticipated to generate cash flows, is
expecting to lease its SMR equipment.
In May 1998, the Company paid a $25,000 deposit to Sigma Finance
Corporation in connection with a nonbinding financing proposal for up to a $200
million ten-year bond issue to be collateralized by all of the Company's assets.
In September 1998, the Board of Directors approved the preliminary requirements
of the proposed tentative financing arrangement and management was authorized to
take all necessary action to pursue and finalize the transaction if the
opportunity arises. The significant terms approved by the Board in anticipation
of potential financing include an allowance for the lender of a minimum of two
seats on the Company's Board of Directors, the power of veto over future capital
expenditures and other significant matters, and issuance of unrestricted shares
of common stock equal to 20% of the Company's equity, with a non-dilution
agreement which would have the effect of maintaining the lenders 20% holding at
no cost to the lender whatever additional issues of equity capital was proposed
or made during the life of the bond. In addition to legal fees to effect the
financing, the Company will be required to pay an origination fee of 10% of the
loan proceeds should the financing materialize. Neither Sigma Finance
Corporation nor any other entity is obligated to make an loan to the Company
under any terms.
Should the Company be successful in obtaining substantial additional debt
financing, management plans to seek acquisitions of more mature
telecommunication or computer related businesses or other cash generating
enterprises that would generate sufficient cash flow to maintain debt service.
There can be no assurances that the Company will be successful in the
implementation of its plan for expansion and its overall business plan.
From July 1, 1999, to the end of fiscal year ended June 30, 2000, the
Company estimates its cash needs to maintain operations under its current
negative cash flow situation is $600,000. This amount is composed of $600,000
for working capital assuming that current operations continue in its present
status. These amounts include offsets for anticipated amounts of cash generated
from the current operations. There can be no assurances that the Company will be
able to successfully obtain the additional financings or will be otherwise able
to obtain sufficient financing to consummate the Company's business plan.
The Company has limited capitalization and is dependent on the proceeds of
private or exempt offerings to continue as a going concern and implementing a
business plan. All during fiscal 1998 and to the date of this filing, the
Company has had and continues to have a substantial need for working capital for
normal operating expenses associated with the Company continuing as a going
concern. This lack of cash has slowed its ability to acquire SMR or other
productive assets and initiate revenue producing operations. Any activity in the
wireless industry requires adequate financing and on-going funding sources. The
Company has entered this industry with limited financing and funding sources.
The
29
<PAGE>
Company is currently in discussions with one or more entities for private debt
and equity financing package(s).
Results of Operations
- ---------------------
Fiscal Year Ended June 30, 1998
- -------------------------------
For the year ended June 30, 1998, the Company recorded a net loss before
other income and expense of $1,031,000 and a net loss of $3,029,900 with a net
loss per common share of $0.15. As of June 30, 1998, the Company incurred direct
expenses of $1,031,000 associated with the administration and limited operations
of the Company compared to $2,574,100 reported in the year ended June 30, 1997.
From the period of July 1, 1997 to June 30, 1998 the Company's management
incurred general and administrative expenses of $818,000 a decrease of $720,200
from similar expenses incurred during the year ended June 30, 1997. The major
reason for the decrease in expense was a decrease in recorded officers
compensation from $980,300 reported in the June 1997 year end to $128,900
reported in the year ended June 30, 1998. The Company had ancillary income of
$73,400 from dividends, interest and other sources. No significant revenues were
generated in the Company's SMR communications business. Write- downs of LED
equipment of $1,374,300, interest expense of $457,000, loss from foreclosures
and disposal of assets that totaled $179,600, and losses from telephone services
discontinued in December 1997 of $61,000, constituted 68% of the total net loss
of $3,029,900.
Fiscal Year Ended June 30, 1997
- -------------------------------
For the year ended June 30, 1997, the Company recorded a net loss of
$5,115,300 and a net loss per common share of $0.58. As of June, 30 1997, the
Company incurred direct expenses of $2,574,100 associated with the
administration and limited operations of the Company. From the period of July 1,
1996 to June 30, 1997, the Company's management incurred general and
administrative expenses of $2,574,100. The major expenses incurred were officers
compensation of $980,300, consulting fees of $167,000 and interest expense of
$96,600. The Company had ancillary income of $51,800 from rents, interest and
other sources. No revenues were generated in the Company's SMR communications
business. Losses associated with discontinued operations in prepaid phone card
sales (TTI Communications, Inc.) totaled $514,800. Write-offs of investment in
International Media Group, Ltd., of $124,500, Network Teleport, Inc. of $293,400
and the DCL Associates SMR license options of $150,000 constituted the bulk of
the loss from foreclosures and disposal of assets which totaled $621,600. Write
down of "prepaid media credits" to zero totaled $1,300,000 of additional
recorded loss for the year ended June 30, 1997. As of June 30, 1997, the Company
reported $514,800 of losses in TTI Communications, Inc. The Company disposed of
its interest in TTI Communications, Inc. in December 1997.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
The Company has adopted the Statement of Financial Accounting Standards
Board (SFAS) No. 130, "Reporting Comprehensive Income," issued in June 1997.
Comprehensive income includes net income and all changes in an enterprise's
other comprehensive income including, among other things, foreign currency
translation adjustments and unrealized gains and losses on certain investments
in debt and equity securities. The Company also adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement establishes standards for reporting information about operating
segments in annual financial statements, and requires that an enterprise report
selected information about operating segments in interim reports issued to
shareholders. The Company does not expect the adoption of these statements to
have a material impact on its financial condition or results of operations.
30
<PAGE>
The Company adopted SFAS No. 128, "Earnings Per Share" ("EPS"), which
specifies the method of computation, presentation and disclosure for Earnings
Per Share. SFAS No. 128 requires the presentation of two EPS amounts, basic and
diluted. Basic EPS is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. Diluted EPS includes
the dilution that would occur if outstanding stock options and other dilutive
securities were exercised and is comparable to the EPS the Company has
historically reported. The diluted EPS calculation excludes the effect of stock
options when their exercise prices exceed the average market price over the
period. There is no change in loss per share because diluted EPS is
anti-dilutive.
In 1998, the Company adopted the American Institute of Certified Public
Accountants' ("AICPA") Statement of Position 98-1 ("SOP 98-1"), "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
defines the types of computer software project costs that may be capitalized.
All other costs must be expensed in the period incurred. In order for costs to
be capitalized, the computer software project must be intended to create a new
system or add identifiable functionality to an existing system. Adoption of this
statement did not have an impact on the Company's consolidated financial
statements.
In April 1998, the AICPA finalized SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires that costs incurred for start-up
activities, be expensed as incurred. This SOP, which is effective in the first
quarter of 1999, is not expected to have a material impact on the Company's
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that derivatives be carried at fair value, and provides
for hedge accounting when certain conditions are met. This statement is
effective beginning in the year 2000. The adoption of this statement will not
have an impact on the Company's consolidated financial statements.
ITEM 6A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1998, all the Company's long term debt bears fixed
interest rates; however, the fair market value of this debt is sensitive to
changes in prevailing interest rates. The Company runs the risk that market
rates will decline and the required payments will exceed those based on the
current market rate. The Company does not use interest rate derivative
instruments to manage its exposure to interest rate changes.
ITEM 7. FINANCIAL STATEMENTS
Financial statements meeting the requirements of Item 310 of Regulation
S-B, for the years ending June 30, 1997 and June 30, 1998, have been audited by
Hixson, Marin, Powell & DeSanctis, P.A. and are annexed as a separate section to
this Report, designated pages F-1 through F-37.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On August 29, 1996, the Company retained Ehrhardt, Keefe, Steiner and
Hottman, PC, of Denver, Colorado, as its independent Certified Public
Accountants. During the Company's two most recent fiscal years, and the interim
periods since completion of its last fiscal year, the Company had not consulted
Ehrhardt, Keefe, Steiner and Hottman, PC with respect to the application of
accounting principles to a specified transaction, the type of audit opinion that
might be rendered on the Company's financial
31
<PAGE>
statements or any matter that was the subject of a disagreement or reportable
event. The Company duly reported this change in accountants to the Securities
and Exchange Commission in its Form 8-K current report dated September 12, 1996.
On July 14, 1997, the Company accepted the resignation of Ehrhardt, Keefe,
Steiner and Hottman, PC, as the Company's independent Certified Public
Accountants for the fiscal year ended June 30, 1997. The Company duly reported
this change in accountants to the Securities and Exchange Commission in its Form
8-K current report dated July 18, 1997. During the year ended June 30, 1996, and
the subsequent interim periods, there was no disagreement with Ehrhardt, Keefe,
Steiner and Hottman, PC, on any matter of accounting principle or practice,
financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of those accountants, would
have caused it to make reference to the subject matter in connection with its
report.
On July 14, 1997, the Company retained Hixson, Marin, Powell & DeSanctis,
P.A. of Miami, Florida, as its independent Certified Public Accountants. During
the Company's two most recent fiscal years, and the interim periods since
completion of its last fiscal year, the Company had not consulted Hixson, Marin,
Powell & DeSanctis, P.A. with respect to the application of accounting
principles to a specified transaction, the type of audit opinion that might be
rendered on the Company's financial statements or any matter that was the
subject of a disagreement or reportable event. The Company duly reported this
change in accountants to the Securities and Exchange Commission in its Form 8-K
current report dated July 18, 1997.
On January 27, 1998, the Company retained Grabau and Company, P.C. of
Denver, Colorado to audit segmented financial statements of Centennial
Communications Corp. and SMR Direct, Inc. Said audit was in conjunction with the
purchase of certain assets of SMR Direct, Inc. reported on Form 8-K filed
December 30, 1997, and Form 8-K/A filed February 16, 1999. During the Company's
two most recent fiscal years, and the interim periods since completion of its
last fiscal year, the Company had not consulted Grabau and Company, P.C. with
respect to the application of accounting principles to a specified transaction,
the type of audit opinion that might be rendered on the Company's financial
statements or any matter that was the subject of a disagreement or reportable
event.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS:
The following table sets forth: (1) names and ages of all persons who
presently are directors of the Company; (2) all positions and offices with the
Company held by each such person; (3) the term or office of each person named as
a director; and (4) any period during which he or she has served as such:
Director Name/Title From To
------------------- ---- --
James J. Krejci, 57
Director, President & CEO August 1998 Next Annual Meeting
Gordon D. Dihle, 44 October 1997 May 8, 1998
Director, Secretary & Treasurer August 1998 Next Annual Meeting
32
<PAGE>
Director Name/Title From To
------------------- ---- --
Marc Maassen, 48
Outside Director October 1998 Next Annual Meeting
There is no understanding or arrangement between any directors or any
person or persons pursuant to which such individual was or is to be selected as
a director or nominee of the Company.
Each director is serving a term of office which shall continue until the
next annual meeting of Shareholders and until his successor has been duly
elected and qualified. Officers of the Company serve at the pleasure of the
Board of Directors.
During the year ended June 30, 1998, Mr. Krejci was a member of the board
of directors of Jones Intercable, Inc., a 1934 SEC Act Reporting Company, which
has no relationship or affiliation with the Company.
Business Experience
- -------------------
The following is a brief account of the experience, during the past five
years, of each director and executive officers of the Company:
James J. Krejci: Chief Operations Officer of the Company and President and
CEO of AWN (February, 1998); Chairman of the Board of Directors, CEO and
President of the Company (September, 1998).
For the five years preceding Mr. Krejci's appointment as a Director of the
Company, Mr. Krejci was employed as follows:
September 1998 through present: CEO and President of ComTec
International, Inc. and AWN. February 1998 through August 1998: COO of
ComTec International, Inc. and Chairman of the Board of Directors, CEO and
President of AWN.
July 1996 through February 1998: CEO and President of Imagelink
Technologies, Inc., a firm involved in the development and distribution of
video conference equipment.
May 1994 through February 1996: President - International Division of
International Gaming Technology, Inc., a firm involved in the development
and distribution of gaming equipment.
May 1985 through May 1994 : President and/or officer of various
subsidiaries of Jones International, Inc., including Jones Intercable,
Inc.. a 1934 Act Reporting Company, of which Mr. Krejci has remained
and is currently a director. These firms are involved in development and
distribution of cable television systems as well as activities ancillary
and related to the cable television business.
Mr. Krejci earned a B.S. in chemical engineering from the University of
Wisconsin in 1964 and a MBA from the University of Wisconsin in 1970.
Gordon D. Dihle: Secretary/Treasurer and Director of ComTec International,
Inc. and AWN (October 1997 to May 1998) and Chief Financial Officer, Treasurer,
Secretary and Director of ComTec International, Inc. (September 1998).
For the five years preceding Mr. Dihle's appointment as a Director of the
Company, Mr. Dihle was employed as follows:
33
<PAGE>
January 1992 through September 1997: Dihle & Co., P.C., a
professional corporation wholly owned by Mr. Dihle which provides
legal, accounting and tax services.
April 1993 through present: Lostwood Farms, Ltd., a farm corporation
wholly owned by Mr. Dihle.
May 1998 through August 1998: Self employed as an attorney and
consultant, including work for ComTec International, Inc.
Mr. Dihle achieved a B.A. in Accounting and Business Administration in 1976
at Dickinson State University, Dickinson, North Dakota, and a J.D. in 1980 at
the University of North Dakota School of Law.
Marc Maassen: Outside Director of ComTec International, Inc. (October,
1998).
For the five years preceding Mr. Maassen's appointment as a Director of the
Company, Mr. Maassen was employed as follows:
January 1999 through present: Self employed communications and
computer industry consultant.
1991 through January 1998: Executive Vice President ICG
Communications, Inc. and executive positions with subsidiaries of ICG
Communications, Inc. (including Zycom Corporation and Fiber Optic
Technologies, Inc.) operating as a local exchange carrier providing local,
long distance, internet and data services.
Mr. Maassen achieved a B.A. in Business Administration in 1974 at Colorado
State University, Fort Collins, Colorado.
(b) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES AND CONSULTANTS:
None
(c) FAMILY RELATIONSHIPS:
No family relationships exist between any director or executive officers of
the Company.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:
No event listed in subparagraphs (1) through (4) of subparagraph (d) of
Item 401 of Regulation S-B has occurred with respect to any present executive
officer or director of the Company during the past five years which is material
to an evaluation of the ability or integrity of such director or officer.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT:
To the date of this filing and to the best of knowledge of the Company,
Form 3 has been filed by its current officers but no supplemental Form 4 and/or
Form 5 has been filed with the Securities Exchange Commission (SEC) by any of
its officers or directors. As of the date of this report, the SEC has not taken
any additional action with regard to any failure to file reports
To the knowledge of the Company none of the following persons who have or
had Section 16 filing requirements during the fiscal year ended June 30, 1998,
complied with Section 16: Clifford S. Perlman and Donald G. Mack.
34
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
(a) GENERAL:
(1) through (7) All Compensation Covered. During the fiscal year ended June
30, 1998, the Company employed the following senior management personnel who
served pursuant to employment agreements further described in Section (g) below.
(b) SUMMARY COMPENSATION TABLE:
<TABLE>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
Name and Position Year Salary Bonus Other SAR Options LTIP Other
- ----------------- ---- ------ ----- ----- --- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Clifford S. Perlman 1998 $ 15,000 None None None None 281,949 None
Chairman of the Board 1997 $ 80,000 $130,200 None None None None None
of Directors
Donald G. Mack * 1998 $110,000 None None None None None None
President and Chief 1997 $171,500 $ 83,294 None None None None None
Executive Officer
============================================================================================
* Mr. Mack has subsequently filed litigation against the Company related to
alleged compensation entitlements and the Company has filed counterclaims
against Mr. Mack. (See "ITEM 3, LEGAL PROCEEDINGS - LITIGATION WITH FORMER
OFFICER AND DIRECTOR.")
</TABLE>
(c) OPTION/SAR GRANT TABLE:
During the fiscal years ended June 30, 1997 and 1998, no grants of stock
options or freestanding SAR's were made by the Company.
1995 Stock Incentive Plan
- -------------------------
The special meeting of Shareholders of August 8, 1995, increased the 1995
Incentive Stock Option Plan available options from 100,000 to 600,000 (as
adjusted for the January 31, 1998 reverse stock split) common shares and also
approved the extension of the termination date of the Incentive Stock Option
Plan from September 16, 1996, to September 16, 1998. The Incentive Stock Option
Plan (the "Plan") was originally approved by the Board of Directors and
Shareholders on December 21, 1993. The Plan provides for the grant to the
Company's employees, officers and/or directors of stock options that qualify as
incentive stock options under Section 422A of the Internal Revenue Code of 1986,
as amended. The Plan provides for the grant of stock options to purchase up to
an aggregate of 3,000,000 shares of common stock. Options may be granted for
terms of up to three years. Options are to be granted at exercise prices at
least equal to the fair market value of the Company's common stock at the date
of grant (110% of the fair market value in the case of options granted to
greater than 10% shareholders). Options are subject to early forfeiture upon
termination of employment or other relationship with the Company. There were no
options granted during the fiscal year ended June 30, 1998. The plan terminated
by its terms on September 16, 1998, with no options issued or outstanding.
35
<PAGE>
The 1997 Stock Option Plan
- --------------------------
On March 28, 1997, the shareholders of the Company adopted the 1997 Stock
Option Plan (the "Plan") reserving an aggregate of 900,000 shares of the
Company's Common Stock (the "Available Shares") for issuance pursuant to the
exercise of stock options ("Options") which may be granted to employees,
officers, and directors of the Company and consultants to the Company. The Plan
also provides for annual adjustment in the number of Available Shares,
commencing June 30, 1997, to a number equal to 10% of the number of shares
outstanding on June 30 of the preceding year or 980,000 shares, whichever is
greater. The Plan was adopted by the Board of Directors on February 12, 1997.
The Plan is designed to (i) induce qualified persons to become employees,
officers, or directors of the Company; (ii) reward such persons for past
services to the Company; (iii) encourage such persons to remain in the employ of
the Company or associated with the Company; and (iv) provide additional
incentive for such persons to put forth maximum efforts for the success of the
business of the Company.
The Plan will be administered by the Compensation Committee of the Board of
Directors (the "Committee"). Transactions under the Plan are intended to comply
with all applicable conditions of Rule16b-3 under the Securities Exchange Act of
1934, as amended (the "1934 Act"). In addition to determining who will be
granted Options, the Committee has the authority and discretion to determine
when Options will be granted and the number of Options to be granted. The
Committee may determine which Options may be intended to qualify ("Incentive
Stock Option") for special treatment under the Internal Revenue Code of 1986, as
amended from time to time (the "Code") or Non-Qualified Options ("Non-Qualified
Stock Options") which are not intended to so qualify.
The Plan provides that disinterested directors will receive automatic
option grants to purchase 14,000 shares of the Company's Common Stock upon their
initial appointment or election as directors, and on the date of each subsequent
annual shareholders' meeting in which such director is reelected as a director.
Grants to employee directors and officer/directors can be either Non-Qualified
Stock Options or Incentive Stock Options, to the extent that they do not exceed
the Incentive Stock Option exercise limitations, and the portion of an option to
an employee director or officer/director that exceeds the dollar limitations of
Code Section 422 will be treated as a Non-Qualified Stock Option. All options
granted to disinterested directors will be Non-Qualified Options.
This Plan will remain in effect until it is terminated by the Compensation
Committee, except that no Incentive Stock Option will be granted after January
31, 2007.
The Plan contains provisions for proportionate adjustment of the number of
shares for outstanding options and the option price per share in the event of
stock dividends, recapitalizations resulting in stock, reverse stock splits or
combinations or exchanges of shares.
Each option granted under the Plan will be evidenced by a written option
agreement between the Company and the optionee. The option price of any
Incentive Stock Option may be not less than 100% of the Fair Market Value per
share on the date of grant of the option; provided, however, that any Incentive
Stock Option granted under the Plan to a person owning more than ten percent of
the total combined voting power of the Common Stock will have an option price of
not less than 110% of the Fair Market Value per share on the date of grant of
the Incentive Stock Option. Each Non-Qualified Stock Option granted under the
Plan will be at a price no less than 85% of the Fair Market Value per share on
the date of grant. "Fair Market Value" per share as of a particular date is
defined in the Plan as the last sale price of the Company's Common Stock as
reported on a national securities exchange or on the NASDAQ System or, if none,
the average of the closing bid and asked prices of the Company's Common
36
<PAGE>
Stock as reported by NASDAQ or, if such quotations are unavailable, the value
determined by the Committee in its discretion in good faith.
The exercise period of options granted under the Plan may not exceed ten
years from the date of grant thereof. Incentive Stock Options granted to a
person owning more than ten percent of the total combined voting power of the
Common Stock of the Company will be for no more than five years.
No options were issued from the 1997 Stock Option Plan during the year
ended June 30, 1998. As a disinterested director, Marc Maassen became entitled
to receive automatic option grants to purchase 14,000 shares of the Company's
Common Stock upon his initial appointment as a director on September 30, 1998.
(d) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
TABLE:
No stock options or freestanding SAR's are issued or outstanding.
Accordingly, and during the fiscal year ended June 30, 1998, no stock options or
freestanding SAR's were exercised. Notwithstanding the foregoing, (1) an
aggregate of 600,000 shares of the Company's common stock, $.001 par value per
share, were reserved for issuance pursuant to the Company's incentive stock
option plan, as adopted by the Company's Board of Directors in June, 1995, and
ratified and approved by the Company's stockholders on August 10, 1995, and (2)
an aggregate of 980,000 shares of the Company's common stock, $.001 par value
per share, are reserved for issuance pursuant to the Company's 1997 stock option
plan as adopted by the Company's Board of Directors on February 12, 1997, and
approved by the shareholders on March 28, 1997.
(e) LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE:
Mr. Perlman has an outstanding claim for 515,386 shares of common stock
representing five percent (5%) of the Company's issued and outstanding shares as
of June 20, 1997. These shares have not been issued as of the current date.
(f) COMPENSATION OF DIRECTORS:
(1) and (2). During the fiscal year ended June 30, 1998, no director of the
Company received any compensation in his capacity as director, other than
reimbursement of travel expenses.
Employment Contracts and Termination of Employment, and Change-in Control
Arrangements.
On February 16, 1998, the Company entered into a letter agreement, which
remains to be formalized, by which James Krejci became employed as Chief
Operations Officer of the Company and President and CEO of AWN. The letter
agreement calls for a three year employment agreement with the opportunity for
Mr. Krejci to obtain, through common stock option agreements, up to ten percent
(10%) of the outstanding common stock of the Company over a three year period.
The preliminary agreement calls for Mr. Krejci to receive stock options vesting
in monthly increments to equal to a total of 5% of the Company's outstanding
common shares over a three year period. Options to obtain an additional 5% of
the Company's outstanding common shares are conditioned upon the Company
reaching certain financial and administrative goals within established
timelines. The strike price of all of the potential options, as modified
(reprised) by Board of Director action on October 7, 1998, is $.056 per share,
37
<PAGE>
representing 80% of the bid price of the Company's common stock on September 2,
1998, (closing bid price $.07) Mr. Krejci's actual appointment date as President
and CEO of the Company.
Effective January 1, 1999, the Company entered into a letter agreement,
which remains to be formalized, by which Gordon Dihle became employed as Chief
Financial Officer of the Company. The letter agreement calls for a three year
employment agreement with the opportunity for Mr. Dihle to obtain, through
common stock option agreements, up to seven and one half percent (7.5%) of the
outstanding common stock of the Company over a three year period. The
preliminary agreement calls for Mr. Dihle to receive stock options vesting in
increments to equal to a total of 2.5% of the Company's outstanding common
shares over a three year period. The strike price of all of the options is $.056
per share, representing 80% of the bid price of the Company's common stock on
September 2, 1998, (closing bid price $.07) Mr. Dihle's date of appointment as
Chief Financial Officer of the Company.
Mr. Perlman had a two year contract with the Company ending July 1, 1997.
Mr. Perlman terminated association with the Company on October 8, 1997.
Compensation issues with Mr. Perlman were settled on October 8, 1997, with an
agreement which called for the issuance to Mr. Perlman of approximately 520,700
common shares valued at $0.25 per share ($130,200). The shares have not been
issued to Mr. Perlman and the amount has been accrued and charged to year end
June 30, 1997 operations.
Mr. Mack was acting as President and CEO of the Company under a three year
contract ending in May, 1998. Mr. Mack resigned as President and CEO of the
Company and as an officer and director of each of the Company's subsidiaries on
June 23, 1998. Mr. Mack's resignation letter stated that his resignation was not
a waiver of any rights or claims to any compensation, stock, options, bonuses or
accrued amounts of cash, loans or guarantees made on behalf of the Company under
the terms and conditions of his employment contract and an addendum thereto. Mr.
Mack's resignation letter did not request that any disagreement be reported or
disclosed in the Company's regulatory filings. Mr. Mack has subsequently filed
litigation against the Company related to alleged compensation entitlements and
the Company has filed counterclaims against Mr. Mack. (See "ITEM 3, LEGAL
PROCEEDINGS - LITIGATION WITH FORMER OFFICER AND DIRECTOR.")
Report on Repricing of Options/SAR's.
- -------------------------------------
No stock options or freestanding SAR's were issued or outstanding.
Accordingly, and during the fiscal year ended June 30, 1998, no stock options or
freestanding SAR's were repriced.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:
At June 30, 1998, the Company had outstanding Class A $.001 par value
Common Stock, the only class of voting securities outstanding. Each common share
entitles the holder to one vote in any matter submitted to shareholders for
approval. The common shares vote as a single class.
The following information is furnished as of June 15, 1999, as to the
number of shares of the Company's common stock, $.001 par value per share, owned
beneficially, or is known by the Company to be owned beneficially, of more than
5% of any class of such security by any person who is not also an Officer or
Director of the Company:
38
<PAGE>
Name and Address Amount and Nature Percentage
of Beneficial Owner of Beneficial Ownership of Total Class
- ------------------- ----------------------- --------------
Lewis D. Rowe 4,317,924(1) 9.3%
P.O. Box 1561GT
Zephyr House, Mary Street
Grand Cayman, British West Indies
- ----------------------
(1) Includes 2,158,962 warrants to purchase $.001 par value common stock
at prices from $4.50 per share to $2.90 per share expiring not later
than March 2001. The shares and warrants were issued in payment of
fees to Mr. Rowe between June 30, 1997, and March 23, 1998, with
respect to certain funding received by the Company from various
entities not residents of the U.S.A., as reported on the Company's
Form 8-K filed April 7, 1998.
(b) SECURITY OWNERSHIP OF MANAGEMENT:
The following information is furnished as of September 10, 1998, as to the
number of shares of the Company's common stock, $.001 par value per share, owned
by each executive officer and director of the Company and by all executive
officers and directors as a group:
Name and Address Amount and Nature Percentage
of Security Owner of Security Ownership of Total Class
- ----------------- --------------------- --------------
Gordon D. Dihle 303,676(1) 7%
4881 South Amaro Drive
Evergreen, Colorado 80439
James Krejci 274,286(2) 6%
1133 Race Street
Denver, Colorado 80206
Marc Maassen 36,000 *
240 Hopi Place
Boulder, Colorado 80303
Total officers and directors, 613,962 1.3% as a group
(2 persons)
- -----------------
(1) Includes 14,070 shares owned by a professional corporation owned by
Mr. Dihle, 75,000 shares in Mr. Dihle's IRA accounts and 10,000 shares
in an IRA account owned by Mr. Dihle's spouse. Does not include stock
options potentially equal to up to 7.5% of the Company's common shares
which Mr. Dihle has the potential to earn over a three year period
ending January 1, 2002.
(2) Does not include stock options potentially equal to up to 10% of the
Company's common shares which Mr. Krejci has the potential to earn
over a three year period ending February 15, 2001.
39
<PAGE>
(c) CHANGES IN CONTROL:
As of the date of this report, the Company has not entered into any
agreements, the operation of which may at a subsequent date result in a change
of control of the Company.
The Company knows of no arrangement, including the pledge by any person of
securities of the Company, which may at a subsequent date result in a change of
control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective May 10, 1995, the Company entered into a two year Employment
Contract with Clifford Perlman to manage and direct the affairs of the Company
and act in the capacity of Chairman of the Board at an annual base salary of
$60,000. In addition, the Company agreed to compensate Perlman by: (1) paying
him 50% cash and 50% stock on the balance of his $80,000 accrued salary from a
prior agreement once the Company has closed on adequate financing; and (2) a
stock bonus paid annually equal to 5% of the issued and outstanding shares on
June 20 of each year throughout the term of his agreement. On February 12, 1996,
Perlman settled the Company's $130,000 cash obligation to him for the ten months
ended February 28, 1996, for 260,000 shares of the Company's common stock.
By terms of a written three year employment agreement between the Company
and Donald G. Mack dated as of May 10, 1995, Mr. Mack agreed to accrue monthly
compensation of $10,0000, with the option to convert the same to shares of the
Company's common stock at a 20% discount from the bid price of the Company's
common stock in the over the counter market on the date of conversion. As
additional compensation, the Company agreed to pay Mr. Mack: (i) a bonus equal
to 5% of the quarterly net increase in the Company's net assets payable
annually; (ii) 10% of the Company's net before tax profit payable annually; and
(iii) performance stock options, effective for four years, based upon the
Company reaching certain financial criteria. In the latter regard, and when the
Company reached $1,000,000, $5,000,000 and $15,000,000 in gross revenues, the
Company becomes obligated to issue Mr. Mack 200,000 shares at $.50, 400,000
shares at $1.0 and 600,000 shares at $1.50, respectively. The agreement also
obligated the Company to purchase a $1,500,000 term life policy on Mr. Mack
payable to his named beneficiaries. Mr. Mack has subsequently filed litigation
against the Company related to alleged compensation entitlements and the Company
has filed counterclaims against Mr. Mack. (See "ITEM 3, LEGAL PROCEEDINGS
LITIGATION WITH FORMER OFFICER AND DIRECTOR.")
Certain Transactions
In April, 1997, Donald G. Mack, while an officer/director/shareholder of
the Company, collateralized the purchase of an automobile in a limited liability
company which is affiliated with Donald G. Mack. A certificate of deposit of the
Company in the amount of $78,600 was held by a financial institution as
collateral to the automobile purchased by the related party. The collateral was
reduced by approximately $10,000 during the subsequent period. The certificate
of deposit is restricted and is included in cash and equivalents. The Company
subsequently obtained release of the collateralized certificate of deposit from
the financial institution in December 1998.
On February 12, 1996, Mr. Perlman converted all of the Company's cash
obligations to him through February 28, 1996, into shares of common stock valued
at $.50 per share or 80% of the $.63 bid price on that date. Mr. Perlman
received 260,000 shares in settlement of the Company's $130,000 obligation to
him, computed as follows: ten months salary at $5,000 per month, $40,000 in
prior unpaid obligation and $40,000 worth of stock previously unpaid. This
transaction was approved by the Company's then Board of Directors on February
12, 1996.
40
<PAGE>
On June 20, 1996, Mr. Perlman earned 333,334 of the Company's Common Stock
pursuant to the terms and conditions of his Employment Agreement dated May 10,
1995. This transaction was valued at $.81 per share or 80% of the $1.05 bid
price on that date.
On June 17, 1994, the Company purchased from Mr. Mack, the Company's
President and CEO, a car lot located in Parker, Colorado. The purchase price
paid was $392,214. In connection with this transaction, the Company assumed a
first mortgage of $352,000, issued 172,720 preferred shares of stated $1.00
value per share of Key Car Finance (a subsidiary of the Company) to the
President of the Company and issued a note payable to the President of the
Company in the amount of $148,000. Mr. Mack has subsequently filed litigation
against the Company related to alleged compensation entitlements and the Company
has filed counterclaims against Mr. Mack. (See "ITEM 3, LEGAL PROCEEDINGS
LITIGATION WITH FORMER OFFICER AND DIRECTOR.")
Donald G. Mack, the Company's President and Chief Executive Officer, was a
principal stockholder of Keystone Holding Corp., whose assets were purchased by
the Company on May 10, 1995. As a result of this transaction, Mr. Mack received
.08% of the Company's common stock as of June 30, 1995, and executed two related
party notes payable to him in the amount of: (1) $81,202 in connection with the
purchase of the commercial property in Parker, Colorado, and (2) $10,000 in
connection with amounts owed him from Key Communications, Inc., a now dissolved
subsidiary of the Company. Mr. Mack has subsequently filed litigation against
the Company related to alleged compensation entitlements and the Company has
filed counterclaims against Mr. Mack. (See "ITEM 3, LEGAL PROCEEDINGS LITIGATION
WITH FORMER OFFICER AND DIRECTOR.")
On February 12, 1996, Mr. Mack converted part of the Company's cash
obligations to him through February 28, 1996, into shares of common stock valued
at $.50 per share or 80% of the $.63 bid price on that date. Mr. Mack received
440,000 shares in settlement of the Company's $220,000 obligation to him,
computed as follows: $120,600 in salary earned from the Company, a $30,000
management fee from the Company and a partial reduction of the notes payable due
him in the amount of $69,300. This transaction was approved by the Company's
then Board of Directors on February 12, 1996. Mr. Mack has subsequently filed
litigation against the Company related to alleged compensation entitlements and
the Company has filed counterclaims against Mr. Mack. (See "ITEM 3, LEGAL
PROCEEDINGS - LITIGATION WITH FORMER OFFICER AND DIRECTOR.")
On July 16, 1996, Mr. Mack converted all of the Company's cash obligations
to him as of June 30, 1996, into shares of common stock valued at $.50 per share
or 80% of the $.63 bid price on that date. Mr. Mack received 277,406 shares in
settlement of the Company's $138,703 obligation to him, computed as follows:
$104,000 in salary earned from the Company and final reduction on any remaining
notes payable due him in the amount of $34,703. This transaction was approved by
the Company's then Board of Directors on July 16, 1996. Mr. Mack has
subsequently filed litigation against the Company related to alleged
compensation entitlements and the Company has filed counterclaims against Mr.
Mack. (See "ITEM 3, LEGAL PROCEEDINGS - LITIGATION WITH FORMER OFFICER AND
DIRECTOR.")
Except for the foregoing and during the fiscal year ended June 30, 1998, no
officer, director or relative or spouse of the foregoing persons or any relative
of such person who has the same home as such person, or is a director or other
officer of any parent or subsidiary of the Company, or any shareholder known by
the Company to own of record or beneficially more than five (5%) percent of the
Company's Common Stock, had a direct or indirect material interest in any
transaction or presently proposed transaction to which the Company or any of its
parents or subsidiaries was or is a party.
41
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The following documents are filed herewith or incorporated herein by
reference as Exhibits:
2.0 Acquisition of assets of Keystone Holding Corp. dated May 10,1995(1)
2.1 Definitive Acquisition Agreement By and Between Key Communications
Group, Inc. and Omni-Range Communications dated August 5, 1995.(1)
2.2 Agreement between the Company and Video Licensing Group, Inc. dated
January 24, 1996.(1)
2.3 Acquisition Agreement between the Company and DCL Associates dated
April 29, 1996.(1)
2.4 Letter of Intent between the Company and Telecosm dated May 31,
1996.(1)
2.5 Conversion of $1,500,000 debt to common stock issued to non U.S.A.
residents (incorporated by reference to Form 8-K's dated July 14,
1997, and April 7, 1998).
3.1 Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Company's Form S-1 Registration Statement No.
82-88530 dated December 20, 1983; Amendment incorporated by Reference
to Form 8-K dated May 12, 1997).
3.2 By-laws. White Acquisition Group Incorporated ByLaws (original bylaws
incorporated by reference to Exhibit 3.2 to the Company's Form S-1
Registration Statement No. 82- 88530 dated December 20, 1983).
3.3 Increase in Authorized Shares; Shareholders Authorization for
Recapitalization and Convertible Debt Funding (incorporated by
Reference to Form 8-K dated May 12, 1997 and Form 8-K dated December
29, 1997).
4.0 Certificate of Designation of Series A Preferred Shares.(1)
4.1 Certificate of Designation of Series B Preferred Shares.(1)
4.2 Certificate of Designation of Series C Preferred Shares.(1)
10.01 Form of Employment Agreement between the Company and its officers.
(1)
10.02 Commercial contract to buy and sell real estate between Keystone
Holding Corp. and Local Service Corporation dated May 5, 1995
(Exhibit header eads "International Network")(1)
10.03 Warranty Deed dated May 30, 1995, from Local Service Corporation to
Nattem USA, Inc.(1)
42
<PAGE>
10.04 Deed of Trust, security agreement and financing statement executed by
David L. Terry and Celia M. Terry dated September 9, 1986.(1)
10.05 Promissory Note and Deed of Trust dated May 30, 1995, executed by Key
Car Finance Company in favor of Local Service Corporation.(1)
10.06 Agreement of Sale By and Between Nattem USA, Inc. and John Sandy
Productions, Inc. dated July 26, 1995, together with Exhibits.(1)
10.07 Option Agreement By and Between Key Communications Group, Inc. and
Mobile-One Communications, Inc. dated July 31, 1995.(1)
10.08 Agreement among the Company, Proxhill Marketing Limited and Adex
Corp. dated December 15, 1995.(1)
10.09 Letter Agreement between the Company and James Krejci dated February
12, 1998 (incorporated by reference to exhibit filed with the
Company's Form 10-KSB for the fiscal year ended June 30, 1997).
10.10 Minutes of Board of Directors Meeting dated January 15, 1999.
10.11 Letter Agreement between the Company and Gordon Dihle dated January
4, 1999.
10.12 Acquisition of operating assets from Centennial Communications Corp.
(incorporated by reference to Form 8-K's dated December 29, 1997,
and September 3, 1998, and exhibits filed with Form 8-K/A dated
February 6, 1999).
10.13 Purchase Agreement - LED Screen Disposition (incorporated by
reference to exhibits filed with Form 8-K dated January 14, 1999).
10.14 Asset Acquisition Agreement - License Disposition (incorporated by
reference to exhibits filed with Form 8-K dated April 29, 1999).
10.15 Issuance of shares to persons and entities not residents of the
U.S.A. pursuant to Regulation S (incorporated by reference to
Forms 8-K dated April 7, 1998, and September 3, 1998).
16.01 Letters on change in certifying accountant (incorporated by reference
to the Company's Form 8-K's dated August 22, 1996, September 12,
1996 and July 18, 1997).
16.2 Change in Certifying Accountants (incorporated by reference to Form
8-K dated July 18, 1997).
21 Subsidiaries of the registrant.
21.1 American Wireless Network, Inc., a Colorado Corporation.
21.2 AmNet Resources, Inc., a Colorado Corporation.
21.3 International Media Group, Ltd., a Colorado Corporation.
43
<PAGE>
21.4 Custom Concepts, Inc., a Colorado Corporation.
21.5 Reference to Former Subsidiaries (incorporated by Reference to
Exhibits Filed with the Company's Form 10-KSB for Fiscal Year
Ended June 30, 1995).
27 Financial Data Schedule
- --------------------------
(1) Incorporated by reference to exhibits filed with the Company's Form 10-KSB
for fiscal year ended June 30, 1995.
(b) The Company filed one report on Form 8-K during the quarter ended June 30,
1998, and seven reports on Form 8-K from June 30, 1998, to the date of this
report.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Sections 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COMTEC INTERNATIONAL, INC.
Date: 6/29/99 By s/James J. Krejci
Chief Executive Officer, __________________________________
James J. Krejci, President and CEO
By: s/Gordon D. Dihle
Chief Financial Officer, ___________________________________
Gordon D. Dihle, Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signature Title Date
s/Gordon D. Dihle
- -----------------------------------
Gordon D. Dihle Director 6/29/99
s/James J. Krejci
- -----------------------------------
James J. Krejci Director 6/29/99
s/Marc Maassen
- -----------------------------------
Marc Maassen Director 6/29/99
45
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEPENDENT AUDITORS' REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND 1997 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1998
F-1
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
YEARS ENDED JUNE 30, 1998 AND 1997 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1998
CONTENTS
PAGE
Independent auditors' report 1 - 2
Consolidated financial statements:
Balance sheets 3
Statements of operations 4
Statements of shareholders' equity (deficiency) 5
Statements of cash flows 6 - 7
Summary of significant accounting policies 8 - 11
Notes to consolidated financial statements 12 -33
F-2
<PAGE>
HIXSON, MARIN, POWELL & De SANCTIS, P.A. CERTIFIED PUBLIC ACCOUNTANTS
David L. Hixon, C.P.A. - Raymond F. Marin, C.P.A. - Donald F. Powell, C.P.A.
Peter V. De Sanctis, C.P.A.
16100 N.E. 16th Avenue, Suite B 3300 PGA Boulevard
North Miami Beach, FL 33162 Gardens Plaza, Suite 810
DADE: (305) 944-7001 Palm Beach Gardens, FL 33410
BROWARD: (954) 920-1311 TEL: (561) 624-5700
FAX: (305) 944-6637 FAX: (561) 624-5702
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Comtec International, Inc. and Subsidiaries
Englewood, CO
We have audited the accompanying consolidated balance sheets of Comtec
International, Inc. and Subsidiaries (a company in the development stage) as of
June 30, 1998 and 1997 and the related consolidated statements of operations,
shareholders' equity (deficiency) and cash flows for the years then ended and
the amounts for the years ended June 30, 1998 and 1997 included in the
cumulative period from inception (March 15, 1994) to June 30, 1998. 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 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 consolidated financial statements are
free of material misstatements. 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 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 consolidated financial position of Comtec
International, Inc. and Subsidiaries at June 30, 1998 and 1997 and the results
of their operations and their cash flows for the years then ended and the
amounts for the years ended June 30, 1998 and 1997 included in the cumulative
period from inception (March 15, 1994) to June 30, 1998 in conformity with
generally accepted accounting principles.
F-3
<PAGE>
Board of Directors and Shareholders
Comtec International, Inc. and Subsidiaries
Page Two
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 of notes to
consolidated financial statements, the Company experienced net losses for the
years ended June 30, 1998 and 1997 of $ 3,029,900 and $ 5,115,300 and has
experienced net losses form inception (March 15, 1994) to June 30, 1998 of $
11,704,900. In addition, the Company's principal sources of cash flows have been
through the sales of its common shares ($ 1,138,900) and from borrowings under
financing activities ($ 5,579,600). The borrowings under financing activities
may cause severe liquidity problems. No assurances can be given to the
continuation of the sales of securities or continued ability to obtain short or
long term borrowings to maintain the Company's present cash flow requirements.
The Company's recurring losses from operations and limited capital resources
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans with regard to these matters are also described in
Note 2 of notes to consolidated financial statements. To date the Company has
been dependent on its major shareholder group for debt and equity financing.
There is no assurance that this shareholder group will continue as a source of
new funds. The Company's ability to achieve the elements of its business plan,
which may be necessary to permit the realization of assets and satisfaction of
liabilities in the ordinary course of business, is uncertain. As discussed in
Notes 13 and 14 of notes to consolidated financial statements, the Company is a
defendant in various matters relating to stock transactions and an employment
agreement. Because of the present stage of litigation, the ultimate outcome of
these matters cannot presently be determined. Accordingly, no provisions for
losses and liabilities that may result therefrom have been made in the
accompanying consolidated financial statements. All these conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
s/Hisxon, Marin, Powell & De Sanctis, P.A.
North Miami Beach, Florida
December 30, 1998 (except as to Note 14
the date to which is March 24, 1999)
F-4
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEET - JUNE 30, 1998 AND 1997
ASSETS
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Current assets
Cash and equivalents includes restricted
funds (1998, $568,500; 1997, $78,600 ) $ 667,800 $ 630,000
Accounts receivable, less allowance for
doubtful accounts (1998, $28,900;
1997 $250,000) 13,500 127,100
Investment in marketable securties - 248,400
LED equipment, held for resale 1,324,300 -
Other current assets 45,000 -
----------- -------------
Total current assets 2,050,600 1,005,500
Property and equipment 1,478,600 275,500
License rights 1,390,700 -
Other assets 5,700 40,000
------------ -------------
$ 4,925,600 $ 1,321,000
============ =============
Read the accompanying summary of significant accounting policies and
notes to consoldiated financial statements, both of which are an integral
part of this consolidated financial statement.
</TABLE>
F-5
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEET - JUNE 30, 1998 AND 1997
(continued)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Current liabilities
Current portion of long-term debt $ 13,400 $ -
Accounts payable 254,400 504,000
Accrued liabilities 399,700 482,700
Notes payable 1,184,200 110,000
Convertible debenture - 1,000,000
------------- ------------
Total current liabilities 1,851,700 2,096,700
------------- ------------
Long-term debt, less current portion 1,432,900 -
------------- ------------
Shareholders' equity (defieciency):
Series A convertible preferred stock, $1 stated
par and liquidation value; 1,000,000 shares
authorized; no shares issued and outstanding - -
Series B convertible preferred stock, $5 stated
par and liquidation value; 1,500,000 shares
authorized; no shares issued and outstanding - -
Series C convertible preferred stock, $10 stated
par and liquidation value; 1,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding
39,697,196 shares in 1998 and 13,194,751 in 1997 39,700 13,200
Capital in excess of par 13,326,600 7,910,100
Accumulated other comprehensive loss - (3,600)
Deficit accumulated during the development stage (11,725,300) (8,695,400)
-------------- ------------
1,641,000 (775,700)
-------------- ------------
-------------- ------------
$ 4,925,600 $ 1,321,000
============== =============
Read the accompanying summary of significant accounting policies and
notes to consoldiated financial statements, both of which are an integral
part of this consolidated financial statement.
</TABLE>
F-6
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998 AND 1997 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1998
<CAPTION>
Years Ended Cumulative
June 30, Amounts from
1998 1997 Inception to date
---------------- --------------- -----------------
<S> <C> <C> <C>
Operating Expenses:
Selling, general and administrative $ 818,000 $ 1,538,200 $ 3,223,800
Compensation in form of common stock 213,000 1,035,900 3,655,000
Management fees, related party - - 65,000
---------------- --------------- ----------------
1,031,000 2,574,100 6,943,800
---------------- --------------- ----------------
Loss before other income (expenses) 1,031,000 2,574,100 6,943,800
---------------- --------------- ----------------
Other income (expenses):
Interest and dividends 27,700 6,300 34,000
Other 45,700 45,500 178,300
Interest expense (including interest paid in the form
common stock, 1998, $353,800; 1997, $106,600) (457,400) (156,600) (872,000)
Telephone services, less revenues (61,000) (514,800) (575,800)
Loss on investments, foreclosures and disposal of assets (179,600) (621,600) (851,300)
Write-down of LED equipment and intangibles (1,374,300) (1,300,000) (2,674,300)
---------------- --------------- ----------------
(1,998,900) (2,541,200) (4,761,100)
---------------- --------------- ----------------
Net loss $ (3,029,900) $ (5,115,300) $ (11,704,900)
================ =============== =================
Basic Weighted average common shares outstanding 20,251,100 8,857,079 8,866,064
================ =============== ================
Basic Loss per common share $ (0.15) $ (0.58) $ (1.32)
================ =============== ================
Read the accompanying summary of significant accounting policies and notes
to consoldiated financial statements, both of which are an integral
part of this consolidated financial statement.
</TABLE>
F-7
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1998 AND 1997,
AND FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1998
<CAPTION>
Preferred Stock - Series A Common Stock
Total Shares Amount Shares Amount
----------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance, beginning: $ -- -- $ -- -- $ --
Add (deduct):
Proceeds from sale of common stock 629,700 535,737 500
Issuance of stock for:
Liquidation of debt 130,000 246,019 300
Consulting services 1,124,400 923,164 900
Acquistions 922,200 420,000 420,000 3,315,969 3,300
Officers' compensation 1,218,200 1,600,300 1,600
Exercised warrants 30,000 6,000 --
Intangibles -- 1,040,000 1,100
Reverse acquisition (230,900) 592,662 600
Contribution of accrued
officers' compensation 241,100
Net loss:
From inception (March 15, 1994)
to June 30, 1995 (1,148,300) -- -- -- --
Year ended June 30, 1996 (2,411,400)
----------- ----------- ----------- ----------- --------
Balance, June 30, 1996 505,000 420,000 420,000 8,259,851 8,300
Year ended June 30, 1997:
Add (deduct):
Proceeds from sale of common stock 509,200 743,962 700
Issuance of stock for:
Liquidation of debt 1,500,000 3,125,000 3,100
License rights 1,444,500 1,361,786 1,400
Consulting services 951,200 1,590,305 1,600
Conversion of preferred shares 172,700 69,088 100
Acquisitions 85,000 63,333 100
Officers' compensation 59,700 324,123 300
Interest 46,600 97,089 100
Cancellation of shares due to:
Foreclosure (786,200) (420,000) (420,000) (98,000) (100)
License rights (1,444,500) (1,361,786) (1,400)
Cancelled acquisition -- (980,000) (1,000)
Write-down of intangible 1,300,000
Unrealized losses on
marketable securities (3,600)
Net loss year ended June 30, 1997 (5,115,300)
----------- ----------- ----------- ----------- --------
Balance, June 30, 1997 (775,700) -- -- 13,194,751 13,200
Year ended June 30, 1998:
Add (deduct):
Issuance of stock for:
Liquidation of debt 2,600,000 18,083,332 18,100
LED equipment 2,400,000 5,000,000 5,000
Consulting services 193,000 1,732,283 1,700
Officers' compensation 50,000 148,369 200
Loan origination and finders' fees 200,000 1,538,461 1,500
Current period change in realized
losses on marketable securities 3,600
Net loss year ended June 30, 1998 (3,029,900)
----------- ----------- ----------- ----------- --------
Balance, ending: $ 1,641,000 -- $ -- 39,697,196 $ 39,700
=========== =========== =========== =========== ========
Read the accompanying summary of significant accounting policies and notes
to consoldiated financial statements, both of which are an integral
part of this consolidated financial statement.
</TABLE>
F-8
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1998 AND 1997,
AND FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1998
(continued)
<CAPTION>
Deficit
Accumulated Accumulated
Capital other During the
in excess comprehensive Development Prepaid Escrowed
of par loss Stage Media Shares
----------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, beginning: $ - $ - $ - $ - $ -
Add (deduct):
Proceeds from sale of common stock 629,200
Issuance of stock for:
Liquidation of debt 129,700
Consulting services 1,123,500
Acquistions 1,744,300 (20,400) (1,225,000)
Officers' compensation 1,216,600
Exercised warrants 30,000
Intangibles 1,298,900 (1,300,000)
Reverse acquisition (231,500)
Contribution of accrued
officers' compensation 241,100
Net loss:
From inception (March 15, 1994)
to June 30, 1995 (1,148,300)
Year ended June 30, 1996 (2,411,400)
----------- --------- ------------ ----------- ----------
Balance, June 30, 1996 6,181,800 - (3,580,100) (1,300,000) (1,225,000)
Year ended June 30, 1997:
Add (deduct):
Proceeds from sale of common stock 508,500
Issuance of stock for:
Liquidation of debt 1,496,900
License rights 1,443,100
Consulting services 949,600
Conversion of preferred shares 172,600
Acquisitions 84,900
Officers' compensation 59,400
Interest 46,500
Cancellation of shares due to:
Foreclosure (366,100)
License rights (1,443,100)
Cancelled acquisition (1,224,000) 1,225,000
Write-down of intangible 1,300,000
Unrealized losses on
marketable securities (3,600)
Net loss year ended June 30, 1997 (5,115,300)
----------- --------- ----------- ----------- -----------
Balance, June 30, 1997 7,910,100 (3,600) (8,695,400) - -
Year ended June 30, 1998:
Add (deduct):
Issuance of stock for:
Liquidation of debt 2,581,900
LED equipment 2,395,000
Consulting services 191,300
Officers' compensation 49,800
Loan origination and finders' fees 198,500
Current period change in realized
losses on marketable securities 3,600
Net loss year ended June 30, 1998 (3,029,900)
----------- --------- ------------ ----------- -----------
Balance, ending: $13,326,600 $ - $(11,725,300) $ - $ -
=========== ========= ============ =========== ============
Read the accompanying summary of significant accounting policies and notes
to consoldiated financial statements, both of which are an integral
part of this consolidated financial statement.
</TABLE>
F-9
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998 AND 1997 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1998
<CAPTION>
Years Ended June 30, Cumulative
-------------------------------- Amounts from
1998 1997 Inception to date
-------------- --------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,029,900) $ (5,115,300) $ (11,704,900)
-------------- --------------- -----------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 61,700 81,800 263,200
Issuance of common stock for services and interest 443,000 1,142,500 3,304,200
Gain on the sale of marketable securities (10,000) - (10,000)
Write-down of LED equipment and intangibles 1,374,300 1,300,000 2,674,300
Losses on investments, foreclosures and disposal of assets 179,600 497,600 677,200
Changes in assets and liabilities
Accounts receivable 113,700 (127,100) (38,800)
Deposits and other - (2,500) (2,500)
Other current assets (45,000) 1,600 (33,900)
Accounts payable and accrued liabilities (332,700) 658,200 1,396,600
Other assets 40,000 - 40,000
-------------- --------------- -----------------
1,824,600 3,552,100 8,270,300
-------------- --------------- -----------------
Cash used in operating activities (1,205,300) (1,563,200) (3,434,600)
-------------- --------------- -----------------
Cash flows from investing activities:
Proceeds of sale of marketable securities 267,500 - 267,500
Proceeds from acquisition - - 22,100
Payments for:
License rights (274,300) (150,000) (424,300)
Marketable securities (5,600) (250,000) (255,600)
Non-operating assets - - (25,000)
Related party - (39,000) (39,000)
Property, plant, equipment and trade name (1,408,500) (218,600) (1,699,800)
Other assets (5,700) - (5,700)
Other - - (79,500)
-------------- --------------- -----------------
Cash used in investing activities (1,426,600) (657,600) (2,239,300)
-------------- --------------- -----------------
Cash flows from financing activities:
Proceeds from:
Related party - - 184,500
Sales of common stock - 509,200 1,138,900
Notes payable, principally related parties 1,144,100 - 1,295,100
Warrants - - 30,000
Convertible debentures 1,600,000 2,500,000 4,100,000
Payments on:
Notes payable, principally related parties (70,000) (185,900) (397,800)
Long-term debt (4,400) - (9,000)
-------------- --------------- -----------------
Cash provided by financing activities 2,669,700 2,823,300 6,341,700
-------------- --------------- -----------------
Increase in cash and equivalents 37,800 602,500 667,800
Cash and equivalents, beginning 630,000 27,500 -
-------------- --------------- -----------------
Cash and equivalents, ending $ 667,800 $ 630,000 $ 667,800
============== =============== =================
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral part
of this consolidated financial statement
</TABLE>
F-10
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1998
<CAPTION>
Years Ended June 30, Cumulative
------------------------------ Amounts from
1998 1997 Inception to date
------------- -------------- -----------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 73,100 $ 30,700 $ 180,000
============= ============== ================
Supplemental schedule of non-cash financing activities:
Foreclosures:
Net book value of real property $ - $ (1,867,100) $ (1,867,100)
Mortgages, notes, and other debt - 1,081,300 1,081,300
Preferred and common stock - 786,200 786,200
Gain on foreclosure - (400) (400)
------------- -------------- ----------------
$ - $ - $ -
============= ============== ================
Common stock issued for:
Conversion of convertible debentures $ 2,600,000 $ 1,500,000 $ 4,100,000
Acquisition of LED equipment 2,400,000 - 2,400,000
------------- -------------- ----------------
$ 5,000,000 $ 1,500,000 $ 6,500,000
============= ============== ================
Common stock cancellation $ - $ 1,225,000 $ 1,225,000
============= ============== ================
Acquisitions:
Book value of property acquired $ 1,450,800 $ - $ 1,450,800
Debt assumed (1,390,700) - (1,390,700)
Capital lease obligation incurred (60,100) (60,100)
------------- -------------- ----------------
$ - $ - $ -
============= ============== ================
Disposition:
Debt assumed $ - $ (145,000) (145,000)
Book value of the property acquired - 135,000 135,000
Loss on deposit for terminated Worland acquisition - 10,000 10,000
------------- -------------- ----------------
$ - $ - $ -
============= ============== ================
Stock conversion $ - $ 172,700 $ 172,700
============= ============== ================
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral part
of this consolidated financial statement
</TABLE>
F-11
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED JUNE 30, 1998 AND 1997
Basis of accounting:
Comtec International, Inc. (the Company) prepares its financial statements in
accordance with generally accepted accounting principles. This basis of
accounting involves the application of accrual accounting; consequently,
revenues and gains are recognized when earned, and expenses and losses are
recognized when incurred. Financial statement items are recorded at
historical cost and may not necessarily represent current values.
Principles of consolidation:
The consolidated financial statements include the accounts of Comtec
International, Inc. and all subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Reverse stock split:
On December 26, 1997, the Board of Directors, pursuant to shareholder
approval granted at the annual meeting of shareholders held on March 28,
1997, voted to approve a one for five (1:5) reverse stock split of the
Company's $.001 par value common stock, effective January 31, 1998. All
share and per share data is stated to reflect the reverse split.
Management estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Certain amounts included in the financial statements are estimated
based on currently available information and management's judgment as to the
outcome of future conditions and circumstances. Changes in the status of
certain facts or circumstances could result in material changes to the
estimates used in the preparation of the financial statements and actual
results could differ from the estimates and assumptions. Every effort is made
to ensure the integrity of such estimates.
Fair value of financial instruments:
The carrying amounts of cash and equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their fair values because of the
short duration of these instruments.
Impairment of long-lived assets:
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for possible impairment whenever events or circumstances
indicate the carrying amount of an asset may not be recoverable. Intangible
assets have been written down to their net estimated realizable value. As
judgment is involved, the estimates are not necessarily indicative of the
amounts the Company could realize.
Cash and cash equivalents:
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
F-12
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Marketable securities:
Marketable securities are classified as available for sale and are reported
at fair value. Fair value is based upon quoted market prices. At June 30,
1997, marketable securities consisted of mutual funds and the Company
recorded the unrealized loss in shareholders' equity. All marketable
securities were disposed of during the year ended June 30, 1998.
Property, equipment and depreciation:
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight line method over the estimated
useful lives as follows:
Estimated Useful Lives
(in years)
------------------
Office furniture and equipment 10
Communication equipment 7
Computer equipment 5
The cost of fixed assets retired or sold, together with the related
accumulated depreciation, are removed from the appropriate asset and
depreciation accounts, and the resulting gain or loss is included in net
earnings.
Repairs and maintenance are charged to operations as incurred, and
expenditures for significant betterments and renewals are capitalized. The
cost of property and equipment retired or sold, together with the related
accumulated depreciation, are removed from the appropriate asset and
depreciation accounts, and the resulting gain or loss is included in
operations.
License rights:
License rights are recorded at cost, less accumulated amortization. Licenses
are amortized to operations using the straight-line method over the
remaining term.
Income taxes:
The Company accounts for income taxes using the asset and liability method.
Under this 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 bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. 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. A valuation allowance is
provided for deferred tax assets when it is more likely than not that the
asset will not be realized.
Per share amounts:
Loss per share is computed by dividing net loss by the weighted average
number of shares outstanding throughout the year.
F-13
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Stock based compensation:
The Company applies the intrinsic value method for accounting for stock based
compensation described by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Had the Company applied the fair
value method described by the Statement of Financial Accounting Standards
Board (SFAS) No. 123, "Accounting for Stock-Based Compensation," it would
report the effect of compensation expense for stock based compensation as
pro-forma effects on income and earnings per share, if material.
Accounting Pronouncements:
The Company has adopted the Statement of Financial Accounting Standards Board
(SFAS) No. 130, "Reporting Comprehensive Income," issued in June 1997.
Comprehensive income includes net income and all changes in an enterprise's
other comprehensive income including, among other things, foreign currency
translation adjustments and unrealized gains and losses on certain
investments in debt and equity securities. The Company also adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
This Statement establishes standards for reporting information about
operating segments in annual financial statements, and requires that an
enterprise report selected information about operating segments in interim
reports issued to shareholders. The Company does not expect the adoption of
these statements to have a material impact on its financial condition or
results of operations.
The Company adopted SFAS No. 128, Earnings Per Share, which specifies the
method of computation, presentation and disclosure for Earnings Per Share.
SFAS No. 128 requires the presentation of two EPS amounts, basic and diluted.
Basic EPS is calculated by dividing net income (loss) by the weighted average
number of common shares outstanding for the period. Diluted EPS includes the
dilution that would occur if outstanding stock options and other dilutive
securities were exercised and is comparable to the EPS the Company has
historically reported. The diluted EPS calculation excludes the effect of
stock options when their exercise prices exceed the average market price over
the period. There is no change in loss per share because diluted EPS is
anti-dilutive.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that derivatives be carried at fair value, and provides
for hedge accounting when certain conditions are met. This statement is
effective beginning in the year 2000. The adoption of this statement will not
have an impact on its consolidated financial statements.
In April 1998, the AICPA finalized SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires that costs incurred for start-up
activities, be expensed as incurred. This SOP, which is effective in the
first quarter of 1999, is not expected to have a material impact on the
consolidated financial statements.
F-14
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Accounting Pronouncements (continued):
In 1998, the Company, adopted the American Institute of Certified Public
Accountants' ("AICPA") Statement of Position 98-1 ("SOP 98-1"), "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."
SOP 98-1 defines the types of computer software project costs that may be
capitalized. All other costs must be expensed in the period incurred. In
order for costs to be capitalized, the computer software project must be
intended to create a new system or add identifiable functionality to an
existing system. Adoption of this statement did not have an impact on the
Company's consolidated financial statements.
Reclassifications:
In order to facilitate comparison of financial information, certain amounts
reported in the prior year have been reclassified to conform with the current
year presentation.
F-15
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
1. Organization and business:
Comtec International, Inc. (Comtec), formerly Nisus Video, Inc., was
incorporated in the State of New Mexico on July 6, 1983. On May 10, 1995,
Comtec shareholders approved the exchange of 2,245,794 common shares in
exchange for all the outstanding common stock of subsidiaries of
Keystone Holding Corporation, Inc. (Keystone). Comtec and Keystone
were related parties through certain common shareholders and management.
The acquisitions had been accounted for in a manner similar to the pooling
of interests method in accordance with Accounting Principles Board
Opinion No. 16, Accounting for Business Combinations, since it represents
an exchange of entities under common control. Accordingly, the
consolidated financial statements of prior years have been restated to
include the accounts of the companies transferred, all at historical
costs. No intercompany transactions existed between the companies during
the prior periods and no adjustments were necessary to conform the
accounting policies of the companies.
Information about the Company's subsidiaries is presented below:
<TABLE>
<CAPTION>
Percentage State Date of
Company Owned Organized Organization
------- ----- --------- ------------
<S> <C> <C> <C>
American Wireless Network, Inc. 100.0% Colorado December 3, 1996
(AWN)
TTI Communications Corporation 70.0% Colorado February 12, 1997
(TTI)
International Media Group, Ltd. 100.0% Colorado March 20, 1997
(IMG)
AmNet Resources, Ltd. (AmNet) 100.0% Colorado May 10, 1995
(formerly CTI Real Estate, Inc.)
Custom Concepts, Inc. (CCI) 100.0% Colorado December 2, 1997
</TABLE>
The subsidiaries are principally in the telecommunication business except
for AmNet, which held real property. The real property was foreclosed
during the year ended June 30, 1997. AmNet was inactive during the
current fiscal year. In December, 1997, AWN acquired management control
of 160 channels of 900 Mhz Metropolitan Trading Area licenses for seven
operating Specialized Mobile Radio (SMR) systems located within five
states, principally in the Southern and Western United States, and began
generating SMR revenue. In June 1998 the Federal Communications
Commission (FCC) approved the final sale of the licenses and assignment
of the associated promissory notes from the seller to AWN. TTI was in the
business of reselling long distance service through prepaid phone cards.
TTI became operational in February 1997 and ceased operations on December
2, 1997, due to excessive losses. These operations only provided
auxiliary revenues and did not take Comtec out of the development stage.
IMG was formed to operate and market advertising media through the use of
giant LED screens. On March 23, 1998, the Company acquired the LED
screens through the issuance of 5,000,000 common shares valued at $ .48
per share.
F-16
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
1. Organization and business (continued):
On May 8, 1998, the Board of Directors authorized management to liquidate
the LED screens. Subsequently, the Company sold the LED screens and
related equipment which are reflected as current assets in the
accompanying consolidated balance sheets. CCI was formed to assist in the
wind-down phase of TTI and was inactive during the later part of the
current fiscal year.
Comtec has been and continues to be in the development stage. Since 1995,
the Company has been executing strategic business plans to develop various
telecommunications services and products, principally in the area of SMR.
Prior to December 4, 1997, the Company had yet to commence its principal
planned operations and from inception (March 15, 1994) had only generated
limited revenues to defray the cost of its planned operations. On December
4, 1997, AWN acquired management control of 160 channels of 900 Mhz
Metropolitan Trading Area licenses and began generating SMR revenue, as
discussed above. While AWN's operations for the year ended June 30, 1998
were not profitable and additional capital will be required to develop the
AWN business plan, it is the intent of Comtec's management that
significant operations could be generated through AWN which will take the
Company out of the development stage. The Company has financed its
operations during the development stage from the sale of its common stock
and from issuance of short and long-term debt. Subsequently, the Company
has entered into agreements with an independent third party for the sale
of its FCC licenses and lease of its SMR equipment. No assurances can be
given that the sale and operating lease would take the Company out of
development stage.
2. Going concern, liquidity and strategic planning:
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company
reported net losses of $3,029,900 and $ 5,115,300 for the years ended June
30, 1998 and 1997 and has reported cumulative net losses of $ 11,704,900
from inception (March 15, 1994) to June 30, 1998. As reported on the
consolidated statements of cash flows, the Company incurred negative cash
flows from operating activities of $ 1,205,300 and $ 1,563,200 for the
years ended June 30, 1998 and 1997 and has reported negative cash flows
from operating activities of $ 3,434,600 from inception (March 15, 1994)
to June 30, 1998. To date, these have been financed principally through
the sale of common stock and warrants ($ 1,168,900) and issuance of short
and long-term debt ($ 5,579,600), including related party debt. Additional
capital and/or borrowings will be necessary in order for the Company to
continue in existence until attaining and sustaining profitable
operations.
The Company's principal source of working capital funding has been Geneva
Reinsurance Company Ltd. (Geneva), a Nevis company, whose shareholders are
clients of Zephyr International Limited (Zephyr), a Cayman Islands
investment brokerage and management company. (Read Note 7 on Convertible
Debentures). Additional working capital funding was provided by Cayman
Offshore International, Ltd. (Cayman), Queens Cross Group, Ltd. (Queens)
and Overseas Foreign Holdings, Ltd. (Overseas) which are also clients of
Zephyr. In September 1998, the Company's Board of Directors approved the
terms of a proposed debt financing with Sigma Finance Corporation (Sigma),
an affiliate of Zephyr.
F-17
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
2. Going concern, liquidity and strategic planning (continued): Hereinafter
Geneva, Cayman, Queens, Overseas and Sigma will be referred to in the
aggregate as "clients and affiliates of Zephyr". The Company has been
dependent on clients and affiliates of Zephyr to maintain its cash flow,
and no assurances can be given that they will continue as a source of
funding or complete the proposed financing agreements. The amounts of the
proposed financing arrangements have not been finalized.
Management has continued to develop a strategic business plan to raise
private financing, develop a management team, maintain reporting
compliance and seek new expansive areas in telecommunications. Should the
Company be successful in obtaining sufficient funds, management intends to
continue developing the market for the Company's SMR services in the
territories they currently represent and would pursue SMR acquisitions on
an opportunistic basis. However, in order to satisfy current obligations
the Company is selling its FCC licenses to satisfy debt requirements and
to generate cash flows is leasing its SMR equipment. Should the Company be
successful in obtaining substantial additional debt financing, management
plans to seek acquisitions of more mature telecommunication businesses
that would generate sufficient cash flow to maintain debt service.
In December 1997, the Company acquired licenses to operate seven SMR
systems located within five states for approximately $ 3,035,700.
Management anticipates that an additional investment of several million
dollars will be needed to develop an effective sales and marketing program
and fund equipment purchases before the seven operating systems will
generate sufficient cash flow to meet current operating expenses and
overhead. In order to acquire the SMR licenses, the Company borrowed $
1,600,000 from Geneva for the initial payments and working capital. The
Company borrowed an additional $ 100,000 from Cayman and $600,000 from
Queens for working capital and payments required at the final closing on
the SMR systems. As part of its plan to resolve the lack of liquidity, the
Company issued approximately 2,083,300 common shares at $ .48 per share
and approximately 16,000,000 common shares at $ .10 per share to liquidate
the $ 1,000,000 and $ 1,600,000 convertible debentures, respectively.
Subsequently, Overseas and Cayman advanced an additional $ 250,000 and
$200,000, respectively, to the Company to fund working capital.
There can be no assurances that the Company will be successful in the
implementation of its plan for expansion and its overall business plan.
F-18
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
3. Other comprehensive income:.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income." SFAS 130 establishes new rules
for the reporting and display of comprehensive income (loss) and its
components; however, it has no impact on the Company's net loss. The
components of comprehensive loss are as follows:
Year Ended
June 30
-------
1998 1997
---------- ----------
Net loss $3,029,900 $5,115,300
Other comprehensive loss:
Unrealized loss in marketable
Securities - 3,600
---------- ----------
Total comprehensive loss $3,029,900 $5,118,900
========== ==========
Accumulated other comprehensive loss presented on the accompanying
consolidated balance sheet consists of unrealized loss in marketable
securities in 1997.
4. Acquisitions and dispositions:
On December 5, 1997, the Company acquired from Centennial Communications
Corp. (CCC) management control of seven operating SMR systems located
within five states, including SMR licenses obtained from the Federal
Communications Commission (FCC), radio equipment and antennas, tower site
leases and customer lists, for approximately $3,035,700. The final
transfer of title to the acquired assets was subject to the FCC's approval
of the sale and assignment of the SMR licenses and assumption of the
related FCC promissory notes. The FCC approval was obtained on June 11,
1998, and the final closing took place on July 6, 1998. The acquisition
has been reflected at cost in the accompanying consolidated financial
statements. Payment of the purchase price of $3,035,700 was as follows:
Amount
------------
Down payment $ 200,000
Payment at December 1997 closing 1,000,800
Note payable to seller due at final closing,
8% interest 444,200
Promissory notes payable to the Federal
Communications Commission 1,390,700
-----------
$ 3,035,700
===========
F-19
<PAGE>
4. Acquisitions and dispositions (continued):
In April 1996, the Company entered into a license option agreement (as
subsequently amended) to purchase approximately 1,380 SMR radio channels
in the 800 MHz radio spectrum from a number of independent license
holders. The purchase price of the option rights was $ 1,594,500, as
amended, and was payable as follows:
Amount
---------------
Cash paid on closing $ 150,000
Issuance of:
560,000 common shares of common
stock at $1.25 per share. 700,000
39,767 shares of Series C Redeemable
Convertible Preferred Stock, $1.00
par value 397,000
139,000 shares of common stock at
$2.50 per share 347,500
--------------
$ 1,594,500
==============
The Company had a significant investment in the license rights, the
recoverability of which was dependent upon the success of funding a
settlement with the independent license holders. The settlement required
the repurchase of all previously issued common and preferred stock for $
925,000. At June 30, 1997, it was not the intention of management to pay
the settlement and accordingly the license option agreement was
terminated. The Company canceled the common stock and Series C Redeemable
Convertible Preferred Stock issued as if the termination had occurred on
June 30, 1997, which resulted in a loss of $150,000. The holder of the
common stock and Series C Redeemable Convertible Preferred Stock has
subsequently surrendered the common and preferred stock certificates
which were then canceled.
In March 1998, the Company acquired large Light Emitting Diode (LED)
screens from a group of Geneva shareholders (Read Note 8 on convertible
debentures) for $ 2,400,000, which was financed by the sellers and
liquidated by the issuance of approximately 5,000,000 common shares at $
.48 per share. Closing bid price of the common stock was approximately $
0.26 per share. The Company wrote down the acquisition based upon the
fair value of the stock issued ($1,300,000). Management has been
authorized to sell the screens for the best possible price.
During the year ended June 30, 1997, land and buildings with a net book
value of $1,867,100 were foreclosed upon. The foreclosures resulted from
litigation for non-performance. Long and short-term debt ($1,081,300) and
equity ($786,200) were assumed or canceled as a result of the
foreclosures. The Company recognized a gain of $400, which was credited
to operations.
F-20
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
4. Acquisitions and dispositions (continued):
In January 1996, the Company executed an agreement to acquire 61% of the
outstanding common stock of Network Teleports, Inc. for approximately $
1,250,000 consisting of a $25,000 deposit and the issuance of 980,000
shares of common stock at $ 1.25 per share ($ 1,225,000), which were held
in escrow until approval was obtained from the FCC. Certain shareholders
of the Company were also shareholders of Network Teleports, Inc. (related
parties). During the year ended June 30, 1997, the agreement was
terminated, which resulted in a loss to the Company of approximately $
318,400 consisting of the $25,000 deposit and equipment with a net book
value of $ 293,400. The loss was charged to operations during the year
ended June 30, 1997. The escrowed shares were cancelled by mutual consent
of the parties.
In August, 1995, the Company acquired rights to 185 unconstructed and
non-operational SMR channels for $ 75,000, including a note payable for
$50,000, collateralized by real property. The FCC cancelled 110 licenses,
and the remaining 75 licenses were considered active. The real property
that collateralized the note was lost in a foreclosure as described
earlier, and the Company forfeited the remaining licenses. As a result,
the Company recognized a loss of approximately $ 9,100, which was charged
to operations during the year ended June 30, 1997. The loss was
determined as follows:
Original cash deposit $ 25,000
Note payable 50,000
Accrued interest 9,100
-------------
84,100
Original basis 75,000
-------------
Loss on cancellation $ 9,100
=============
The Company had advanced $ 40,000 for the acquisition of an advertising
company. The acquisition agreement was terminated and the advance was
converted to prepaid advertising costs in October 1997. Subsequently, the
advertising company started to produce media advertising for AWN,
however, AWN decided not to proceed with the advertising program. The
prepaid advertising costs were charged to operations during 1998.
F-21
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
5. Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. During the year, the Company's account balances with
financial institutions may exceed federally insured limits. Management
regularly monitors their balances and attempts to keep this potential
risk to a minimum by maintaining their accounts with financial
institutions that they believe are of good quality.
The Company may have a concentration of credit risk with respect to
accounts receivable, as substantially all customers resulted from SMR and
prepaid phone services. The Company does not perform credit evaluations
and does not require collateral. The Company maintains, when appropriate,
an allowance for uncollectible accounts receivable. Therefore, no
additional credit risk beyond amounts provided for collection losses is
believed inherent in the Company's accounts receivable and to date have
been within management's expectations.
6. Details of financial statement components:
1998 1997
---------- ----------
Other current assets:
Accrued interest receivable $ 14,000 $ --
Other receivables and prepaid expenses 31,000 --
---------- ----------
$ 45,000 --
========== ==========
Property and equipment:
Communications equipment $1,436,700 $ 249,700
Furniture, fixtures and equipment 72,700 49,200
---------- ----------
1,509,400 298,900
Accumulated depreciation 30,800 23,400
---------- ----------
$1,478,600 $ 275,500
========== ==========
Accrued liabilities:
Payroll and related benefits $ 72,400 $ 371,800
Interest 198,500 25,600
Professional fees 102,600 85,300
Sales taxes 11,400 --
Deferred revenue 14,800 --
---------- ----------
$ 399,700 $ 482,700
========== ==========
F-22
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
6. Details of financial statement components (continued):
1998 1997
----------- -----------
Charges to operations, losses (gains) on:
Investments:
International Media Group, Ltd. $ -- $ 124,500
Omni-Range -- 9,100
Worland Communications, Inc. -- 10,000
Network Teleport, Inc. -- 293,400
SMR option agreement -- 150,000
----------- -----------
587,000
----------- -----------
Foreclosures:
Bethany property -- 51,100
Parker property -- (51,500)
----------- -----------
-- (400)
----------- -----------
Disposal of assets 179,600 35,000
----------- -----------
Loss on investments, foreclosures,
and disposal of assets $ 179,600 $ 621,600
=========== ===========
Write-down of LED equipment and intangibles:
LED equipment $ 1,100,000 $ --
License rights 74,300 --
Prepaid media agreement -- 1,300,000
----------- -----------
$ 1,374,300 $ 1,300,000
=========== ===========
F-23
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
7. Notes payable:
1998 1997
---- ----
Related parties:
Note payable, former officer,
unsecured, interest at 12% per
annum, maturing December 15, 1997.
Default rate of 24% per annum
from inception to liquidation $ - $ 70,000
Note payable, Cayman, unsecured,
interest at 12% per annum, maturing
August 21, 1998. Note in default,
due on demand with interest at
default rate of 18% from maturity 100,000 -
Note payable, Queens, unsecured,
interest at 12% per annum, maturing
September 30, 1998. Note in default,
due on demand with interest at
default rate of 18% from maturity 600,000 -
Note payable, unsecured, interest
at 18% per annum, due to an entity
related to a former officer/director,
personally guaranteed by a former
officer of the Company. Note in
default, due on demand. 40,000 40,000
---------- -----------
740,000 110,000
---------- -----------
Other:
Revolving promissory note payable to
bank; $ 500,000 maximum principal
balance, interest on advances of
6.75% per annum, payable on demand
or on December 10, 1998.
Collateralized by a $ 500,000
certificate of deposit - -
Note payable, CCC, unsecured, interest
at 8% per annum, maturing July 6, 1998 444,200 -
---------- ------------
$1,184,200 $ 110,000
On May 20, 1998, the Company issued 1,538,461 shares of common stock to
Cayman as loan origination fees on the $100,000 note. At their September
2, 1998 meeting, the Board of Directors approved the issuance of another
1,538,461 shares of common stock to Queens as loan origination fees of the
$600,000 note. Based upon the bid price of the common stock on the loan
dates, the origination fees aggregated approximately $ 353,800 which was
charged to operations during the year ended June 30, 1998.
F-24
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
7. Notes payable (continued):
On July 23, 1998 and November 12, 1998, Overseas and Cayman made
additional loans to the Company of $ 250,000 and $200,000, respectively.
These loans were made on terms similar to those made earlier and each of
the companies received 1,538,461 shares of common stock as loan
origination fees. Based upon the bid price of the common stock on the loan
dates, the origination fees amounted to approximately $ 138,500 and $
76,900 respectively.
8. Convertible debentures:
The Company entered into various loan agreements with certain shareholders
of Geneva to provide financing for working capital and asset acquisitions.
The agreements provided for financing up to $ 6,500,000, of which $
2,500,000 had been funded through June 30, 1997; $ 1,600,000 was funded in
December 1997, and the balance of $ 2,400,000 was funded in March 1998.
Under the terms of the agreement, the first $2,500,000 advance earned
interest at 12%, maturing in March 1998 and was convertible into common
stock at $ .48 per share. Each share carried a warrant to purchase an
additional common share at $4.50 per share, exercisable at any time during
a three (3) year period commencing with the date of issuance of the shares
and warrants. On June 30, 1997, the Geneva shareholders converted $
1,500,000 of advances into 3,125,000 common shares and 3,125,000 warrants.
The outstanding balance of convertible debentures at June 30, 1997 was
$1,000,000, which was converted by the Geneva shareholders on March 23,
1998 into 2,083,000 common shares and 2,083,000 warrants.
In December 1997 certain Geneva shareholders advanced the Company $
1,600,000 for AWN's acquisition of SMR systems (Read Note 2 on Strategic
Planning). This advance was converted by the Geneva shareholders on March
23, 1998 into approximately 16,000,000 common shares at $ .10 per share
and 16,000,000 warrants to purchase common stock on a one for one basis at
$2.90 per share.
On March 23, 1998, the Company acquired giant LED screens and related
equipment from a group of Geneva shareholders for $ 2,400,000. The group
of shareholders owned the LED screens as a result of foreclosing on a loan
to an unrelated third party. The Company issued 5,000,000 shares of common
stock at $ .48 per share and 5,000,000 warrants to purchase common stock
on a one for one basis at $2.90 per share to acquire the screens. Based
upon the bid price of $ .26 per share, the Company paid a premium for the
LED screens of approximately $1,100,000 which was charged to operations
during the year ended June 30, 1998. At their May 8, 1998 meeting, the
Board of Directors authorized management to liquidate the LED screens and
equipment at the best possible price. In August 1998 the Company shipped
the LED screens and equipment to Lanstar Computer Products, Inc.
(Lanstar), an affiliate of Zephyr, to be held for sale on consignment. In
December 1998 Lanstar executed a $2,400,000 promissory note in favor of
the Company to purchase the LED screens and equipment. The note, secured
by the assets sold, bears interest of 8% per annum payable quarterly with
the entire principal due at its maturity on December 31, 1999. No
determination of the recoverability of the promissory note has been
determined.
F-25
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
8. Convertible debentures (continued):
A summary of the convertible debentures is as follows:
Amount Shares
------------ ----------
Working capital loans $ 2,500,000 5,208,334
Purchase of LED screens 2,400,000 5,000,000
Working capital loans
and SMR station purchases 1,600,000 15,999,998
------------ ----------
$ 6,500,000 26,208,332
============ ==========
No warrants have been exercised as a result of this transaction. The
4,242,922 warrants can be converted into 4,242,922 shares of common stock
at $4.50 per share and 24,683,332 warrants can be converted into
24,683,332 shares of common stock at $ 2.90 per share. The warrants
expire at varying dates from June 2000 to March 2001 (Read Note 13 on
warrants and options).
As a result of the financing provided by certain Geneva shareholders, the
Company agreed to pay finders fees of $245,000 each to Geneva and the
managing director of Zephyr. Approximately $490,000 was paid and charged
to operations on June 30, 1997 through the issuance of approximately
1,020,800 common shares at $ .48 per share. An additional $160,000 was
paid to the managing director of Zephyr and charged to operations on
March 23, 1998 through the issuance of 1,600,000 common shares at $ .10
per share. The Company also issued warrants to purchase common stock on a
one for one basis. Approximately 1,020,800 warrants issued June 30, 1997
are exercisable at $4.50 per share and 1,600,000 warrants issued on March
23, 1998 are exercisable at $2.90 per share. No warrants have been
exercised and they expire three (3) years from date of issue, but not
later than March 2001.
F-26
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
9. Long-term debt
1998
-----------
Promissory notes, Federal
Communications Commission
collateralized by SMR licenses,
7 % interest per annum only through
August 31, 2001; quarterly principal
and interest payments of $86,700
thereafter through maturity on
August 21, 2006 $ 1,390,700
Capital lease obligations,
collateralized by communication
and computer equipment, interest
ranging from 8% to 11% per annum,
payable in monthly installments
through April, 2003 55,600
-----------
1,446,300
Less current portion of long term debt 13,400
-----------
$ 1,432,900
===========
The aggregate maturities of the promissory notes and future minimum
payments under capital leases subsequent to June 30, 1998 are presented
below:
Year ending Promissory Capital
June, 30 Total Notes Leases
----------- ---------- ---------- ----------
1999 $ 18,400 $ -- $ 18,400
2000 18,500 -- 18,400
2001 13,700 -- 13,700
2002 199,900 190,300 9,600
2003 277,500 269,600 7,900
Thereafter 930,800 930,800 --
---------- ---------- ----------
$1,458,700 $1,390,700 $ 68,000
Less interest 12,400 -- 12,400
---------- ---------- ----------
$1,446,300 $1,390,700 $ 55,600
========== ========== ==========
F-27
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
9. Long-term debt (continued):
In May 1998, the Company paid a $25,000 deposit to Sigma Finance
Corporation, an affiliate of Zephyr, in connection with a proposed $ 200
million ten-year bond issue to be collateralized by all of the Company's
assets for an amount yet to be determined. In September 1998, the Board of
Directors approved the terms of the proposed financing and management was
authorized to take all necessary action to pursue and finalize the
transaction. The significant terms approved by the Board include a minimum
of two seats on the Board of Directors, the power of veto over capital
expenditures and other significant matters, and issuance of unrestricted
shares of common stock equal to 20% of the Company's equity, with a
non-dilution agreement which would have the effect of maintaining the 20%
holding at no cost to the lender whatever additional issues of equity
capital was proposed or made during the life of the bond. In addition to
legal fees to effect the financing, the Company would pay a fee of
$20,000,000 to the managing director of Zephyr.
10. Income taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income purposes.
The significant components of the deferred tax asset at June 30, 1998 and
1997 are:
1998 1997
------------- ------------
Deferred tax asset:
Net operating loss $ 4,363,300 $ 3,204,600
Less valuation allowance 4,363,300 3,204,600
------------- ------------
Net deferred tax asset $ - $ -
============= ============
The valuation allowance is provided when it is more likely than not that
the tax benefit may not be realized.
The provision (benefit) for income taxes differs from the amount of
income tax (benefit) determined by applying the applicable federal rate
due to the following:
1998 1997
------------ ------------
U.S. Federal statutory income
tax rate of 35% (benefit) $ (1,060,500) $ (1,790,400)
Effective state income tax (benefit) (98,200) (166,200)
Valuation allowance 1,158,700 1,956,600
------------ ------------
$ - $ -
============ ============
At June 30, 1998, the Company had available federal net operating loss
carryforwards of approximately $ 11,815,200, which will expire in varying
years through 2013.
F-28
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
11. Shareholders' equity:
On March 28, 1997, the Company's shareholders approved an increase in the
number of authorized shares of stock from 50,000,000 to 100,000,000
common shares and from 5,000,000 to 10,000,000 preferred shares. The
Board of Directors has authorized up to 4,000,000 shares of Convertible
Preferred Stock, with a par value of $ .001 per share. These securities
are non-voting and have an issue price and liquidation value ranging from
$ 1.00 to $ 10.00. The Series B is subordinate to the Series A and Series
C is subordinate to the Series A and B. Each share of each series is
convertible into common stock, $ .001 par value at the closing bid price
on the date notice of the conversion is received. No conversion may be
made unless the closing bid price has reached $ 10.00 per Series A and $
7.50 per Series B shares for more than 20 consecutive trading days. The
Company may redeem the Series A at $ 1.00 per share, Series B at $ 5.00
per share and Series C at $ 10.00 per share.
On May 1, 1997, the Company settled litigation with the holder of 420,000
shares of Series A Redeemable Convertible Preferred Stock pursuant to
which the 420,000 shares of stock were returned and canceled. At June 30,
1998 and 1997, no Series A Redeemable Convertible Preferred Stock was
issued and outstanding.
At June 30, 1998 and 1997, no Series B Redeemable Convertible Preferred
Stock was issued and outstanding.
In September 1996, the Company issued 39,767 shares of Series C
Redeemable Convertible Preferred Stock in connection with the acquisition
of license rights. When management decided not to pay the settlement with
the independent license holders and accordingly terminated the license
option agreement, the Company canceled the Series C Redeemable
Convertible Preferred Stock as if the termination occurred on June 30,
1997. The holder of the Series C Redeemable Convertible Preferred Stock
has subsequently surrendered the preferred stock certificate which was
canceled. At June 30, 1998 and 1997 there was no Series C Redeemable
Convertible Preferred Stock issued or outstanding.
A summary of the terms of the Redeemable Convertible Preferred Stock is
as follows:
Issue Liquidation Conversion ratio
Type Par price price to common stock
---- --- ----- ----- ---------------
Series A $ .001 $ 1.00$ 1.00 1:1
Series B .001 5.00 5.00 1:1
Series C .001 10.00 10.00 1:1
As described in Note 8 of notes to consolidated financial statements,
certain Geneva shareholders converted their debt into common stock of the
Company. As a result of the debt conversions and common stock issued for
finders' and loan origination fees, clients of Zephyr and Zephyr's
managing director controlled approximately 77% of the Company's common
stock at June 30, 1998. Through subsequent transactions, they increased
their ownership interest to approximately 79%.
F-29
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
12. Incentive Compensation plans:
The Company has a stock option plan, approved by the shareholders, which
provides for the granting of options to officers, key employees,
directors and consultants to the Company. The plan provides for 900,000
shares of the Company's common stock (the available shares) for issuance
pursuant to the exercise of stock options which may be granted to
officers, key employees, directors, and consultants. The plan provides
for annual adjustment in the number of available shares to an amount
equal to ten percent (10.0%) of the number of shares outstanding on June
30 of the preceding year or 980,000 shares, whichever is greater. The
Compensation Committee administers the plan. The committee has the
authority and discretion to determine when and how many options will be
granted. The committee will also determine which options may be intended
to qualify (Incentive Stock Option) for special treatment under the
Internal Revenue Code of 1986, as amended or non-qualified options
(Non-Qualified Stock Options) which are not intended to qualify. Options
are to be granted at 85% to 110% of fair market value on the date of
grant. As of June 30, 1998 and 1997, those eligible under the plan have
not purchased any shares of the company common stock, nor have any
options been granted. The plan will remain in effect until terminated by
the Compensation Committee, except that no Incentive Stock options will
be granted after January 31, 2007.
Other stock option agreements:
The former plan, which terminated on September 16, 1998, provided for
the granting of stock options to employees, officers and directors to
purchase up to 600,000 shares of common stock. Options may be granted
for terms up to three (3) years at the exercise prices of 100% to 110%
to the fair market value of the Company's stock at the date of grant.
No options are outstanding under the plan at June 30, 1998 and 1997.
13. Commitments, contingencies, litigation, transactions with related parties
and other: Restricted funds:
In April 1997, an officer/director/shareholder of the Company used a
$78,600 certificate of deposit of the Company to collateralize the
purchase of an automobile by a limited liability company affiliated
with the officer/director/shareholder. The collateral was reduced by
approximately $10,100 during the year ended June 30, 1998. The
certificate of deposit is restricted and is included in cash and
equivalents. While the officer/director resigned his positions with the
Company in June 1998 without releasing the restrictions on the
certificate of deposit, the Company has subsequently redeemed the
remaining balance of the certificate of deposit.
In December 1997, the Company purchased a one-year $500,000 certificate
of deposit which is being held by a bank as collateral for a $500,000
revolving line of credit. This certificate of deposit is also
restricted and is included in cash and equivalents.
F-30
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
13. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Employment contracts:
On February 12, 1998, the Company executed a three year employment
agreement with its current Chief Executive Officer. The agreement
provided for a starting salary of $8,000 per month, which was increased
to $ 10,000 per month effective August 15, 1998, an initial bonus of
$42,000 to be satisfied by the issuance of common stock and stock
options to purchase five percent (5.0%) of the Company's outstanding
common stock to be earned ratably over the term of the agreement. Stock
options to purchase an additional five percent (5.0%) of the Company's
outstanding common stock is contingent upon attainment of certain
financial and management goals. The option price was set at 80% of the
closing bid price of the Company's common stock on September 2, 1998 or
$.056 per share. During the year ended June 30, 1998, the Company paid
and/or accrued $ 150,800 in compensation and issued 60,000 shares to
satisfy half of the initial bonus. No stock options were issued in
connection with this agreement.
The Company had an employment agreement with its former Chief Executive
Officer/director/shareholder ("former CEO") with whom the Company is in
litigation. The employment agreement ended by its terms on May 10,
1998, although there is an addendum to such agreement, which is in
dispute, which addendum would have extended the agreement to June 30,
2002. The agreement provided for minimum salary levels adjusted
annually, term life insurance as well as incentive bonuses payable if
specified management goals are attained. The agreement allowed the
conversion of any unpaid compensation into common stock at five percent
(5%) of the net increase in the net assets of the Company and provided
for an additional bonus of ten percent (10%) of net earnings before
income taxes, depreciation and amortization and an annual stock bonus
equal to five percent (5.0%) of the issued and outstanding common
stock. For the year ended June 30, 1997, the five percent (5.0%) stock
bonus of approximately $291,200 (727,952 shares at $ .40 per share) was
accrued and charged to operations. There is pending litigation between
the Company and the former CEO who is no longer with the Company.
Information available from Management indicates that this litigation is
in District Court, City and County of Denver, State of Colorado, Case
No. 99CV634 and is being defended and counterclaimed vigorously by the
Company. The probability of the outcome of the litigation cannot be
assessed since it is not probable that a liability has been incurred at
the date of the financial statements nor can the amount of loss, if
any, be reasonably estimated.
An employment agreement with another former
officer/director/shareholder was settled on October 8, 1997, which
called for the issuance of approximately 520,700 common shares at $0.25
per share ($ 130,200). The amount, which was accrued and charged to
operations during the year ended June 30, 1997, remains unpaid.
F-31
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
13. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Consulting agreements:
The Company had consulting service agreements with certain former
officers/directors, expiring at various dates through October 1997. The
agreements provided for minimum monthly fees and common stock of the
Company based upon a formula of the bid price. The agreement grants
stock options for 100,000 common shares at an exercisable price of 70%
of the offering price of any secondary offering. Consulting services of
$ 167,500 had been paid and/or accrued as of June 30, 1997 and 139,870
shares of common stock had been issued. During the year ended June 30,
1998, consulting services of $15,000 was paid and/or accrued and 77,126
shares of common stock were issued. All amounts were charged to
operations.
Transactions with related parties:
The following is a summary of transactions with related parties as of
June 30, 1998 and 1997:
1998 1997
------------ -----------
Compensation to officers/
directors/shareholders $ 128,900 $ 980,300
Consulting - 167,500
Origination fees to related parties - 60,000
Common stock issued on preferred stock
conversion - 172,700
Restricted funds for related party 65,500 78,600
Advertising fees to related party 7,000 10,900
Loss on terminated agreement with
related party - 318,400
Reimbursement of expenses to
officers/directors/shareholders 27,600 66,300
Legal settlement with prior
officers/shareholders 7,500 105,000
Interest on related party loans 11,500 -
Related party loans 70,000 (70,000)
------------ -----------
$ 318,000 $ 1,889,700
============ ===========
Advertising agreement:
In 1995 the Company entered into a three year media purchase agreement
for $1,950,000, that was partially prepaid through the issuance of
5,200,000 common shares at $ .25 per share ($ 1,300,000). As the
advertising was utilized, the Company would pay one third of the
invoice and two-thirds would be applied against the prepaid amount. The
Company also granted the advertiser an option expiring in the year 2000
to acquire 200,000 common shares at $ 1.25 per share. During the year
ended June 30, 1997, management determined the media agreements had no
continuing value and charged operations for the outstanding balance.
The common stock issued and the stock option remain outstanding at June
30, 1998.
F-32
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
13. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Termination of private placement:
During 1997, the Company prepared a private placement offering. The
discussions regarding the offering were terminated and the cost of
approximately $ 25,000 was charged to operations at June 30, 1997. The
Company's attorney's were subsequently successful in recouping $ 24,400
from the securities firm which has been accrued and reflected as other
income at June 30, 1998.
Tax examination:
The Internal Revenue Service is conducting an examination of the
Company's 1994 Federal income tax return. At this time counsel and
management are unable to either determine whether any adjustments will
be proposed or estimate the amount of any such proposed adjustments;
therefore, no provision has been made in the accompanying consolidated
financial statements.
Litigation:
Pending litigation includes a case brought by several California
investors alleging securities fraud, manipulation and improper sales
and seeking damages of approximately $850,000 or recission of their
stock purchases and return of at least $250,000 of the price paid.
Counsel is unable to gauge the outcome of these matters at this time,
consequently, no provision has been made in the accompanying
consolidated financial statements.
Claims made by a telecommunications service provider and a former
employee for breach of their agreements were settled during the year
ended June 30, 1998 for $47,500, which was charged to current
operations.
The Company is a defendant to various other lawsuits, claims and
proceedings. Management considers these other actions as being
incidental to the Company's business and is of the opinion that the
financial exposure of these other actions will not materially affect
the financial position of the Company.
Minority interest:
Minority interest represents the cumulative effect of earnings, losses,
capital contributions and distributions in TTI Communication
Corporation. The minority interest of TTI Communications Corporation
reflects no value at June 30, 1997. At June 30, 1997, unused losses of
the minority interest of approximately $166,900 can be utilized to
offset future profits.
Rental commitments:
In December 1997, the Company relocated its principal offices to
Englewood, CO and executed a three year lease on the premises which
expires November 30, 2000. Minimum annual lease payments will be
approximately $ 20,400, $ 35,700 and $ 36,800 for the years ending June
30, 1998, 1999 and 2000, respectively and $ 15,500 for the five month
period ending November 30, 2000.
F-33
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
13. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Warrants and options:
The Company has granted various stock options and warrants to various
employees, consultants and lenders under employment, consulting and
financing agreements. The agreements with clients and affiliates of
Zephyr provide for the issuance of 28,926,254 shares of common stock at
prices ranging from $ 2.90 to $ 4.50 per share. The warrants expire no
later than March 23, 2001.
Information relating to stock options and warrants are as follows:
<TABLE>
<CAPTION>
Employee/consultants Lender Option Price
Stock Options Warrants Per Share Range
------------- -------- ---------------
<S> <C> <C> <C>
Outstanding options/warrants,
balance, beginning 200,000 4,242,922 $ 1.25-$ 4.50
Add (deduct):
Granted - 24,683,332 $ 2.90
Exercised - -
Expired or cancelled - -
------- ----------
Balance, ending 200,000 28,926,254
======= ==========
</TABLE>
Year 2000 compliance:
The year 2000 issue is the result of computer programs being written
using two (2) digits rather than four (4) digits to define the year.
Any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than
2000. This problem could force computers to either shut down or provide
incorrect data or information. The Company utilizes generic software
programs developed, maintained and upgraded by independent computer
software providers. In response to the year 2000 issue, management is
relying on the providers of these software programs will resolve the
date sensitive issue so that all critical systems will be in compliance
prior to the year 2000. There can be no assurance that the providers of
the software or the manufacturers of chips will resolve the issue.
14. Subsequent events
Litigation with former officer and director:
On February 1, 1999, the Company's former CEO filed a complaint against
the Company, its present CEO and the managing director of Zephyr. The
former CEO alleges that he is entitled to continued compensation and
benefits based upon a March 31, 1997 addendum to his December 26, 1995
employment contract (which expired on May 10, 1998) and that he was
wrongfully induced to resign as an officer in June 1998. He alleges
that he is due salary, car allowance, health plan and life insurance
payments, stock bonuses and other items from May 10, 1998 through June
30, 2002.
F-34
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
14. Subsequent events (continued):
On March 24, 1999, the Company filed its answer and extensive
counterclaims against the former CEO. The Company's answer states that
the March 31, 1997 addendum is null and void as a matter of law, denies
any wrongdoing or inducement and denies any and all liability to the
former CEO. The Company's answer further states as affirmative defenses
that the former CEO's claims are barred by the doctrine of estoppel and
unclean hands and by failure of consideration, fraud and illegality,
waiver and failure to mitigate. The Company states that the March 31,
1997 addendum was entered into under circumstances of fraud and
illegality and that the former CEO's alleged claims are setoff by the
counterclaims of the Company against him. The Company believes that it
has meritorious and virtuous defenses and anticipates that it will
vigorously and effectively defend against any and all claims by the
former CEO. No provision has been made in the accompanying financial
statements for compensation, benefits and stock bonuses claimed by the
former CEO subsequent to the expiration of his employment contract on
May 10, 1998 .
Disposition of LED screens and related equipment:
On December 31, 1998, the Company sold six giant LED screens and
related equipment to Lanstar Computer Products, Inc., a Texas
corporation affiliated with Zephyr. The LED screens were sold to
Lanstar in exchange for a $2,400,000 promissory note secured by the
assets sold and bearing interest of 8% per annum, payable quarterly.
The entire principal is payable at maturity on December 31, 1999. No
determination of recoverability of the promissory note has been
determined.
Pending sale and operating lease agreements:
On December 18, 1998, the Company entered into agreements whereby an
independent third party would acquire the Company's FCC license rights,
customers and agreements, site licenses and/or leases necessary to
operate the Company's seven SMR operating systems through a newly
formed subsidiary. The subsidiary would assume the Company's $
1,390,700 promissory notes payable to the FCC, issue to the Company
shares of common stock representing a 7.5% ownership interest and issue
a warrant to purchase 50,000 shares of the common stock of the parent
company at the exercise price of $.50 per share for a period of three
years. The agreement further provides that should the market price in
the period immediately preceding the closing of the transaction be less
than $.50 per share, the number of shares will be increased
proportionately, but in no event to exceed 100,000 shares. Effective
June 30, 1998, the carrying value of the license rights were reduced to
their sales value of $ 1,390,700.
The third party will enter into a system management agreement pursuant
to which they will manage the day to day business operations of the
Company's SMR system subject to the Company's ultimate supervision and
control until such time as the FCC shall approve the assignment of the
licenses. Thereafter, they will assume all responsibility for operation
and control of the system.
F-35
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
14. Subsequent events (continued):
The Company shall lease SMR equipment to the third party for a four
year term at annual base rates of $ 135,000, $ 168,000, $ 208,000 and $
229,000, payable quarterly and collateralized by the third party and
their affiliate or parent company. They will have the option to extend
the lease for up to three additional one year terms, provided that the
lease payment will be the fair market value of the equipment as
determined by the two parties in accordance with the lease provisions.
15. Selected quarterly data (unaudited):
The following summarized certain quarterly results of operations (in
thousands, except share amounts):
<TABLE>
<CAPTION>
Year ended June 30, 1998: Quarter ended
----------------------------------------
September December March June
30, 31, 31, 30,
------- ------- ------- ------
<S> <C> <C> <C> <C>
Expenses:
Selling, general and administrative $ 285 $ 219 $ 443 $ 84
Interest 1 -- (1) 457
------- ------- ------- -------
286 219 442 541
Deduct other income (expense) 24 (49) (40) (1,477)
------- ------- ------- -------
Net loss $ (262) $ (268) $ (482) $(2,018)
======= ======= ======= =======
Net loss per share $ (.03) $ (.03) $ (.05) $ (.04)
======= ======= ======= =======
<CAPTION>
Year ended June 30, 1997: Quarter ended
----------------------------------------
September December March June
30, 31, 31, 30,
------- ------- ------- -------
<S> <C> <C> <C> <C>
Expenses:
Selling, general and administrative $ 342 $ 706 $ 360 $ 1,226
Interest -- 10 32 55
------- ------- ------- -------
342 716 392 1,281
Deduct other income (expense) (53) 60 144 (2,535)
------- ------- ------- -------
Net loss $ (395) $ (656) $ (248) $(3,816)
======= ======= ======= =======
Net loss per share $ (.04) $ (.07) $ (.03) $ (.44)
======= ======= ======= =======
</TABLE>
F-36
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
15. Selected quarterly data (unaudited) (continued):
Comtec International, Inc. common stock is traded on the OTC Electronic
Bulletin Board system under the symbol of YRLSD. The following table sets
forth the quarterly high and low sales prices for the periods indicated.
The prices shown represent actual sales prices without retail markups,
markdowns or commissions.
Share price of common stock:
1998 1997
--------------- ---------------
High Low High Low
First quarter, September 30, $ .52 $ .24 $ 5.00 $ .94
Second quarter, December 31, 1.80 .22 5.00 1.25
Third quarter, March 31, .85 .19 1.72 .45
Fourth quarter, June 30, .20 .09 1.05 .33
F-37
<PAGE>
Exhibit 3.2 Bylaws of White Acquisition Group Incorporated, December 27, 1992
(former name of ComTec International, Inc., a New Mexico Corporation.)
WHITE ACQUISITION GROUP INCORPORATED
(a New Mexico corporation)
BYLAWS
CONTENTS
ARTICLE ONE: SHAREHOLDERS
1.01 Place of Meetings
1.02 Annual Meetings
1.03 Voting List
1.04 Special Meetings
1.05 Notice
1.06 Quorum
1.07 Majority Vote; Withdrawal of Quorum
1.08 Method of Voting
1.09 Record Date; Closing Transfer Books
1.10 Action Without Meeting
1.11 Telephone and Similar Meetings
1.12 Order of Business at Meetings
1.13 Oral and Written Voting
1.14 Appointment of Inspectors
ARTICLE TWO: DIRECTORS
2.01 Management
2.02 Number; Qualification; Election; Term
2.03 Change in Number
2.04 Removal
2.05 Vacancies
2.06 Election of Directors
2.07 Place of Meetings
2.10 Quorum; Majority Vote
2.11 Conduct of Meetings
2.12 Compensation
2.13 Procedure
2.14 Action Without Meeting
2.15 Telephone and Similar Meetings
2.16 Interested Directors, Officers and Security
holders
2.17 Committees
2.18 Committee Procedures
2.19 Advisory Directors
2.20 Authority to Execute Instruments
2.21 Execution of certain Instruments
ARTICLE THREE: EXECUTIVE COMMITTEE
3.01 Designation
3.02 Number; Qualification; Term
1
<PAGE>
3.03 Authority
3.04 Change in Number
3.05 Removal
3.06 Vacancies
3.07 Meetings
3.08 Quorum; Majority Vote
3.09 Compensation
3.10 Procedure
3.11 Action Without Meeting
3.12 Telephone and Similar Meetings
3.13 Responsibility
ARTICLE FOUR: NOTICE
4.01 Method
4.02 Waiver
ARTICLE FIVE: OFFICERS AND AGENTS
5.01 Number; Qualification; Election; Term
5.02 Removal
5.03 Vacancies
5.04 Authority
5.05 Compensation
5.06 President
5.07 Vice President
5.08 Secretary
5.09 Treasurer
5.10 Registered Agent
ARTICLE SIX: CERTIFICATES AND SHAREHOLDERS
6.01 Certificates
6.02 Issuance
6.03 Payment for Shares
6.04 Lien
6.05 Lost, Stolen or Destroyed Certificates
6.06 Transfer of Shares
6.07 Registered Owner
6.08 Preemptive Rights
6.09 Cumulative Voting Rights
6.10 Transfer agents and registrars
6.11 Conditions of Transfer
6.12 Reasonable doubts as to right to Transfer
ARTICLE SEVEN: GENERAL PROVISIONS
7.01 Dividends and Reserves
7.02 Books and Records
7.03 Execution of Instruments
7.04 Fiscal Year
7.05 Indemnification
7.06 Seal
7.07 Resignation
7.08 Amendment of Bylaws
7.09 Meaning of Certain Terms
2
<PAGE>
7.10 Construction
7.11 Table of Contents; Headings
7.12 Relation to Articles of Incorporation
7.13 Share Register
7.14 Books of Account
3
<PAGE>
WHITE ACQUISITION GROUP INCORPORATED
BYLAWS
ARTICLE ONE: SHAREHOLDERS
1.01 Place of Meetings. Meetings of shareholders shall be held at the registered
office of the corporation, or any other place within or without the State of New
Mexico, as may be designated for that purpose from time to time by the Board of
Directors
1.02 Annual Meetings. An annual meeting of the shareholders shall be held each
year on the 1st Wednesday of September. If such a day is a legal holiday, then
the meeting shall be on the next business day following. At the meeting, the
shareholders shall elect directors and transact such other business as may
properly be brought before the meeting. Failure to hold any annual meeting or
meetings shall not work a forfeiture or dissolution of the Corporation.
1.03 Voting List. At least ten days before each meeting of shareholders, a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, with the address of each and the number of voting shares
held by each, shall be prepared by the officer or agent having charge of the
stock transfer books. The list, for a period of ten days prior to the meeting,
shall be kept on file at the registered office of the corporation and shall be
subject to inspection by any shareholder at any time during usual business
hours. The list shall also be produced and kept open at the time and place of
the meeting during the whole time thereof, and shall be subject to the
inspection of any shareholder during the whole time of the meeting.
1.04 Special Meetings. Special meetings of the shareholders, for any purpose of
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, or by these Bylaws, may be called by the president, the Board of
Directors, or the holders of not less than ten percent (10%) of all of the
shares entitled to vote at the meetings. Business transacted at a special
meeting shall be confined to the purposes stated in the notice of the meeting.
1.05 Notice. Written or printed notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than fifty days
before the date of the meeting, either personally or by mail, by or at the
direction of the president, the secretary, or the officer or person calling the
meeting, to each shareholder entitled to vote at the meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the share transfer
records of the corporation, with postage thereon prepaid. See also Bylaws 5.01
and 5.02.
4
<PAGE>
1.06 Quorum. The holders of a majority of the shares issued and outstanding and
entitled to vote there at, present in person or represented by proxy, shall be
requisite and shall constitute a quorum at meetings of the shareholders for the
transaction of business except as otherwise provided by statute, by the Articles
of Incorporation or by these Bylaws. If a quorum is not present or represented
at a meeting of the shareholders, the shareholders entitled to vote, present in
person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present or represented. At an adjourned meeting at which a quorum is
present or represented, any business meeting as originally notified.
1.07 Majority Vote; Withdrawal of Quorum. When a quorum is present at a meeting,
the vote of the holders of a majority of the shares having voting power, present
in person or represented by proxy, shall decide any question brought before the
meeting, unless the question is one on which, by express provision of the
statutes, the Articles of Incorporation, or these Bylaws, a higher vote is
required in which case the express provision shall govern. The shareholders
present at a duly constituted meeting may continue to continue to transact
business until adjournment, despite the withdrawal of enough shareholders to
leave less than a quorum.
1.08 Method of Voting. Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Articles of Incorporation. At any
meeting of the shareholders, every shareholder having the right to vote may vote
either in person, or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. A telegram, telex, cablegram, or similar
transmission by the shareholder, or a photographic, photostatic, facsimile, or
similar reproduction of a writing executed by the shareholders, shall be treated
as an execution in writing for purposes of this Section. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the proxy. In the event a proxy provides for two or more persons to act as
proxies, a majority of such persons present at the meeting, or if only one be
present, that one, shall have all the powers conferred by the instrument upon
all the persons so designated unless the proxy shall provide otherwise. Each
proxy shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law. Each proxy shall be filed with the
secretary of the corporation prior to or at the time of the meeting. Voting for
directors shall be in accordance with Section 2.06 of these Bylaws. Any vote may
be taken by voice or by show of hands unless someone entitled to vote objects,
in which case written ballots shall be used.
1.09 Record Date; Closing Transfer Books. The Board of Directors may fix in
advance a record date for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of the
5
<PAGE>
shareholders, the record date to be not less than ten nor more than fifty days
prior to the meeting; or the Board of Directors may close the share transfer
records for such purpose for a period of not less than ten nor more than fifty
days prior to such meeting. In the absence of any action by the Board of
Directors, the date upon which the notice of the meeting is mailed shall be the
record date.
1.10 Action Without Meeting. Any action required by statute to be taken at a
meeting of the shareholders, or any action which may be taken at a meeting of
the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof and such consent
shall have the same force and effect as a unanimous vote of the shareholders.
The signed Consent, or a signed copy shall be placed in the minute book.
1.11 Telephone and Similar Meetings. Shareholders, directors and committee
members may participate in and hold a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other. Participation in such a meeting shall
constitute presence in person at the meeting, except where a person participates
in the meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called or convened.
1.12 Order of Business at Meetings. The order of business at annual meetings and
so far as practicable at other meetings of shareholders shall be as follows
unless changed by the Board of Directors:
(1) Call to order
(2) Proof of due notice of meeting
(3) Determination of quorum and examination of proxies
(4) Announcement of availability of voting list (See Bylaw
1.03)
(5) Reading and disposing of minutes of last meeting of
shareholders
(6) Reports of officers and committees
(7) Appointing of voting inspectors
(8) Unfinished business
(9) New business
(10) Nomination of directors
(11) Opening of polls for voting
(12) Recess
(13) Reconvening; closing of polls
(14) Report of voting inspectors
(15) Other business
(16) Adjournment
1.13 Oral and Written Voting. Voting on any question and on all
matters of agenda and procedure shall be determined in the sole
discretion of the of the presiding officer except where otherwise
6
<PAGE>
required by law or these Bylaws.
1.14 Appointment of Inspectors. The directors, in advance of any meeting, may,
but need not, appoint one or more inspectors to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of quorum, the validity and
effect of proxies, and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all shareholders. On request of the person presiding at the meeting or any
shareholder, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
ARTICLE TWO: DIRECTORS
2.01 Management. The business and affairs of the corporation shall be managed by
the Board of Directors who may exercise all such powers of the corporation and
do all such lawful acts and things as are not (by statute or by the Articles of
Incorporation or by these Bylaws) directed or required to be exercised or done
by the shareholders.
2.02 Number; Qualification; Election; Term. The Board of Directors shall consist
of not less than three (3) directors, none of whom need be shareholders or
residents of any particular state. The directors shall be elected at the annual
meeting of the shareholders, except as provided in Bylaws 2.03 and 2.05. Each
director elected shall hold office until his successor shall be elected and
shall qualify.
2.03 Change in Number. The number of directors may be increased or decreased
from time to time by amendment to these Bylaws but no decrease shall have the
effect of shortening the term of any incumbent director. Any directorship to be
filled by reason of an increase in the number of directors shall be filled by
election at an annual meeting or at a special meeting of shareholders called for
that purposes.
2.04 Removal. Any director may be removed either with or without cause at any
special or annual meeting of shareholders, by the affirmative vote of a majority
in number of shares of the shareholders
7
<PAGE>
present, in person or by proxy, at such meeting and entitled to vote for the
election of such director if notice of intention to act upon such matter shall
have been given in the notice calling such meeting.
2.05 Vacancies. Any vacancy occurring in the Board of Directors (by death,
resignation, removal or otherwise) may be filled by an affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office.
2.06 Election of Directors. Directors shall be elected by plurality vote.
Cumulative voting shall not be permitted.
2.07 Place of Meeting. Meetings of the Board of Directors, regular or special,
may be held either within or without the State of New Mexico.
2.08 Regular Meetings. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined
by the board.
2.09 Special Meetings. Special meetings of the Board of Directors may be called
by the president on three days' notice to each director, either personally or by
mail or by telegram. Special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two
directors. Except as otherwise expressly provided by statute, Articles of
Incorporation, or these Bylaws, neither the business to be transacted at, nor
the purpose of, any special meeting need be specified in a notice or waiver of
notice. See also Bylaws 4.01 and 4.02.
2.10 Quorum; Majority Vote. At meetings of the Board of Directors a majority of
the number of directors fixed by these Bylaws shall constitute a quorum for the
transaction of business. The act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
except as otherwise specifically provided by statute, the Articles of
Incorporation, or these Bylaws. If a quorum is not present at a meeting of the
Board of Directors, the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
2.11 Conduct of Meetings. Meeting of the Board of Directors shall be presided
over by the following persons in the order of seniority and if present and
acting - the Chairman of the Board, if any, the president, or in his absence,
any director selected by the directors present. The secretary of the
corporation, or in his absence, any person appointed by the presiding officer,
shall act as secretary of the Board of Directors.
2.12 Compensation. By resolution of the Board of Directors, the
8
<PAGE>
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefore. (members of the executive
committee or of special or standing committees may, by resolution of the Board
of Directors, be allowed like compensation for attending committee meetings.)
2.13 Procedure. The Board of Directors shall keep regular minutes of its
proceedings. The minutes shall be placed in the minute book of the corporation.
2.14 Action Without Meeting. Any action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all the members of the
Board of Directors. Such consent shall have the same force and effect as a
unanimous vote at a meeting. The signed consent, or a signed copy, shall be
placed in the minute book.
2.15 Telephone and Similar Meetings. See Bylaw 1.11.
2.16 Interested Directors, Officers and Security holders.
(A) No contract or transaction between a corporation and one or more of
its directors or officers, or between a corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason, solely because the director or
officer is present at or participates in the meeting of the board or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purposes, if:
(1) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(2) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved, or ratified by the board of directors, a
committee thereof, or the shareholders.
9
<PAGE>
(B) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
(C) Non-Exclusive. This provision shall not be construed to invalidate a
contract or transaction which would be valid in the absence of this provision.
2.17 Committees. The Board of Directors may appoint Committees from among its
members which, in each case, shall have such duties, authority, rights and
powers as the Board of Directors may determine, or as otherwise provided in
these Bylaws. If not appointed as a member of any such committee, the President
shall be an ex officio member of each committee so appointed by the Board of
Directors.
2.18 Committee Procedures. A majority of the members of each Committee shall fix
and prescribe the rules for its procedure which shall not be inconsistent with
law or these Bylaws. Each Committee shall keep full and complete minutes of all
its meetings and the presiding member thereof shall report all action taken to
the first Directors' meetings succeeding such action. The Board of Directors may
modify, alter, revise and/or approve any actions taken by any Committee;
provided that no rights or acts of third parties shall be affected by any such
modification, alteration or revision. The term of each member of all committees
shall expire on the day of the next annual meeting of the shareholders following
such member's appointment.
2.19 Advisory Directors. The Board of Directors may appoint individuals who need
not be officers or employees of the Corporation to serve as Advisory Directors
and may fix fees or other compensation for their attendance at meetings of the
Board of Directors. Such Advisory Directors shall be ex officio members of the
Board of Directors, without vote. The duties of such Advisory Directors shall be
to meet with and advise the Board of Directors, but only when so requested by he
President, Chairman of the Board, or majority of the Directors, with respect to
all or any part of the business, affairs, policies and/or operations of the
Corporation. Advisory Directors shall not be considered official members of the
Board of Directors for the purposes of notice, quorum, voting requirements or
liability. The term of office of each Advisory Director shall be at the pleasure
of the Board of Directors, but shall always expire on the day of the annual
meeting of shareholders following the appointment of such Advisory Director.
2.20 Authority to execute Instruments. These Bylaws provide certain authority
for the execution of instruments. The Board of Directors, except as otherwise
provided in these Bylaws, may additionally authorize any officer or officers,
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of an on behalf of the Corporation, and such authority
may be general or confined to specific instances. Unless expressly
10
<PAGE>
authorized by these have any power or authority to bind the Corporation by an
contract or engagement nor to pledge its credit nor to render it liable
pecuniarily for any purpose or in any amount.
2.21 Execution of certain Instruments. Formal contracts or the Corporation,
promissory notes, deeds, deeds of trust, mortgages, pledges, and other evidences
of indebtedness of the Corporation, other corporate documents, and certificates
of ownership of liquid assets held by the Corporation shall be signed or
endorsed by the President or any Vice President and by the Secretary or the
Treasurer, unless otherwise specifically determined by the Board of Directors or
otherwise required by law.
ARTICLE THREE: EXECUTIVE COMMITTEE
3.01 Designation. The Board of Directors may, by resolution adopted by a
majority of the whole board, designate an executive committee. The designation
of a committee of the Board of Directors and the delegation thereto of authority
shall not operate to relieve the board of directors, or any member thereof, of
any responsibility imposed by law.
3.02 Number; Qualification; Term. The executive committee shall consist of one
or more directors, one of whom shall be the president. The executive committee
shall serve at the pleasure of the Board of Directors.
3.03 Authority. The executive committee, to the extent provided in such
resolution, shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the corporation,
including authority over the use of the corporate seal. However, the executive
committee shall not have the authority of the board in reference to:
(A) Reduce earned or capital surplus;
(B) Approve a plan of merger not requiring shareholder approval;
(C) Approve or recommend to shareholders actions or proposals required by
the New Mexico Corporation Code to be approved by shareholders;
(D) Declare dividends or distributions;
(E) Authorize or approve the reacquisition of shares unless pursuant to a
general formula or method specified by board of directors;
(F) Amend the bylaws;
11
<PAGE>
(G) Fill vacancies on the board of directors or any committee
thereof;
(H) Authorize or approve the issuance or sale of, or any contract to
issue or sale, shares or designate the terms of a series of a class of shares;
3.04 Change in Number. The number of executive committee members may be
increased or decreased from time to time by resolution adopted by a majority of
the whole Board of Directors.
3.05 Removal. Any member of the executive committee may be removed by the Board
of Directors by the affirmative vote of a majority of the whole board, whenever
in its judgment the best interests of the corporation will be served thereby.
3.06 Vacancies. A vacancy occurring in the executive committee (by death,
resignation, removal or otherwise) may be filled by the Board of Directors in
the manner provided for original designation in Bylaw 3.01.
3.07 Meetings. Time, place and notice, (if any) of executive committee meetings
shall be determined by the executive committee. See also Bylaws 4.01 and 4.02.
3.08 Quorum; Majority Vote. At meetings of the executive committee, a majority
of the number of members designated by the Board of Directors shall constitute a
quorum for the transaction of business. The act of a majority of the members
present at any meeting at which a quorum is present shall be the act of the
executive committee, except as otherwise specifically provided by statute, the
Articles of Incorporation, or these Bylaws. If a quorum is not present at a
meeting of the executive committee, the members present may adjourn the meting
from time to time, without notice other than an announcement at the meeting,
until a quorum is present.
3.09 Compensation. See Bylaw 2.12.
3.10 Procedure. The executive committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required. The
minutes of the proceedings of the executive committee shall be placed in the
minute book of the corporation.
3.11 Action Without Meeting. Any action required or permitted to be taken at a
meeting of the executive committee may be taken without a meeting if a consent
in writing, setting forth the action so taken, is signed by all the members of
the executive committee. Such consent shall have the same force and effect as a
unanimous vote at a meeting. The signed consent, or a signed copy, shall be
placed in the minute book.
3.12 Telephone and Similar Meetings. See Bylaw 1.11.
12
<PAGE>
3.13 Responsibility. The designation of an executive committee and the
delegation of authority to it shall not operate to relieve the Board of
Directors, or any members thereof, of any responsibility imposed upon it or him
by law.
ARTICLE FOUR: NOTICE
4.01 Method. Whenever by statute, the Articles of Incorporation, these Bylaws,
or otherwise, notice is required to be given to a director, committee member, or
security holder, and no provision is made as to how the notice shall be given,
it shall not be construed to mean personal notice, but any such notice may be
given: (a) in writing, by mail, postage prepaid, addressed to the director,
committee member, or security holder at the address appearing on the books of
the corporation; or (b) in any other method permitted by law. Any notice
required or permitted to be given by mail shall be deemed given at the time when
the same is thus deposited in the United States mail.
4.02 Waiver. Whenever, by statute or the Articles of Incorporation or these
Bylaws, notice is require to be given to a security holder, committee member, or
director, a waiver thereof in writing signed by the person or persons entitled
to such notice, whether before or after the time stated in such notice, shall be
equivalent to the giving of such notice. Attendance at a meeting shall
constitute a waiver of notice of such meeting, except where a person attends for
the express purpose of objecting to the transaction of any business on the
grounds that the meeting is not lawfully called or convened.
ARTICLE FIVE: OFFICERS AND AGENTS
5.01 Number; Qualification; Election; Term.
(A) The corporation shall have: (1) a president, a vice president, a
secretary and a treasurer; and (2) such other officers (including a chairman of
the board and vice presidents) and assistant officers and agents as the Board of
Directors may think necessary. In its discretion the board of directors may
leave unfilled any office except those of president and secretary.
(B) No officer or agent need by a shareholder, a director or a resident of
New Mexico.
(C) Officers name in Bylaw 5.01(A) shall be elected by the Board of
Directors ont he expiration of an officer's term or whenever a vacancy exists
and may be elected by the board at any meeting.
(D) Unless otherwise specified by the board at the time of election or
appointment, or in an employment contract approved by the board, each officer's
and agent's term shall end at the first meeting of directors after the next
annual meeting of shareholders. He shall serve until the end of his term or, if
earlier, his death, resignation,
13
<PAGE>
or removal.
(E) Any two or more offices may be held by the same person, except he
offices of president and secretary.
5.02 Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the corporation will be served thereby. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
5.03 Vacancies. Any vacancy occurring in any office of the corporation (by
death, resignation, removal or otherwise) may be filled by the Board of
Directors.
5.04 Authority. Officers and agents shall have such authority and perform such
duties in the management of the corporation as are provided in these Bylaws or
as may be determined by resolution of the Board of Directors not inconsistent
with these Bylaws.
5.05 Compensation. The compensation of the president, all vice-presidents, the
secretary and the treasurer may be fixed by the Board of Directors, but the
compensation of all minor officers and all other agents and employees of the
Corporation may be fixed by the president, unless by resolution the Board of
Directors shall determine otherwise; provided, however, that without the express
approval of the Board of Directors the president may not enter into any
employment agreement on behalf of the Corporation with any person which may not
be terminated by the Corporation either at will or upon thirty (30) days written
notice.
5.06 President. The president shall be the chief executive officer of the
corporation; he shall preside at all meetings of the shareholders and the Board
of Directors, shall have general and active management of the business and
affairs of the corporation, shall see that all orders and resolutions of the
board are carried into effect. He shall perform such other duties and have such
other authority and powers as the Board of Directors may from time to time
prescribe.
5.07 Vice President. The vice presidents, if any shall have been elected, in the
order of their seniority, unless otherwise determined by the Board of Directors,
shall, in the absence or disability of the president, perform the duties and
have the authority and exercise the powers of the president. They shall perform
such other duties and have such other authority and powers as the Board of
Directors may from time to time prescribe or as the president may from time to
time delegate.
5.08 Secretary.
14
<PAGE>
(A) The secretary shall attend all meetings of the Board of Directors and
all meetings of the shareholders and record all votes, actions and the minutes
of all proceedings in a book to be kept for that purpose and shall perform like
duties for the executive and other committees when required.
(B) He shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board of Directors.
(C) He shall keep in safe custody the seal of the corporation and, when
authorized by the Board of Directors or the executive committee, affix it to any
instrument requiring it. When so affixed, it shall be attested by his signature
or by the signature of the treasurer or an assistant secretary.
(D) He shall be under the supervision of the president. He shall perform
such other duties and have such other authority and powers as the Board of
Directors may from time to time prescribe or as the president may from time to
time delegate.
5.09 Treasurer.
(A) The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements of the corporation and shall deposit all moneys and other
valuables in the name and to the credit of the corporation in depositories
designated by the Board of Directors.
(B) He shall disburse the funds of the corporation as ordered by the Board
of Directors, and prepare financial statements as they direct.
(C) If required by the Board of Directors, he shall give the corporation a
bond (in such form, in such sum, and with such surety or sureties as shall be
satisfactory to the board) for the faithful performance of the duties of his
office and for the restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the corporation.
(D) He shall perform such other duties and have such other authority and
powers as the Board of Directors may from time to time prescribe or as the
president may from time to time delegate.
ARTICLE SIX: CERTIFICATES AND SHAREHOLDERS
6.01 Certificates. Certificates in the form determined by the Board of Directors
shall be delivered representing all shares to which shareholders are entitled.
Certificates shall be consecutively numbered and shall be entered in the books
of the corporation as they
15
<PAGE>
are issued. Each certificate shall state on its face the holder's name, the
number and class of shares, the par value of shares or a statement that such
shares are without par value, and such other matters as may be required by law.
It shall be signed by the president or a vice president and such other officer
or officers as the Board of Directors shall designate, and may be sealed with
the seal of the corporation or a facsimile thereof. If a certificate is
registered by a registrar (either of which is other than the corporation or an
employee of the corporation), the signature of any officer may be facsimile.
6.02 Issuance. Shares (both treasury and authorized but unissued) may be issued
for such consideration (not less than par value) and to such persons as the
Board of Directors may determined from time to time. Shares may not be issued
until the full amount of the consideration, fixed as provided by law, has been
paid.
6.03 Payment for Shares.
(A) Kind. The consideration for the issuance of shares shall consist of
money paid, labor done, (including services actually performed for the
corporation) or property (tangible or intangible) actually received. Neither
promissory notes nor the promise of future services shall constitute payment for
shares.
(B) Valuation. In the absence of fraud in the transaction, the judgment of
the Board of Directors as to the value of consideration received shall be
conclusive.
(C) Effect. When consideration, fixed as provided by law, has been paid,
the shares shall be deemed to have been issued and shall be considered fully
paid and nonassessable.
(D) Allocation of Consideration. The consideration received for shares
shall be allocated by the Board of Directors, in accordance with law, between
stated capital and capital surplus accounts.
6.04 Lien. For any indebtedness of a shareholder to the corporation, the
corporation shall have a first and prior lien on all shares of its stock owned
by him and on all dividends or other distributions declared thereon.
6.05 Lost, Stolen or Destroyed Certificates. The corporation shall issue a new
certificate in place of any certificate for shares previously issued if the
registered owner of the certificate:
(A) Claim. Makes proof in affidavit form that it has been lost, destroyed
or wrongfully taken; and
(B) Timely Request. Requests the issuance of a new certificate before the
corporation has notice that the certificate has been acquired by a purchaser for
value in good faith and without notice of
16
<PAGE>
an adverse claim; and
(C) Bond. Gives a bond in such form, and with such surety or sureties,
with fixed or open penalty, as the corporation may direct, to indemnify the
corporation (and its transfer agent and registrar, if any) against any claim
that may be made on account of the alleged loss, destruction, or theft of the
certificate; and
(D) Other Requirements. Satisfies any other reasonable requirements
imposed by the corporation. When a certificate has been lost, apparently
destroyed or wrongfully taken, and the holder of record fails to notify the
corporation within a reasonable time after he has notice of it, and the
corporation registers a transfer of the shares represented by the certificate
before receiving such notification, the holder of record is precluded from
making any claim against the corporation for the transfer or for a new
certificate.
6.06 Transfer of Shares. Shares of the Corporation may be transferred by
endorsement by the signature of the owner, his agent, attorney, or legal
representative, and the delivery of the certificate. The transferee in any
transfer of shares shall be deemed to have full notice of, and to consent to,
the Bylaws of the corporation to the same extent as if he had signed a written
assent thereto.
6.07 Registered Owner. Prior to the due presentment for registration of transfer
of a certificate for shares, the corporation may treat the registered owner as
the person exclusively entitled to vote, to receive notices and otherwise to
exercise all the rights and powers of a shareholder.
6.08 Preemptive Rights. Shareholders or other persons shall not have preemptive
rights.
6.09 Cumulative Voting. Shareholders or other persons shall not have cumulative
voting rights.
6.10 Transfer agents and registrars. The Board of Directors may appoint one or
more transfer agents or transfer clerks, and one or more registrars, at such
times and places as the requirements of the Corporation may necessitate and the
Board of Directors may designate. Each registrar appointed, if any, shall be an
incorporated bank or trust company, either domestic or foreign.
6.11 Conditions of Transfer. The party in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof as regards the
Corporation, provided that whenever any transfer of shares shall be made for
collateral security, and not absolutely, and prior written notice thereof shall
be given to the Secretary of the Corporation, or to its transfer agent, if any,
such fact shall be state in the entry of the transfer.
17
<PAGE>
6.12 Reasonable doubts as to right to Transfer. When a transfer of shares is
requested and there is reasonable doubt as to the rights of the person seeking
the transfer, the Corporation or its transfer agent, before recording the
transfer of shares in its books or issuing any certificate therefor, may require
from the person seeking the transfer reasonable proof of that person's right to
the transfer. If there remains a reasonable doubt of the right to the transfer,
the Corporation may refuse a transfer unless the person gives adequate security
or a bond of indemnity executed by a corporate surety or by two individual
sureties satisfactory to the Corporation as to form, amount, and responsibility
of sureties. The bond shall be conditioned registrars, or any of them, against
any loss, damage, expense, or other liability to the transfer or the issuance of
a new certificate for shares.
ARTICLE SEVEN: GENERAL PROVISIONS
7.01 Dividends and Reserves.
(A) Declaration and Payment. Subject to statute and the Articles of
Incorporation, dividends on the outstanding shares may be declared by the Board
of Directors at any annual, regular or special meeting and may be paid in cash,
in property, or in shares of the corporation. The declaration and payment shall
be at the discretion of the Board of Directors.
(B) Record Date. The Board of Directors may fix in advance a record date
for the purpose of determining shareholders entitled to receive payment of any
dividend, the record date to be not more than fifty days prior to the payment
date of such dividend, or the Board of Directors may close the stock transfer
books for such purpose for a period of not more than fifty days prior to the
payment date of such dividend. In the absence of any action by the Board of
Directors, the date upon which the board of directors adopts the resolution
declaring the dividend shall be the record date.
(C) Reserves. By resolution the Board of Directors may create such reserve
or reserves out of the earned surplus of the corporation as the directors from
time to time, in their discretion, think proper to provide for contingencies, or
to equalize dividends, or to repair or maintain any property of the corporation,
or for any other purpose they think beneficial to the corporation. The directors
may modify or abolish any such reserve in the manner in which it was created.
7.02 Books and Records. The corporation shall keep correct and complete books
and records of account and shall keep minutes of the proceedings of its
shareholders and Board of Directors, and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addressed of all
shareholders and the number and class of the shares held by each.
18
<PAGE>
7.03 Execution of Instruments. All corporate instruments and documents are to be
so signed or counter-signed, executed, verified or acknowledged by such officer
or officers or other person or persons as the board may from time to time elect
to designate.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the corporation, and in
such manner as shall be determined from time to time by resolution of the board.
7.04 Fiscal Year. The fiscal year of the corporation shall end on June 30th, or
as set by the Board of Directors.
7.05 Indemnification.
(A) The corporation shall indemnify any person made a party to an
action or proceeding by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that such person, that person's testator or
intestate, is or was a director, officer or employee of the corporation against
the reasonable expenses, including attorneys' fees actually and necessarily
incurred by such person in connection with the defense of such action or
proceeding, or in connection with the appeal therein, except in relation to
matters as to which such person is adjudged to have breached a duty to the
corporation; and
(B) The corporation shall indemnify any person made or threatened
to be made a party to an action or proceeding other than one by or in the right
of the corporation to procure a judgment in its favor, whether civil or
criminal, including any action by or in the right of any other corporation of
any type or kind, domestic or foreign, which any director officer or employee of
the corporation served in any capacity at the request of the corporation, by
reason of the fact that such person, such person's testator or intestate, was a
director or officer or employee of the corporation, or served such other
corporation in any capacity against judgments, fines, amounts paid in settlement
and reasonable expenses, including attorney's fees actually and necessarily
incurred as a result of such action or proceeding, or any appeal therein, if
such person acted in good faith, for a purpose which he reasonably believed to
be in the best interests of the corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to be believe that such
person's conduct was unlawful.
7.06 Seal. The corporation seal (of which there may be one or more exemplars)
shall contain the name of the corporation and the name of the state of
incorporation. The seal may be used by impressing it or reproducing a facsimile
of it, or otherwise. The seal on the certificates for shares or on any corporate
obligation for the payment of money may be facsimile, engraved or printed.
19
<PAGE>
7.07 Resignation. Any director, committee member, officer or agent may resign by
giving written notice to the president or the secretary. The resignation shall
take effect at the time specified therein, or immediately if no time is
specified. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
7.08 Amendment of Bylaws.
(A) These Bylaws may only be altered, amended, or repealed at any
meeting of the Board of Directors at which a quorum is present, by the
affirmative vote of a majority of the directors present at such meeting,
provided the directors have received notification of the proposed alteration,
amendment, or repeal at least three days prior to the meeting.
(B) These Bylaws may also be altered, amended or repealed at any
meeting of the Shareholders at which a quorum is present or represented, by the
affirmative vote of the holders of a majority of the shares present or
represented at the meeting and entitled to vote there at, provided notice of the
proposed alteration, amendment or repeal is contained in the notice of the
meeting.
7.09 Meaning of Certain Terms. As used herein in respect of the right to notice
of a meeting of shareholders or a waiver thereof or to participate or vote there
at or to consent or dissent in writing in lieu of a meeting, as the case may be,
the term "share" or "shares" or "shareholder" or "shareholders" refers to an
outstanding share or shares and to a holder or holders of record of outstanding
shares when the corporation is authorized to issue only one class of shares, and
said reference is also intended to include any outstanding share or shares and
any holder or holders of record of outstanding shares of any class upon which or
upon whom the Articles of Incorporation confer such rights where there are two
or more classes or series of shares or upon which or upon whom the New Mexico
Corporation Code confers such rights notwithstanding that the Articles of
Incorporation may provide for more than one class or series of shares, one or
more of which are limited or denied such rights thereunder.
7.10 Construction. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural, and
conversely. If any portion of these Bylaws shall be invalid or inoperative,
then, so far as is reasonable and possible:
(A) The remainder of these Bylaws shall be considered valid and
operative, and
20
<PAGE>
(B) Effect shall be given to the intent manifested by the portion
held invalid or inoperative.
7.11 Table of Contents; Headings. The table of contents and headings are for
organization, convenience, and clarity. In interpreting these Bylaws, they shall
be subordinated in importance to the other written material.
7.12 Relation to Articles of Incorporation. These Bylaws are subject to, and
governed by, the Articles of Incorporation.
7.13 Share Register. The Corporation shall keep at the registered or principal
office, or at the office of the transfer agent, a share register, showing the
names of the Shareholders, their addresses, the number and class of shares
issued by each, the number and date of certificates issued for such shares, and
the number and date of cancellation of every certificate surrendered for
cancellation. The above specified information may be kept on an information
storage device such as electronic data processing equipment, provided that the
equipment is capable of reproducing the information in clearly legible form for
the purposes of inspection by any shareholder, Director, Officer, or agent of
the Corporation during regular business hours. If the Corporation elects
taxation under Internal Revenue Code Section 1244 or Subchapter S. the officer
issuing shares shall ensure that the appropriate requirements regarding issuance
of share are maintained in effect.
7.14 Books of Account. The Corporation shall maintain correct and adequate
accounts of its properties and business transactions, including accounts of its
assets, liabilities, receipts, disbursement, gains, losses, capital, surplus,
and shares. The corporate bookkeeping procedures shall conform to accepted
accounting practices for the business or businesses in which the Corporation is
engage. Subject to the foregoing, the chart of financial accounts shall be taken
from, and designed to facilitate preparation of, current corporate tax returns.
Any surplus, including earned surplus, paid-in surplus, and surplus arising from
a reduction of stated capital, account. If the Corporation elects taxation under
Internal Revenue Code Section 1244 or Subchapter S, the officers and agents
maintaining the books of account and issuing shares shall ensure that the
appropriate requirements are maintained in effect.
21
<PAGE>
* * * *
SIGNATURES AND ATTESTATION
Adopted by the Board of Directors on this 27th day of December, 1992.
s/Robert E. Barbee
-------------------------------
Robert E. Barbee, Director
s/Tasso Getsos
-------------------------------
Tasso Getsos, Director
s/G.W. Aubrey
-------------------------------
G.W. Aubrey, Director
22
<PAGE>
Exhibit 10.10 Minutes of Board of Directors Meeting dated January 15, 1999.
ComTec International, Inc.
Quarterly Meeting
BOARD OF DIRECTORS MEETING
January 15, 1999
On January 15, 1999 a regular quarterly meeting of the BOARD OF DIRECTORS of
ComTec International, Inc. was held at the offices of the Corporation on the
date and time previously specified for a regular quarterly meeting of the board
of directors, notice of meeting is waived and the undersigned directors take,
ratify, confirm and approve the following actions as if at a duly called and
formally noticed meeting:
James J. Krejci, acting chairman, called the meeting to order with the following
agenda presented to the Board of Directors:
(1) Acceptance of recorded minutes of last meeting of the Board of
Directors.
(2) Ratification of the sale of giant LED Screens to LanStar
Computer Products, Inc.
(3) Ratification of the letter of intent with Chadmoore Wireless
Group, Inc.
(4) Purchase of an insurance policy for Director and Officer Liability
Insurance
(5) Recognition of liability for common stock issuance to Marc Maassen
as outside director compensation to Mr. Maassen
(6) Conversion of the Corporation from a New Mexico Corporation to a
Delaware Corporation
(7) Employment Contract and compensation issues with Mr. Krejci
(8) Employment Contract and compensation issues with Mr. Dihle
(9) Filing of 8K to update recent events involving the Corporation
sale of LED Screens.
Following opening formalities, a review of the agenda and reading of prior board
of director minutes, the business of the meeting began.
The Chairman provided the Board with the copies of recorded minutes of last
meeting of the Board of Directors held November 11, 1998. The Board unanimously
approved the reported minutes of the special meeting of directors as recorded
for November 11, 1998.
The Chairman raised the issue of the need to formally ratify the sale of giant
LED Screens to LanStar Computer Products, Inc. The Chairman provided the Board
with the copies of the final Purchase Agreement and Promissory Note executed by
LanStar Computer Products, Inc. on December 31, 1998.
After discussion, presentation of the issue and vote thereon the members of the
Board unanimously determined that:
RESOLVED: That the Board of Directors of the Corporation
hereby authorizes and ratifies the sale of giant LED Screens
to LanStar Computer Products, Inc. pursuant to the Purchase
Agreement and Promissory Note executed by LanStar Computer
Products, Inc. on December 31, 1998.
The Chairman raised the issue of the need to formally ratify the letter of
intent with Chadmoore Wireless Group, Inc., which letter of intent calls for the
potential sale of FCC license and associated business owned by American Wireless
Network, Inc. together with the lease of equipment owned by American Wireless
Network, Inc. to Chadmoore Wireless Group, Inc. The Chairman provided the Board
with the copies of the letter of intent executed by Chadmoore Wireless Group,
Inc. on December, 1998.
After discussion, presentation of the issue and vote thereon the members of the
Board unanimously determined that:
RESOLVED: That the Board of Directors of the Corporation
hereby authorizes and ratifies the letter of intent
with Chadmoore Wireless Group, Inc.
<PAGE>
FURTHER RESOLVED: That the officers of the Corporation
are authorized and directed to move forward to complete
and execute a detailed formalized contract with Chadmoore
Wireless Group, Inc. and finalize all arrangements for the
sale and lease as outlined in the letter of intent.
The Chairman raised the issue of the need to provide director compensation by
payment of .001 par value common shares of the Company to Marc Maassen as
remuneration to this individual for director services to the Company. The
qualified stock option plan ratified by the shareholders at the annual meeting
of the Corporation on March 28, 1997, calls for issuance of options to each
outside director for a total of 14,000 shares. Additional discussion called for
the authorization of 36,000 additional shares to Mr. Maassen given that Mr.
Maassen is serving as a director without cash compensation.
After discussion, presentation of the issue and vote thereon, with Mr. Maassen
abstaining, the two voting members of the Board unanimously determined that:
RESOLVED: That the Board of Directors of the Corporation
hereby authorizes and directs its Transfer Agent to issue
stock certificates of ComTec International, Inc. for shares
of the $.001 par value common stock of ComTec International,
Inc. to Marc Maassen in the amounts described below:
Director Compensation: .001 par value common shares to be
issued to Marc Maassen: 36,000 shares. These shares are to
be valued at 80% of the closing bid price as of 1/15/99 (.023)
for total of $662.40
FURTHER RESOLVED: That the Board of Directors of the
Corporation hereby authorizes issuance of a option to Marc
Maassen for 14,000 shares of .001 par value common shares
in accordance with the Corporation's qualified stock
option plan.
The Chairman raised the issue of the desirability of director and officers
liability insurance and presented the opportunity to purchase an insurance
policy for Director and Officer Liability Insurance. After review and discussion
of the issues of cost versus benefits to the Corporation the issue of whether to
purchase directors and officers liability insurance was put to vote.
After discussion, presentation of the issue and vote thereon, the members of the
Board unanimously determined that:
RESOLVED: That the Board of Directors of the Corporation
hereby authorizes and empowers the Corporation's officers
to purchase the available policy of Directors and Officers
Liability Insurance.
Mr. Dihle raised the concept of converting the Corporation from a New Mexico
Corporation to a Delaware Corporation in order to achieve certain corporate
advantages and added corporate flexibility offered by Delaware statutes which
are not available under New Mexico law. The issue of converting ComTec
International, Inc. to a Delaware corporation and related matters of costs and
necessary shareholder approvals was discussed.
After discussion, presentation of the issue and vote thereon, the members of the
Board unanimously determined that:
RESOLVED: That the Board of Directors of the Corporation
hereby directs and authorizes the Corporation's secretary
and general counsel prepare documents and presentations
necessary for inclusion of the issue of whether to convert
the Corporation to a Delaware Corporation in the
Corporation's proxy and proxy solicitation to be presented
to its shareholders at its next annual meeting.
The Chairman raised the issue of the desirability of resolving employment
contract and compensation issues with Mr. Krejci and Mr. Dihle.
<PAGE>
On February 16, 1998, the Company entered into a letter agreement, which remains
to be formalized, by which James Krejci became employed as Chief Operations
Officer of the Company and President and CEO of AWN. On August 26, 1998 Mr.
Krejci was elected to the Corporation's Board of Directors. On September 2, 1998
Mr. Krejci was appointed as CEO of President of the Corporation. The letter
agreement calls for a minimum three year employment agreement with the
opportunity for Mr. Krejci to obtain, through common stock option agreements, up
to ten percent (10%) of the outstanding common stock of the Company over a three
year period. The preliminary agreement calls for Mr. Krejci to receive stock
options vesting in monthly increments to equal to a total of 5% of the Company's
outstanding common shares over a three year period. Options to obtain an
additional 5% of the Company's outstanding common shares are conditioned upon
the Company reaching certain financial and administrative goals within
established timelines. Pursuant to the Board of Directors Resolution at the
meeting held October 7, 1998, Mr. Krejci's existing letter agreement was
modified to provide that the stock options provided to him by that agreement
shall have a strike price equal to 80% the closing bid price of the
Corporation's common stock on 9-2-98 of $.07 ($.056 per share).
Discussion was then had concerning the current condition, future prospects,
financing and business developments related to the Corporation. The personal
financial needs and continuing sacrifice of the ability to pursue other
opportunities by the individual officers in order to maintain, protect and
develop the potential of the Corporation for the benefit of the shareholders was
discussed. The directors agreed that although the Corporation has great future
potential, it is currently in an uncertain and volatile position and its future
is unpredictable. Mr. Krejci requested that his employment contract contain
specific conditions concerning additional early vesting of stock options and
continuation of salary in the event of termination without cause or due to a
change in control or direction of the Corporation in the future. Typical
compensation and termination packages for executives of similar size public and
quasi public corporations were reviewed and discussed.
After discussion, presentation of the issue and vote thereon, with Mr. Krejci
abstaining, the two voting members of the Board unanimously determined that:
RESOLVED: We agree and understand that the Corporation
is currently in an uncertain and volatile position and its
future is unpredictable. The promise of potential future
benefit in the form of the stock options to Mr. Krejci is
provided as reward for past loyalty, as an incentive to
participate in the growth of the Company, and to provide
potential rewards for foregoing other opportunities and
assuming the risk and responsibility of long term employment
as a member of ComTec's executive management team. Since
changes in control and/or direction of ComTec are a possibility,
and the future is certainly changeable, the following paragraphs
shall be made a part of the employment contract with respect
to Mr. Krejci's employment as CEO and President of ComTec
and American Wireless Network, Inc. ("Executive").
Termination by Company without Cause. The Company
may at any time, in its sole discretion, terminate the
employment of Executive hereunder, without cause, by written
notice to Executive. In the event of termination of
Executive's employment by the Company under this Section
without Cause (as defined below), Executive shall be entitled:
a. to receive immediate vesting of all stock options
to which Executive would have been entitled had his
employment continued through the full term of his
employment contract;
b. reimbursement of any expenses otherwise reimbursable
hereunder;
c. all salary earned through the date of such termination
and for an additional thirty six months after notice
of termination, payable in one lump sum at the date
of termination.
d. such other and additional benefits provided under
the employment contract as may by its terms then be
applicable.
Termination "without cause" for purposes of this agreement
shall mean (1) any reason which is not specifically defined
as "Termination Due to Executive's Death or Disability" or
"Termination With Cause" in the sections below; or (2) the
substantial diminution of authority,
<PAGE>
duties and/or responsibilities of Executive due to a change
of control, management or direction of the Company.
Termination by Company Due to Executive's Death or
Disability. In the event of Executive's death or if
Executive is unable to perform his duties hereunder by
reason of illness or other physical or mental infirmity for
a period of one hundred eighty (180) consecutive days, the
Company may terminate Executive's employment hereunder. In
the event of such termination, Executive (or his Estate)
shall be entitled: a. to receive, at times otherwise payable
and subject to the other provisions of this Agreement, all
of the stock options then accrued and vested in Executive
together with such other and additional benefits provided
under the employment contract as may by its terms then be
applicable. b. all salary earned through the date of such
termination and reimbursement of any expenses otherwise
reimbursable hereunder;
Termination by Executive. In the event Executive
terminates his employment hereunder other than by reason of
a material breach of the provisions of this Agreement by the
Company, the Company shall pay any salary and expenses
otherwise reimbursable accrued through the date of such
termination, and, except as otherwise expressly provided this
employment contract in the event that Executive then has
qualified by age and service for retirement benefits under
this employment contract, the Company shall have no other
obligation to Executive hereunder, or otherwise with respect
to his employment by the Company.
Termination by Company for Cause. The Company may at
any time terminate the employment of Executive hereunder
for "Cause," as defined below, in accordance with the
following procedure. First, the Company shall give
Executive written notice to the effect that the Board of the
Company intends to consider such termination, stating
the time and place of the meeting of the Board for such
purpose. Second, Executive shall be afforded the opportunity
to address the Board at such meeting with respect to the
appropriateness of such termination. Third, if the Board
determines that Cause exists, by means of such procedures and
based on such evidence as it may deem sufficient in the
circumstances, it shall notify Executive of such determination,
whereupon Executive's employment hereunder shall terminate.
The Board's good faith determination of the existence of
Cause shall be final. As used in the Agreement, "Cause"
means (i) the failure or refusal of Executive to substantially
perform his duties hereunder (other than any such failure
resulting from Executive's incapacity due to physical or
mental illness), after written notice from the Company
stating the duties Executive is believed to be failing or
refusing to perform and stating a reasonable period to cure
such failure or refusal and the manner in which such cure
may be effected; or (ii) an act or acts of dishonesty
by Executive involving the Company; or (iii) conduct of
Executive which is materially injurious to the Company,
monetarily or otherwise, and the injurious effect of which
conduct was known or reasonably should have been known to
Executive; or (iv) material breach by Executive of this
Agreement; or (v) commission by Executive of a felony.
In the event Executive's employment hereunder is terminated
by the Company for Cause pursuant to this Section, the
Company shall pay to Executive any salary accrued through
the date of such termination. The Company shall remain
obligated to provide or pay such other and additional benefits
provided under the employment contract as may by its terms
then be vested and applicable.
Non-Competition Covenant. Executive shall not, during
the term of his employment by the Company and for the one-year
period immediately following the end of his employment by the
Company, (a) unless Executive's employment by the Company was
terminated by the Company without Cause, as defined above,
act as an officer, director, employee, partner, or agent of,
or invest in or lend money to, or own, directly or indirectly,
any interest in, or participate in the control of, any
corporation, partnership, joint venture or other business
organization which has an office or business located within
the States of Colorado and which is engaged in the same business
<PAGE>
as the Company or offer to any person employed by the
employment with any business entity with which Executive
may become associated in any capacity other than the Company.
Confidential Information. Executive shall not, except
in the performance of his duties hereunder and for the benefit
of the Company, disclose or reveal to any unauthorized person
any confidential information of the Company relating to the
Company, to its subsidiaries or affiliates, or to any of the
businesses operated by them, or any business invested in or
funded by the Company, and Executive confirms that such
information constitutes the exclusive property of the
Company.
FURTHER RESOLVED: That since Mr. Krejci's one year
anniversary is February 16, 1999, the Board will as soon
as practical review Mr. Krejci's compensation package in
accordance with the spirit of ordinal letter agreement
and the additional duties and responsibilities undertaken
by Mr. Krejci.
The Chairman than requested that a preliminary letter agreement negotiated
between the Corporation's President and Mr. Dihle providing for Mr. Dihle to
receive a set monthly salary, potential bonuses and stock options vesting over a
three year period with a strike price based upon 80% of the market price of the
Corporation's common stock as of 9/2/98, ($.056 per share) the date of Mr.
Dihle's appointment by the board as acting Secretary/Treasurer, be ratified by
the Board of Directors.
After discussion, presentation of the issue and vote thereon, with Mr. Dihle
abstaining, the remaining Board members unanimously determined that:
RESOLVED: That the letter agreement dated January 4,
1999, executed by Mr. Krejci as President of ComTec and
American Wireless Network, Inc. and by Mr. Dihle as
Executive, a copy of which is attached hereto and
incorporated by reference, is hereby ratified and
accepted by the Board.
FURTHER RESOLVED: That the officers of the Corporation
shall move forward as time permits to complete a
detailed formalized contract with Mr. Dihle.
The Chairman raised the issue of the need for Filing of an 8K to update recent
events involving the sale of the giant LED screens to LanStar Computer Products,
Inc.
After discussion, presentation of the issue and vote thereon, the Board
unanimously determined that:
RESOLVED: that Gordon Dihle is directed and authorized
to approve, execute and file an 8K to update recent events
involving the sale of the giant LED screens to LanStar
Computer Products, Inc.
Mr. Dihle then presented and the Board discussed a preliminary business plan for
a Business Development Company, said plan to be potentially used as the business
plan for operations of a subsidiary of the Company. After review and discussion
of the plan, Mr. Dihle was directed to continue development of the plan and Mr.
Krejci indicated that he would began making inquiries as to potential clients of
the proposed business development company.
The Chairman raised the issue of the need to set date for next scheduled meeting
of Board of Directors.
It was previously determined that the Corporation's Board of Directors would
hold regular meetings on a quarterly basis.
After discussion, presentation of the issue and vote thereon, the Board
unanimously determined that:
<PAGE>
RESOLVED: the next scheduled meeting of the Board of
Directors shall be April 15th, 1999 at 2:00 P.M. Denver
time, to be held at the offices of the Corporation at
9350 East Arapahoe Road, Suite 340, Englewood, Colorado.
There being no further business, the meeting upon motion made, seconded and
unanimously approved, was adjourned.
Dated and effective this 15th Day of January, 1999.
s/James J. Krejci s/Gordon Dihle
______________________________________________ ATTEST:_________________________
James J. Krejci, Chairman of the Board Gordon Dihle, Secretary
s/Marc Maassen
- ----------------------------------------------
Marc Maassen, Member of the Board of Director
s/Gordon D. Dihle
- ----------------------------------------------
Gordon D. Dihle, Member of the Board of Directors
<PAGE>
Exhibit 10.11 Letter Agreement between the Company and Gordon Dihle dated
January 4, 1999
ComTec International, Inc.
9350 East Arapahoe Road
Suite 340
Englewood, CO 80112
303-662-8373 FAX 303-662-8485
January 4, 1999
Gordon Dihle
4881 South Amaro Drive
Evergreen, CO 80439
Dear Gordon:
We appreciate the time and efforts you've put forth on behalf of ComTec
International, Inc. and American Wireless Network, Inc. as well as other
subsidiaries in the past four months as general counsel and acting secretary and
treasurer. This letter confirms in principal the basic terms of our agreement
for your employment with ComTec International, Inc., and American Wireless
Network, Inc. as well as other existing or future subsidiaries.
We are pleased to offer you a contractual salaried position as Chief Financial
Officer, Secretary, Treasurer and General Counsel of ComTec International, Inc.
and American Wireless Network, Inc. as well as possible current or future
subsidiaries. The official start date will be January 1, 1999.
This letter will establish a minimum of a three-year employment
contract and incentive stock options which could give you the opportunity to
control and purchase 7.5% of ComTec International, Inc. within the term of the
contract. The initial options will be granted to you on your start date and
vesting will occur based on time schedules and performance criteria to be
identified in your formal employment agreement. The option price will be 80% of
the closing bid price of ComTec on September 2, 1998, ( $.056 - 80% of the
closing bid price of $.07 per share) as was discussed in the board of directors
resolution of October 7, 1998. The final details of the contract might take some
time to complete but you agree to start immediately based upon this letter
agreement.
The following basic salary, option earn-in and other pertinent items
are agreed:
Starting Salary: $7500 per month plus health insurance
benefits.
Increase Salary: Semiannual reviews (every 6 and 12 months),
predicated upon meeting milestone goals, financing, cash flow,
Company achievements and your personal performance.
Cash Bonus:
A year-end cash bonus will be considered in the first month
following the prior year's close of business. The amount will
be determined based on both Company and personal performance.
Business Expenses:
All business related expenses, including travel and applicable
continuing education, will be arranged for and paid directly
by the Company or reimbursed by the Company on a timely basis.
Stock Options Vesting - upon completion of each successive one year
period:
Year One - Option Vesting 33.33% of total option - (2.5% of
ComTec outstanding common stock)
<PAGE>
Year Two - Option Vesting 33.33% of total option - (2.5% of
ComTec outstanding common stock)
Year Three - Option Vesting 33.33% of total option - (2.5% of
ComTec outstanding common stock)
We agree and understand that ComTec is currently in an uncertain and
volatile position and its future is unpredictable. The promise of potential
future benefit in the form of the stock options described above is provided as
reward for past loyalty, as an incentive to participate in the growth of the
Company and to provide potential rewards for foregoing other opportunities and
assuming the risk and responsibility of long term employment as a member of
ComTec's executive management team. Since changes in control and/or direction of
ComTec are a possibility, and the future is certainly changeable, the following
paragraphs shall be made a part of the formal contract to be completed with
respect to your employment as CFO and general counsel ("Executive").
Termination by Company without Cause. The Company may at any time, in
its sole discretion, terminate the employment of Executive hereunder, without
cause, by written notice to Executive. In the event of termination of
Executive's employment by the Company under this Section without Cause (as
defined below), Executive shall be entitled:
a. to receive immediate vesting of all stock options to which
Executive would have been entitled had his employment
continued through the full term of his employment contract;
b. reimbursement of any expenses otherwise reimbursable
hereunder;
c. all salary earned through the date of such termination and for
an additional thirty six months after notice of termination,
payable in one lump sum at the date of termination.
d. such other and additional benefits provided under the
employment contract as may by its terms then be applicable.
Termination "without cause" for purposes of this agreement shall mean
(1) any reason which is not specifically defined as "Termination Due to
Executive's Death or Disability" or "Termination With Cause" in the sections
below; or (2) the substantial diminution of authority, duties and/or
responsibilities of Executive due to a change of control, management or
direction of the Company.
Termination by Company Due to Executive's Death or Disability. In the
event of Executive's death or if Executive is unable to perform his duties
hereunder by reason of illness or other physical or mental infirmity for a
period of one hundred eighty (180) consecutive days, the Company may terminate
Executive's employment hereunder. In the event of such termination, Executive
(or his Estate) shall be entitled:
a. to receive, at times otherwise payable and subject to the
other provisions of this Agreement, all of the stock options
then accrued and vested in Executive together with such other
and additional benefits provided under the employment contract
as may by its terms then be applicable.
b. all salary earned through the date of such termination and
reimbursement of any expenses otherwise reimbursable
hereunder;
Termination by Executive. In the event Executive terminates his
employment hereunder other than by reason of a material breach of the provisions
of this Agreement by the Company, the Company shall pay any salary and expenses
otherwise reimbursable accrued through the date of such termination, and, except
as otherwise expressly provided this employment contract in the event that
Executive then has qualified by age and service for retirement benefits under
this employment contract, the Company shall have no other obligation to
Executive hereunder, or otherwise with respect to his employment by the Company.
Termination by Company for Cause. The Company may at any time terminate
the employment of Executive hereunder for "Cause," as defined below, in
accordance with the following procedure. First, the Company shall give Executive
written notice to the effect that the Board of the Company intends to consider
such termination, stating
<PAGE>
the time and place of the meeting of the Board for such purpose. Second,
Executive shall be afforded the opportunity to address the Board at such meeting
with respect to the appropriateness of such termination. Third, if the Board
determines that Cause exists, by means of such procedures and based on such
evidence as it may deem sufficient in the circumstances, it shall notify
Executive of such determination, whereupon Executive's employment hereunder
shall terminate. The Board's good faith determination of the existence of Cause
shall be final. As used in the Agreement, "Cause" means (i) the failure or
refusal of Executive to substantially perform his duties hereunder (other than
any such failure resulting from Executive's incapacity due to physical or mental
illness), after written notice from the Company stating the duties Executive is
believed to be failing or refusing to perform and stating a reasonable period to
cure such failure or refusal and the manner in which such cure may be effected;
or (ii) an act or acts of dishonesty by Executive involving the Company; or
(iii) conduct of Executive which is materially injurious to the Company,
monetarily or otherwise, and the injurious effect of which conduct was known or
reasonably should have been known to Executive; or (iv) material breach by
Executive of this Agreement; or (v) commission by Executive of a felony. In the
event Executive's employment hereunder is terminated by the Company for Cause
pursuant to this Section, the Company shall pay to Executive any salary accrued
through the date of such termination. The Company shall remain obligated to
provide or pay such other and additional benefits provided under the employment
contract as may by its terms then be vested and applicable.
Non-Competition Covenant. Executive shall not, during the term of his
employment by the Company and for the one-year period immediately following the
end of his employment by the Company, (a) unless Executive's employment by the
Company was terminated by the Company without Cause, as defined above, act as an
officer, director, employee, partner, or agent of, or invest in or lend money
to, or own, directly or indirectly, any interest in, or participate in the
control of, any corporation, partnership, joint venture or other business
organization which has an office or business located within the States of
Colorado and which is engaged in the same business as the Company or offer to
any person employed by the employment with any business entity with which
Executive may become associated in any capacity other than the Company.
Confidential Information. Executive shall not, except in the
performance of his duties hereunder and for the benefit of the Company, disclose
or reveal to any unauthorized person any confidential information of the Company
relating to the Company, to its subsidiaries or affiliates, or to any of the
businesses operated by them, or any business invested in or funded by the
Company, and Executive confirms that such information constitutes the exclusive
property of the Company.
Assuredly, some of the final details of the formal contract will take
time for us to work out together. We are pleased to make this offer to you and
expect to be able to benefit from your input, advice and counsel in completing
the various open matters as well as participating in the future growth,
direction and prospects of ComTec.
Thank you,
s/James J. Krejci
James J. Krejci
Chief Executive Officer and President
ComTec International, Inc. and American Wireless Network, Inc.
s/Gordon Dihle
- --------------------------------------------------
Agreed and accepted - Gordon Dihle (Executive)
- --------------------------------------------------
Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 1999, 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> 667,800
<SECURITIES> 0
<RECEIVABLES> 13,500
<ALLOWANCES> 0
<INVENTORY> 1,324,300
<CURRENT-ASSETS> 2,050,600
<PP&E> 1,478,600
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,925,600
<CURRENT-LIABILITIES> 1,851,700
<BONDS> 0
0
0
<COMMON> 39,700
<OTHER-SE> 1,603,300
<TOTAL-LIABILITY-AND-EQUITY> 4,925,600
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,031,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 457,400
<INCOME-PRETAX> (3,029,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,029,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,029,900)
<EPS-BASIC> (.15)
<EPS-DILUTED> 0
</TABLE>
