SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1998
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number
0-12117
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VENTURIAN CORP.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1460782
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11111 Excelsior Boulevard, Hopkins, MN 55343
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 612-931-2500
------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
-------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Common stock, $1.00 par value
<PAGE>
FILING OF REVISED ITEM 14
On March 30, 1999, Venturian Corp. (the "Company") filed its Annual
Report on Form 10-K for the Fiscal Year ended December 31, 1998 (the "Form
10-K"). Item 14 (d)(1) was omitted from the Form 10-K, because the separate
financial statements of the company's subsidiary (ATIO Corporation USA, Inc.),
which is not consolidated and fifty percent or less owned, were not complete and
available for filing at such time. The sole purpose of this Amendment 10-K/A-1
is to file Item 14 (d)(1).
Other than such amended Item 14, this Amendment 10-K/A-1 contains no
financial statements, financial statement schedules, exhibits and or other
papers and documents.
Item 14. Exhibits, Financial Statement Schedules and Reports on 8-K
(d) Separate financial statements of subsidiaries
not consolidated and fifty percent or less
owned persons
(1) Exhibit (99)
Financial Statements of
ATIO Corporation USA, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
By: /s/ Gary B. Rappaport
Gary B. Rappaport
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securites Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Gary B. Rappaport
Gary B. Rappaport
Chairman of the Board, Director and
Chief Executive Officer September 30, 1999
/s/ Don M. House, Jr.
Don M. House, Jr.
President and Chief Operating Officer September 30, 1999
/s/ Morris M. Sherman
Morris M. Sherman
Director September 30, 1999
/s/ Charles B. Langevin
Charles B. Langevin
Director September 30, 1999
/s/ Stuart B. Utgaard
Stuart B. Utgaard
Director September 30, 1999
/s/ Richard F. McNamara
Richard F. McNamara
Director September 30, 1999
/s/ Mary F. Jensen
Mary F. Jensen
Controller, Treasurer and
Chief Financial Officer September 30, 1999
EXHIBIT (99)
ATIO CORPORATION USA
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash $ 300 $ 318,783
Accounts receivable, net of allowance for doubtful accounts
of $20,000 and $76,433 at December 31, 1998 and 1997,
respectively 168,754 87,401
Due from affiliates at December 31, 1998 125,306
Prepaid expenses 38,188 43,872
----------- -----------
Total current assets 332,548 450,056
----------- -----------
Property and equipment:
Equipment 460,026 252,319
Leasehold improvements 186,889 45,000
----------- -----------
646,915 297,319
Accumulated depreciation and amortization (194,699) (69,696)
----------- -----------
452,216 227,623
----------- -----------
Total assets $ 784,764 $ 677,679
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 435,889 $ 252,066
Due to affiliates 38,448 137,025
Accrued payroll and benefits 270,619 23,665
Other accrued expenses 124,748 32,893
Deferred revenue 7,779
Note payable - affiliate 1,761,672
----------- -----------
Total current liabilities 2,639,155 445,649
----------- -----------
Redeemable common stock 500,000 500,000
----------- -----------
Shareholders' deficit:
Common stock, $.01 par value, 11,000,000 shares
authorized; 3,800,000 shares issued and outstanding
at December 31, 1998 and 1997 38,000 38,000
Additional paid-in capital 5,964,838 5,896,213
Subscription receivable (2,063,333)
Unearned compensation (49,562)
Accumulated deficit (8,307,667) (4,138,850)
----------- -----------
Total shareholders' deficit (2,354,391) (267,970)
----------- -----------
Total liabilities and shareholders' deficit $ 784,764 $ 677,679
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
ATIO CORPORATION USA
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1998 1997 1996
(UNAUDITED)
Revenues:
Software $ 348,068 $ 185,620 $ 127,237
Services 348,517 698,284 721,012
----------- ----------- -----------
Total revenue 696,585 883,904 848,249
Cost of revenues:
Software 59,434 98,368 76,652
Services 617,707 756,169 267,836
----------- ----------- -----------
677,141 854,537 344,488
----------- ----------- -----------
Gross profit 19,444 29,367 503,761
Operating expenses:
Sales and marketing expenses 1,603,649 1,558,782 545,240
General and administrative 1,430,875 1,419,059 419,567
Research and development 1,105,285 267,159 64,118
----------- ----------- -----------
Total operating expenses 4,139,809 3,245,000 1,028,925
Loss from operations (4,120,365) (3,215,633) (525,164)
Other expense, net 48,452 56,691
----------- ----------- -----------
Net loss $(4,168,817) $(3,272,324) $ (525,164)
=========== =========== ===========
See accompanying notes to the financial statements.
<PAGE>
ATIO CORPORATION USA
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- ADDITIONAL STOCK TOTAL
NUMBER PAID IN ACCUMULATED SUBSCRIPTION UNEARNED SHAREHOLDERS'
OF SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE COMPENSATION DEFICIT
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995
(unaudited) 1,000,000 $ 10,000 $ (341,362) $ (331,362)
Issuance of additional common
stock to Venturian 1,000,000 10,000 10,000
Net loss (525,164) (525,164)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1996
(unaudited) 2,000,000 20,000 (866,526) (846,526)
Capital contribution by affiliate $ 3,088,307 3,088,307
Issuance of common stock, net of
expenses of $174,094 2,000,000 20,000 3,305,906 $(3,000,000) 325,906
Redeemable common stock (200,000) (2,000) (498,000) (500,000)
Development services provided 266,667 266,667
Collection on stock subscription
receivable 670,000 670,000
Net loss (3,272,324) (3,272,324)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 3,800,000 38,000 5,896,213 (4,138,850) (2,063,333) (267,970)
Development services provided 548,333 548,333
Collection on stock subscription
receivable 1,515,000 1,515,000
Unearned compensation 68,625 $ (68,625)
Compensation expense
recognized 19,063 19,063
Net loss (4,168,817) (4,168,817)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 3,800,000 $ 38,000 $ 5,964,838 $(8,307,667) $ -- $ (49,562) $(2,354,391)
========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
ATIO CORPORATION USA
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,168,817) $(3,272,324) $ (525,164)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 125,003 44,102 15,209
Compensatory stock options 19,063
Development services 548,333 266,667
Issuance of common stock 10,000
Changes in operating assets and liabilities:
Accounts receivable (81,353) 11,172 62,519
Prepaid expenses 5,684 (6,870) 612
Other assets 21,780
Accounts payable 144,885 232,671 19,395
Deferred revenue 7,779 (9,260) (4,720)
Accrued payroll and benefits 246,954 (35,943) 21,625
Other accrued expenses 91,855 (8,317) 22,699
----------- ----------- -----------
Net cash used in operating activities (3,060,614) (2,778,102) (356,045)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (349,596) (178,704) (77,411)
----------- ----------- -----------
Net cash used in investing activities (349,596) (178,704) (77,411)
----------- ----------- -----------
Cash flows from financing activities:
Bank overdrafts 38,938
Net advances from affiliates 1,537,789 2,146,048 528,914
Subscription receivable collections 1,515,000 670,000
Proceeds from issuance of common stock 325,906
----------- ----------- -----------
Net cash provided by financing activities 3,091,727 3,141,954 528,914
----------- ----------- -----------
Net (decrease) increase in cash (318,483) 185,148 95,458
Cash at beginning of period 318,783 133,635 38,177
----------- ----------- -----------
Cash at end of period $ 300 $ 318,783 $ 133,635
=========== =========== ===========
Noncash investing and financing transactions:
Note payable converted to equity $ 3,088,307
Development services provided for payment of
stock subscription receivable $ 548,333 266,667
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
ATIO CORPORATION USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
DESCRIPTION OF BUSINESS
ATIO Corporation USA, Inc., (the "Company" or "ATIO USA"), formerly
Venturian Software Enterprises, Inc., provides customer contact
automation software under the trade name CyberCall. The Company has
provided high-technology information services in the Upper Midwest
as a value-added dealer of Magic(TM) software, providing primarily
consulting services and custom applications development.
Prior to October 1997, the Company was a 90 percent owned subsidiary
of Venturian Corp. ("Venturian"). Effective October 1, 1997, the
Company entered into a joint venture agreement with Venturian, Atio
Corporation (PTY) Ltd. ("Atio PTY") of South Africa, Atio
Corporation International, Inc. ("Atio International") and the
Company's minority shareholder and president, Ilan Sharon
("Sharon"), whereby Atio International acquired a 50 percent
interest in the Company through funding provided by Atio PTY.
As a result of this agreement, Atio International owns a 50 percent
non-controlling interest, Venturian owns 45 percent and Sharon owns
5 percent of the Company. The Company changed its name to ATIO
Corporation USA, Inc. upon completion of the transaction.
ABILITY TO CONTINUE AS A GOING CONCERN
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. The Company has
incurred accumulated losses since inception totaling $8,307,667 and,
to date, the research, development, sales and marketing and other
business operations of the Company have been funded primarily
through the private sale of the Company's securities and advances
from affiliates. The future of the Company is dependent upon its
ability to raise additional capital to fund its sales and marketing
efforts and the continued development of its products. The Company
is currently seeking additional sources of financing to fund its
operations through a private placement. See Note 11 for certain
financing related subsequent events.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ
from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. The Company monitors its customers' financial condition
to minimize its risks associated with trade accounts receivable, but
generally does not require collateral from its customers.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of short-term trade
receivables and payables for which current carrying amounts are
equal to or approximate fair market value. Additionally, interest
rates on outstanding debt are at rates which approximate market
rates for debt with similar terms and maturities.
<PAGE>
ATIO CORPORATION USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
determined for financial reporting purposes using the straight-line
method over the estimated useful lives (three to ten years) of the
assets and for tax purposes using accelerated methods. Upon sale or
retirement of property and equipment, the related cost and
accumulated depreciation or amortization are removed from the
accounts and any gain or loss is included in operations. Leasehold
improvements are amortized over the shorter of their useful life or
the lease term.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed as incurred.
SOFTWARE DEVELOPMENT COSTS
Costs incurred internally in creating computer software are charged
to expense when incurred. Technological feasibility is established
upon completion of a working model. No costs have been capitalized
pursuant to Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," since the period between achieving
technological feasibility and completion of such software is
relatively short and software development costs qualifying for
capitalization have been insignificant.
REVENUE RECOGNITION
Revenue on software sales is recognized upon shipment, if no
significant vendor obligations remain and collection is probable.
Revenue from maintenance contracts is recognized on a straight-line
basis over the contract period which is typically twelve months.
Other service revenues, such as training and consulting, are
recognized when services are performed.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recorded based on
differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes using
enacted tax rates in effect for the years in which the differences
are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
3. JOINT VENTURE AGREEMENT
Effective October 1, 1997, the Company entered into a joint venture
agreement. Pursuant to the terms of the joint venture agreement, the
Company issued 2,000,000 shares of its common stock to Atio
International in exchange for $3,500,000 and a royalty-free license
with respect to Atio International's AtioCall products. The joint
venture agreement provides for the $3,500,000 to be provided in cash
and development services by Atio PTY, on behalf of Atio
International, due in various installment payments with the final
payment made in August 1998.
<PAGE>
ATIO CORPORATION USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
There were additional agreements entered into in connection with the
joint venture agreement as follows:
TECHNOLOGY AND LICENSE AGREEMENT
The Technology and License Agreement (the "License Agreement"),
among other things, provides (i) the Company with a worldwide
exclusive right to Atio International's AtioCall products, (ii) for
the transfer of the AtioCall product rights to the Company, subject
to certain conditions, no later than December 31, 1999, (iii) that
Atio PTY furnish certain development services to the Company in
connection with this exclusive right, and (iv) that $800,000 of the
amount owed by Atio PTY for the purchase of the Company's common
stock be paid by providing development services to the Company.
TECHNOLOGY DEVELOPMENT AND SUPPORT AGREEMENT
The Technology Development and Support Agreement (the "Development
Agreement"), among other things, provides for Atio PTY to perform
such product development services as to which the Company and Atio
PTY mutually agree. The Company is required to purchase development
services exclusively from Atio PTY until March 1, 1999; thereafter,
the Company may purchase such services from any source. Compensation
for the development and support service is based upon annual budgets
mutually agreed to by Atio PTY and the Company. Atio PTY provided
development services to the Company of $548,333 and $266,667 during
1998 and 1997, respectively, which were paid for through an offset
to the stock subscription receivable. The Development Agreement also
provides for additional compensation to Atio PTY of five percent of
the Company's gross profit from the licensing of AtioCall products
for the period from September 1, 1998 through August 31, 2000. As of
December 31, 1998, $15,200 was owed to Atio PTY relating to the
licensing of AtioCall products.
SHAREHOLDERS' AGREEMENT
The Shareholders' Agreement (the "Shareholders' Agreement"), among
other things, sets forth (i) various terms and restrictions for the
transfer of any of the Company's shares of common stock, (ii)
certain matters with respect to the governance of the Company, and
(iii) the Company's responsibility to redeem Sharon's shares of
common stock upon his termination or death, at a price as defined in
the Shareholders' Agreement. The Shareholders' Agreement provides
rights including capital call requirements and Venturian's ability
to merge the Company with Atio International.
The principal terms of the Shareholders' Agreement shall terminate
immediately if a registration statement filed by the Company in
connection with the sale of its common shares is declared effective
by the Securities and Exchange Commission and the sale of common
shares is consummated.
During 1997, 200,000 shares of the Company's common stock were
reclassified to redeemable common stock, based upon the Company's
responsibility to redeem those shares.
DISTRIBUTION AGREEMENT
The Distribution Agreement (the "Distribution Agreement") provides
for Atio International to have exclusive distribution rights outside
of North America for the Company's CyberCall products.
<PAGE>
ATIO CORPORATION USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SERVICES AGREEMENT
Pursuant to the terms of the Services Agreement (the "Services
Agreement"), Atio International is to provide the Company with
certain general and product development services, as defined for
$29,708 per month plus quarterly and annual incentive payments, as
defined.
The term of the Services Agreement is for four years and may be
renewed for successive one year periods. The Services Agreement may
be terminated by the Company prior to that time upon written notice
and may result in 12 months of additional payments upon termination.
4. EMPLOYEE BENEFIT PLANS
Effective January 1, 1998, the Company adopted a defined
contribution plan (the "Plan") which covers all full time employees
who are over the age of 21 and have been employed by the Company for
three consecutive months. The Company matches 50% of the first 4% of
the employee's contributions. During 1998, the Company contributed
$13,334 to the Plan.
Through December 31, 1997, the Company participated in a defined
contribution plan (the "Venturian Plan") sponsored by Venturian.
Substantially all employees were eligible to participate in the
Venturian Plan after completing at least one year of service as
defined by the Venturian Plan. Matching contributions were at the
discretion of Venturian management.
5. LEASE COMMITMENTS
The Company's operations are conducted in a leased facility under an
agreement expiring in July 2000. In addition, the Company also
leases certain office equipment under operating leases. Rent expense
was $316,371, $41,869 and $15,787 (unaudited) for the years ended
December 31, 1998, 1997 and 1996, respectively.
Future minimum lease payments under operating leases are as follows:
YEAR ENDED DECEMBER 31,
1999 $ 295,041
2000 188,752
2001 42,335
2002 3,476
6. INCOME TAXES
As of December 31, 1998, the Company has approximately $5,950,000 of
net operating loss carryforwards ("NOL") for federal income tax
purposes. The net operating loss carryforwards are generally
available to offset future taxable income and begin to expire in the
year 2012. Utilization of these net operating loss carryforwards in
the future by the Company may be limited or deferred subject to
Section 382 of the Internal Revenue Code. No future tax benefit for
such carryforwards or other temporary differences has been recorded
as a deferred tax asset since utilization of such benefits is not
presently deemed by management to be more likely than not, based on
the weight of available evidence.
<PAGE>
ATIO CORPORATION USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. STOCK OPTIONS
In November 1996, the Company's board of directors and shareholders
adopted the 1996 Stock Option Plan (the "1996 Plan") which provides
participating employees the right to purchase common stock of the
Company through incentive and non-qualified stock options. A total
of 950,000 shares of common stock are reserved for issuance under
the plan.
Under the 1996 Plan, incentive stock options should be granted at
the fair market value of the common shares on the date of the grant.
The option term is fixed at the date of grant and may not exceed ten
years from the date the option is granted. Options become
exercisable in installments over three years.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 171,250 $1.12 100,000 $1.00
Granted 878,950 1.25 90,000 1.22 100,000 $1.00
Forfeited (258,450) 1.13 (18,750) 1.00
-------- -------- --------
Outstanding at end
of year 791,750 1.23 171,250 1.12 100,000 $1.00
======== ======== ========
Options exercisable
at end of year 50,000 1.00 76,250 $1.00 --
======== ======== ========
Weighted-average
fair value of
options granted
during the year $ .49 $1.13 $ .92
</TABLE>
The following summarizes information about stock options outstanding
as of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- -----------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$1.00 50,000 8 years $1.00 50,000 $1.00
$1.25 741,750 9.7 years $1.25
-------
791,750
=======
</TABLE>
<PAGE>
ATIO CORPORATION USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the purpose of applying the fair value method as prescribed by
SFAS No. 123, the Company used the following weighted average
assumptions for grants in 1998; dividend yield of 0%, expected
volatility of 0%, a risk-free interest rate of 5.50% based on quoted
U.S. Treasury rates on the date of the related option grants, and an
expected life of 7 years.
During 1997 and 1996, the Company's majority shareholder, Venturian
Corp., was a publicly-held company. Therefore, during 1997 and 1996,
the fair value of each option was estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions
for grants: dividend yield 0%, expected volatility of 200%,
risk-free interest rate of 6.37% and 5.67%, respectively, and an
expected life of 3 years.
STOCK-BASED COMPENSATION
In accordance with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the
Company has elected to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations ("APB Opinion No. 25"). Accordingly,
compensation cost for stock options granted to employees is measured
as the excess, if any, of the fair value of the Company's stock at
the date of the grant over the amount an employee must pay to
acquire the stock. Compensation expense recognized for stock options
granted to employees with an exercise price below fair market value
at the date of grant was $19,063 during 1998.
As permitted by SFAS No. 123, the Company applies APB Opinion No. 25
and related interpretations in accounting for its stock option plans
and, accordingly, does not recognize compensation expense related
thereto. If the Company had elected to recognize compensation
expense based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, the Company's net loss would have
been as follows
1998 1997 1996
(UNAUDITED)
Net loss as reported $ (4,168,817) $ (3,272,324) $ (525,164)
Net loss pro forma (4,277,281) (3,344,944) (529,258)
8. BANK OVERDRAFTS
As of December 31, 1998, the Company had $38,938 of bank overdrafts
on its cash accounts. This amount is included in accounts payable.
<PAGE>
ATIO CORPORATION USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. MAJOR CUSTOMERS
The Company had the following customers that accounted for more than
10% of the Company's revenue:
1998 1997 1996
CUSTOMER REVENUE REVENUE REVENUE
(UNAUDITED)
A $ 182,600 $ 197,088
B 317,771 $ 377,079
C 103,662 221,470
D 89,928
E Related party 127,722
10. RELATED PARTY TRANSACTIONS
DUE TO AFFILIATE
Pursuant to the Services Agreement, the Company owed Atio
International $23,248 and $51,364 for certain general services
performed during the years ended December 31, 1998 and 1997,
respectively.
In connection with the joint venture agreement, during 1997
Venturian made a capital contribution of $3,088,307 to the Company
through the conversion of amounts owed to Venturian. In addition,
the Company received advances from Venturian for working capital
needs. As of December 31, 1997, advances of $85,661 were payable to
Venturian. The Company was charged interest at the prime rate
(effective rate of 8.5% as of December 31, 1997) on advances
received during 1997. Interest expense of $56,691 was recorded by
the Company for the year ended December 31, 1997. The amount due to
Venturian of $85,661 was paid in full during 1998.
NOTE PAYABLE - AFFILIATE
During 1998, the Company received advances totaling $1,761,672 from
Atio International for working capital needs. Pursuant to record of
action dated October 8, 1998, Atio International has the option to
demand repayment of the loan or to convert the loan into shares of
the Company's common stock on the basis of $1.25 per share. This
option is exercisable within 12 months from September 30, 1998.
Repayment would include interest calculated at U.S. prime interest
rate. The Company has accrued interest expense of $50,000 calculated
at an average interest rate of 8.25%.
OTHER TRANSACTIONS
Effective October 1, 1997, Atio International acquired a 50 percent
non-controlling interest in the Company through funding provided by
Atio PTY. During 1998, the Company had sales transactions, totaling
$127,722, with Atio PTY which occurred in accordance with the
Distribution Agreement.
<PAGE>
ATIO CORPORATION USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS
FACTORED ACCOUNTS RECEIVABLE
On January 7, 1999, the Company factored, with recourse, their
accounts receivable balance through Silicon Valley Financial
Services. The amount factored included a significant portion of the
December 31, 1998 accounts receivable balance. This financing
arrangement was terminated during March 1999 at an immaterial cost
to the Company.
BRIDGE LOAN
The Company obtained a bridge loan dated March 12, 1999. The total
maximum borrowing amount is $1,000,000 and is available subject to
an interim drawdown schedule of $550,000 available immediately and
increasing by $150,000 in each of the three succeeding months. The
loan is collateralized by a first secured interest in all the
Company's tangible and intangible assets currently owned or
hereinafter acquired. Interest on the principal accrues at 12.875%
and is payable monthly. The principal amount plus any accrued
interest is due on August 30, 1999. On May 31, 1999, the loan
balance was $850,000. Warrants were issued to the lender to purchase
100,000 shares of the Company's common stock at an exercise price of
$0.01 per warrant share. The warrants will be exercisable for a
period of seven years.
On June 3, 1999, the Company entered into a Loan Restructure
Agreement with the lender. The lender has agreed to extend the time
period for the private placement from June 1, 1999 to July 15, 1999,
advance the final $150,000 on June 3, 1999 pursuant to the original
bridge loan agreement, and to advance up to an additional $350,000
on or after June 7, 1999 for a maximum borrowing of $1,350,000.
Pursuant to the Loan Restructure Agreement, the Company has agreed
to exchange the original warrants exercisable for 100,000 shares of
common stock for new warrants exercisable for shares equal to 2.5%
of the outstanding common stock on a fully diluted basis at the time
of issuance at an exercise price of $0.01 per warrant share. In the
event of a default, the conversion amount of common stock
exercisable pursuant to the new warrants shall increase by 20% for
each period of 30 days that the Company is in default. In addition,
the Company has agreed to issue additional warrants exercisable for
shares equal to 3.2025% of the outstanding common stock on a fully
diluted basis at the time of issuance at an exercise price of $0.01
per warrant share.
PRIVATE EQUITY FINANCING
The Company has negotiated a private equity financing through an
investment banker to assist the Company, as an agent, in raising up
to $10 million of equity capital (the "Financing"), on a
best-efforts basis. The investment banker advised the Company that
it would not proceed with the Financing unless (i) all of the
intellectual property rights for the CyberCall product (the
"Product") are owned by ATIO, USA, (ii) all of the worldwide product
distribution and trademark rights for the Product are held by ATIO
USA, (iii) all of the capital stock of the Company held by Venturian
Corporation is repurchased, (iv) ATIO USA employs development staff
adequate to maintain and expand the Product, and (v) Willem Ellis
becomes a direct shareholder in the Company.
<PAGE>
ATIO CORPORATION USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Pursuant to the Financing, the Company entered into a purchase and
sale agreement with Venturian in February 1999. In this agreement,
ATIO USA agreed to purchase all 1,800,000 shares of common stock of
ATIO USA held by Venturian at a purchase price of $1,000,000 and
warrants to purchase shares of securities issued in the financing
equivalent to 300,000 shares of common stock, subject to the Company
raising $5 million dollars of equity in a private placement on or
before September 30, 1999. These warrants have a five year exercise
period. Also pursuant to the Financing, the Company agreed to issue
1,200,000 shares of its common stock in exchange for the
indebtedness due Atio International.
Under a restructuring agreement dated February 4, 1999, Atio PTY
agreed that immediately after the repurchase of Venturian's shares,
to vote for a restructuring of Atio International and ATIO USA that
would cause Willem Ellis to become a direct shareholder, cause all
of the intellectual property rights in and to the Products to be
fully vested in ATIO USA, and to terminate any distribution rights
reserved for Atio International so that all of the worldwide
distribution rights vest in ATIO USA.
Finally, the parties agreed that it would be in the best business
interest of ATIO USA to employ the CyberCall product development
team, consisting of sixteen individuals currently housed in South
Africa, after the restructuring.
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of ATIO Corporation USA Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations, of shareholders' deficit and of cash flows present fairly, in all
material respects, the financial position of ATIO Corporation USA Inc. at
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from operations
and has a shareholders' deficit that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ PRICEWATERHOUSECOOPERS LLP
April 9, 1999, except for Note 11
as to which the date is June 3, 1999
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Atio Corporation USA, Inc.
We have audited the accompanying balance sheet of Atio Corporation
USA, Inc. (a Minnesota corporation) as of December 31, 1997, and the related
statements of operations, shareholders' deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Atio Corporation
USA, Inc. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company has incurred accumulated losses since inception of
$4,138,850 and losses are expected to continue through the sales and marketing
efforts and further development of its products. These factors, among others, as
discussed in the footnotes, raise substantial doubt about the Company's ability
to continue as a going concern. As indicated in the footnotes, the Company is
continuing its efforts to raise the additional funds required to carry on its
activities. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/GRANT THORNTON LLP
Minneapolis, Minnesota
February 20, 1998
