<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 2-93477-D
I-STORM, INC.
(FORMERLY DIGITAL POWER HOLDING COMPANY)
(Exact name of small business issuer as specified in its charter)
NEVADA 87-040127
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2440 WEST EL CAMINO REAL, SUITE 520, MOUNTAIN VIEW, CALIFORNIA 94040-1400
(Address of principal executive offices)
(650) 962-5420
(Issuer's telephone number)
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 issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 31, 2000
- -------------------------------------------- -----------------------------
Common Stock, par value $0.01 6,175,912
Traditional Small Business Disclosure Format (Check One): Yes No X
----- -----
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
I-STORM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 95 $ 140
Accounts receivable, net of allowance for doubtful accounts of $31 and
$31, respectively 4 87
Prepaid expenses and other current assets 51 71
-------------- --------------
Total current assets 150 298
Property and equipment, net 152 174
Other assets 35 35
Reorganization asset, net of amortization of $559 and $478, respectively 2,794 2,879
-------------- --------------
Total assets $ 3,131 $ 3,386
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 40 $ 40
Accounts payable 417 553
Accrued liabilities 1,192 994
-------------- --------------
Total current liabilities 1,649 1,587
-------------- --------------
Long-term notes payable 214 224
-------------- --------------
Shareholders' equity:
Preferred stock
Designated--500 shares; 82 and 0 shares outstanding, respectively 15 14
Common stock, $0.01 par value:
Authorized--25,000
Outstanding--6,170 and 6,061 shares, respectively 62 61
Subscribed warrants to purchase common stock 49 56
Additional paid-in capital 22,978 21,440
Deficit accumulated during the development stage (21,836) (20,246)
-------------- --------------
Total shareholders' equity 1,268 1,575
-------------- --------------
Total liabilities and shareholders' equity $ 3,131 $ 3,386
============== ==============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
I-STORM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
PERIOD FROM
THREE MONTHS INCEPTION (JULY THREE MONTHS
ENDED MARCH 17, 1998) TO ENDED
31, 2000 MARCH 31, 2000 MARCH 31, 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues $ 0 $ 1,582 $ 328
-------------- -------------- --------------
Costs and expenses:
Cost of revenues 0 1,458 368
Selling, general, and administrative 569 6,081 995
Research and development 709 3,483 -
Amortization of reorganization asset 85 564 78
Stock compensation expense - 496 -
-------------- -------------- --------------
Total operating expenses 1,363 12,082 1,441
-------------- -------------- --------------
Loss from operations (1,363) (10,500) (1,113)
Other income (expense), net (1) (281) (112)
-------------- -------------- --------------
Net loss and comprehensive loss $ (1,364) $ (10,781) $ (1,225)
-------------- -------------- --------------
Accretion/dividends related to convertible
preferred stock (226) (11,055) -
-------------- -------------- --------------
Net loss attributable to common stock $ (1,364) $ (21,836) $ (1,225)
-------------- -------------- --------------
Net loss per share:
Basic and diluted $ (.27) $ (3.83) $ (0.21)
============== ============== ==============
Shares used in computing net loss per share:
Basic and diluted 5,986 5,694 5,855
============== ============== ==============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
I-STORM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS PERIOD FROM INCEPTION THREE MONTHS
ENDED MARCH 31, (JULY 17, 1998) TO ENDED
2000 MARCH 31, 2000 MARCH 31, 1999
------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,364) $ (10,621) $ (1,225)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on disposal of fixed assets -- -- 29
Depreciation and amortization 107 721 104
Valuation of common stock issued for services -- 356 --
Cashless exercise of common stock -- 9 --
Stock compensation expense -- 246 --
Provision for bad debts -- 284 46
Changes in assets and liabilities:
Accounts receivable 83 187 87
Factored accounts receivable -- 120 --
Prepaid expenses and other assets 20 101 (60)
Reorganization asset -- (150) --
Accounts payable (136) (497) (659)
Deferred revenue -- 495 --
Accrued liabilities 198 763 88
------------------------------------------------------
Net cash used in operating activities (1,092) (7,986) (1,590)
------------------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets -- (192) (6)
------------------------------------------------------
Net cash used in investing activities -- (192) (6)
------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable -- 659 105
Repayment of notes payable (10) (1,308) (1,251)
Factoring liability, net -- (700) (848)
Payments on capital leases -- -- --
Proceeds from issuance of redeemable common stock 5,671
Proceeds from issuance of preferred stock, net 1,002 9,249 --
Payment on notes receivable from shareholders -- -- (8)
Proceeds from the exercise of options 10 22 --
Proceeds from the exercise of warrants 45 56 --
------------------------------------------------------
Net cash provided by financing activities 1,047 7,978 3,669
------------------------------------------------------
Net decrease in cash and cash equivalents (45) (200) 2,073
Cash and cash equivalents at beginning of period 140 295 5
------------------------------------------------------
Cash and cash equivalents at end of period $ 95 $ 95 $ 2,078
======================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Valuation of common stock related to debt financing $ -- $ 41 $ 10
======================================================
Valuation of warrants issued in conjunction with debt
financing $ -- $ 73 $ --
======================================================
Notes payable issued to secured creditors for pre-
petition claims and taxes $ -- $ 275 $ --
======================================================
Valuation of redeemable common stock $ -- $ 10,287 $ 600
======================================================
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
I-STORM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements included herein have
been prepared by I-Storm, Inc. ("I-Storm" or the "Company") without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations; however,
the Company believes that the disclosures are adequate to make the information
presented not misleading. The condensed consolidated financial statements
included herein should be read in conjunction with the financial statements and
the notes thereto included in the Company's Report on Form 10-KSB as of December
31, 1999.
In the opinion of Management, the accompanying interim financial
statements contain all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the consolidated financial condition, results of
operations, and changes in financial position of the Company for interim
periods. Certain amounts in the prior interim consolidated financial statements
have been reclassified to conform to the current period presentation.
1. DESCRIPTION OF THE COMPANY:
COMPANY FORMATION AND FINANCIAL REORGANIZATION
I-Storm is a full service online E-commerce business developer and
incubator specializing in the architecture, management and operation of
outsourced E-commerce and E-commerce channel solutions for Fortune 500 and
middle market companies. Headquartered in Silicon Valley, I-Storm launched the
I-Storm E-store strategy in May 1998, a joint venture program to finance,
design, develop, and operate electronic commerce storefronts in partnership with
brand-name consumer, business, financial and technology product companies.
I-Storm was created through the merger of LVL Communications
Corporation ("LVL") and Digital Acquisition Corporation, a wholly owned
subsidiary of Digital Power Holding Company ("Digital"), a Nevada public shell
corporation, on July 17, 1998, resulting in LVL becoming a wholly owned
subsidiary of Digital. Digital has been renamed "I-Storm, Inc." The merger was
accounted for as a reverse acquisition under the purchase method with LVL being
the surviving entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements
reflect the activities of I-Storm and its wholly-owned subsidiary after
elimination of all intercompany accounts and transactions.
AMORTIZATION OF REORGANIZATION ASSET
At July 17, 1998, the reorganization value of I-Storm in excess of its
net assets was determined to be $3,131,000. This intangible asset was classified
as a reorganization asset ("Reorganization Asset") in the accompanying
consolidated balance sheet of I-Storm and will be amortized on a straight-line
basis over ten years. Pursuant to Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code," the
Reorganization Asset was determined by discounting future cash flows for I-Storm
at rates reflecting the business and financial risks involved and it
approximates the amount a willing buyer would pay for the assets of the Company
immediately after the restructuring. The carrying value of the Reorganization
Asset will be reviewed periodically for impairment, and if the facts and
circumstances suggest that it may not be recoverable, as determined based on the
undiscounted cash flows of I-Storm over the remaining amortization period, the
carrying value of the Reorganization Asset will be adjusted in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." As of December 31, 1999, the
reorganization value, after accounting for amortization, was $2,879,000, and as
of March 31, 2000 was $2,794,000.
<PAGE>
I-STORM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company believes that its current
revenue recognition principles comply with SAB 101.
In March 2000, the FASB issued Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25" (Interpretation No. 44).
Interpretation No. 44 is effective July 1, 2000. The interpretation clarifies
the application of APB Opinion No. 25 for certain issues, specifically, (a) the
definition of an employee, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange or stock compensation awards in a business
combination. The Company does not anticipate that the adoption of Interpretation
No. 44 will have a material impact on its financial position or the results of
its operations.
3. EQUITY FUNDING
In January and March of 2000, I-Storm raised net proceeds of $1,000,000
in connection with the issuance of 81,633 shares of Series D Cumulative
Convertible Preferred Stock ("Series D") offered in a Regulation D private
placement at par value of $0.01 per share for an offering price of $12.25 per
share. The Series D shares shall pay a quarterly cumulative dividend at 9% per
annum, payable in cash or shares of Series D Preferred Stock at the option of
the Board of Directors and shall be convertible into common stock at a
conversion price of not greater than $3.50 per share and not less than $2.80 per
share.
<PAGE>
I-STORM, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
On March 23, 1998, LVL and its two wholly owned subsidiaries, LVL
Advertising, Inc. ("LVLA"), and LVL Interactive, Inc. ("LVLI"), filed a
voluntary petition in the United States Bankruptcy Court for the Northern
District of California ("Bankruptcy Court") seeking protection under Chapter 11
of the U.S. Bankruptcy Code. The Chapter 11 proceedings of the Companies were
jointly administered by the Bankruptcy Court. LVL and its subsidiaries operated
their business as debtors-in-possession, subject to Bankruptcy Court approval
for certain transactions, while they developed a reorganization plan to
restructure LVL. On April 16, 1998, the Bankruptcy Court confirmed the First
Amended Plan of Reorganization ("POR") which became effective on July 17, 1998.
The Chapter 11 proceedings significantly affected I-Storm's capital
structure, liquidity and capital resources. During 1998 and 1999, the Company's
operations generated substantial losses, and the Company has been operating at a
substantial loss in the first fiscal quarter of year 2000. I-Storm expects that
in the near term, it will continue to sustain losses from operations (before
giving effect to the non-cash charges that it will incur with respect to the
amortization of a $2.8 million bankruptcy Reorganization Asset over the next
ten years).
The Company is in the development stage, has yet to generate any
significant revenues and has no assurance of future revenues. The Company is
subject to the risks and challenges associated with other companies at a similar
stage of development, including: dependence on key individuals, successful
development, marketing and sales of products and services, and competition from
larger companies with greater financial, technical, management, marketing, and
sales resources; a limited operating history as a reorganized entity;
significant concentration of revenue from a few customers; highly competitive
markets with limited barriers to entry; and implementation of its E-Commence
partnership concept.
In order to achieve successful operations, the Company will require
additional capital to sustain and expand its business. I-Storm is currently
seeking additional equity financing and is seeking to list its stock on a
nationally-recognized exchange. There can be no assurance that I-Storm will be
able to obtain financing or that the terms of the financing will be favorable to
I-Storm. These factors raise substantial doubt about the ability of I-Storm to
continue as a going concern and about the ability of I-Storm to realize its
Reorganization Asset. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
RESULTS OF OPERATIONS
The Company's net loss for the quarter ended March 31, 2000 was
approximately $1,364,000, primarily due to operating losses compared to a loss
of $1,225,000 for the quarter ended March 31, 1999. The Company's operating loss
for the quarter ended March 31, 2000 was $1,363,000 as compared to an operating
loss of $1,113,000 for the quarter ended March 31, 1999. The increase in
operating loss of approximately $142,000 was caused primarily by a decline in
revenues. A decrease in operating expenses of approximately $78,000 for the
quarter ended March 31, 2000 as compared to the quarter ended March 31, 1999,
was due to staff reductions as the Company shifted from advertising to
E-commerce development. A decrease in other expenses for the first quarter of
2000 was due to a decrease in interest expenses of $108,000 from the first
quarter of 1999, when the Company reduced its debt.
<PAGE>
I-STORM, INC.
Revenues for the quarters ended March 31, 2000 and 1999 were $0 and
$328,000, respectively, a decrease of approximately $328,000 due to the change
in focus of the Company from generating advertising service revenue to seeking
financing for the newly-merged corporation and developing E-commerce
partnerships. Net loss for the quarter ended March 31, 2000 and for the quarter
ended March 31, 1999 were $0 and $40,000, or 0% and 12% of sales, respectively.
Operating expenses for the quarters ended March 31, 2000 and 1999 were
$1,363,000 and $1,441,000, respectively. The decrease in operating expenses of
approximately $78,000 from the period a year earlier was due to a reduction of
staff resulting from a shift from advertising services business to E-commerce
site development and to a reduction in leased facility costs due to the
relocation of the Company's corporate headquarters.
Interest expenses for the quarters ended March 31, 2000 and 1999 were
$3,000 and $108,000, respectively. As of March 31, 2000, the outstanding debt of
the Company consisted of $214,000 long term debt and current liabilities of
$1,649,000, for total liabilities of $1,863,000, primarily most of which is
classified as current. The decrease in interest expense resulted from the
Company's retirement of debt in fiscal year 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had current assets of $150,000 as
compared to $2,287,000 in March 31, 1999. The decrease in current assets was due
to the $4.4 million of capital raised from the Series B Cumulative Convertible
Preferred Stock sold in February of 1999.
As of March 31, 2000, the Company owed $214,000 in long term debt and
current notes payable totaling $40,000. The Company has paid off a Factoring
Agreement in place with a lender secured by the Company's accounts receivable
and other assets, with a factoring liability as of March 31, 2000 of $0, down
from $296,091 as of March 31, 1999. The Company is in compliance with all
material covenants of the Factoring Agreement as of March 31, 2000.
For the quarter ended March 31, 2000, net cash utilized by operations
was $1,092,000 compared to cash utilization of $1,590,000 for the quarter ended
March 31, 1999, primarily as a result of the Company's paying off $659,000 of
accounts payable in the first quarter of 1999 with the proceeds from the
issuance of the Series B Cumulative Convertible Preferred Stock.
FINANCING
For the quarter ended March 31, 2000, net cash provided by financing
activities was $1,002,000 compared to cash provision of $ 3,669,000 for the
quarter ended March 31, 1999. This was primarily a result of the February, 1999
Series B Cumulative Convertible Preferred Stock issuance which resulted in the
raise of $4,259,000 versus the $1,000,000 raised by the issuance of Series D
Cumulative Convertible Preferred Stock in the first quarter of the year 2000.
<PAGE>
I-STORM, INC.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2000
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The information and events reported in the Company's 1999 Form 10-KSB,
filed on April 14, 2000, and on the Company's Forms 8-K, filed on January 18,
2000 and March 20, 2000 are hereby incorporated by reference and should be read
in conjunction with this Form 10-QSB.
SALES OF UNREGISTERED STOCK
PRIVATE PLACEMENT OFFERING OF THE SERIES D PREFERRED STOCK
Computer Associates International, Inc. ("CA"), (NYSE: CA), and
I-Storm consummated a strategic alliance on January 14, 2000, whereby I-Storm
entered into a Series D Stock Purchase Agreement with CA. Under this Stock
Purchase Agreement, CA initially purchased 40,817 newly issued shares of I-Storm
Series D Cumulative Convertible Preferred Stock ("Series D Preferred Stock") at
a price of $12.25 per share, for an aggregate cash investment of $500,000. CA,
an accredited investor, made the purchase pursuant to the provisions of
Regulation D of the Securities Act of 1933. The Series D Preferred Stock is
subject to certain demand and piggy-back registration rights as set forth in the
I-Storm Series D Preferred Stock Registration Rights Agreement.
The Series D Preferred Stock is entitled to receive a quarterly
dividend of $0.28 (9% per annum) on February 15, May 15, August 15 and November
15, of each year, payable in cash or, at the option of the Company, in Series D
Preferred Stock of the Company, when and as declared by the Board of Directors.
The right of the Series D Preferred Stock to payment of either cash of Series D
preferred stock dividends is subordinate to the right to cash or stock dividend
payments of the Series A Preferred Stock, and then to the Series B Preferred
Stock; and is PARI PASSU with the right of the Series C Preferred Stock to cash
or stock dividend payments. The Series D Preferred Stock is convertible into
shares of the Company's Common Stock: (i) at the option of the holder, any time
after the purchase closing date, (ii) and by the Company four years after the
purchase closing date, into such number of shares of the Company's Common Stock
as shall equal $12.25 divided by the lower of (i) $3.50, or (ii) the closing bid
price for any five consecutive trading days during the period commencing eleven
months after the purchase closing and ending one month thereafter (the
"Conversion Price"), however, in no event shall the Conversion Price be reduced
below $2.80. The Conversion Price is also subject to further adjustment to
prevent dilution.
<PAGE>
I-STORM, INC.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2000
CA also has the option under the I-Storm Series D Stock Purchase
Agreement, to make up to three additional purchases of Series D Preferred Stock
in $500,000 increments, upon I-Storm's and CA's mutual approval of three
E-commerce partnership agreements. CA's total proposed investment in I-Storm is
a maximum of 163,268 shares of Series D Preferred Stock for an aggregate
purchase price of $2,000,000.
On March 20, 2000, CA made a second purchase of an additional 40,817
shares of I-Storm's Series D Preferred Stock for an additional $500,000, in
connection with a qualifying E-commerce partnership agreement proposal entered
into between I-Storm and Sheridan Reserve Incorporated d/b/a Nevadabobs.com.
ISSUANCE OF OPTIONS TO CONSULTANTS
Michael Rudolph entered into a consulting agreement to provide
executive financial and management services to the Company on January 7, 2000,
whereby he is entitled to receive hourly compensation of $125.00 per hour for
hours worked. Sixty-four percent of such aggregate compensation or $80.00 per
hour will be paid in cash and the remaining 36% of such aggregate compensation
will paid in the form of quarterly stock option grants of I-Storm's Common
Stock, valued at the average of the lowest monthly bid price for I-Storm's
common stock the quarter prior to grant. Mr. Rudolph's options, will be
immediately vested upon the approval of any such grant by the Board of
Directors. No options have been granted pursuant to the consulting agreements as
of March 31, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 13, 1999, a majority of the holders of I-Storm's Common
Stock executed a written consent in lieu of an annual meeting to approve the
establishment of the Company's 1998 B Stock Option Plan and to appoint the
following directors to the Board of Directors of I-Storm: Calbert Lai, Matthew
Howard, Warren Flick, Joseph Hoffman and Tommy Bennett. The Company mailed a
14-C Information Statement to all common stockholders of record on or about
February 2, 2000, and the 14-C Information Statement was also filed on February
2, 2000 with the SEC.
<PAGE>
ITEM 5. OTHER INFORMATION
I-STORM, INC.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2000
COMPUTER ASSOCIATES INTERNATIONAL, INC.
On January 14, 2000 I-Storm, Inc. and CA entered a strategic alliance
and stock purchase agreement designed to leverage the strengths of I-Storm's
E-commerce solution expertise and CA's Global Professional Services Group to
finance, build, and operate E-commerce storefronts for major corporations and
consumer brands. CA is world leader in mission-critical business computing,
provides software, support and integration services in more than 100 countries
around the world. CA has more than 17,500 employees and had revenue of $5.3
billion in fiscal year 1999.
Under the alliance, CA will provide I-Storm with enterprise software
development and systems integration services. I-Storm and CA will assemble a
joint business development team focused on deploying E-business solutions in the
business-to-consumer and business-to-business spaces. CA will also acquire one
of five seats on I-Storm's Board of Directors.
Pursuant to the I-Storm Series D Stock Purchase Agreement, CA has
initially purchased 40,817 newly issued shares of I-Storm Series D Cumulative
Convertible preferred Stock ("Series D Preferred Stock") at a price of $12.25
per share for a cash investment of $500,000. CA, an accredited investor, made
the purchase pursuant to the provisions of Regulation D of the 1933 Securities
Act. The Series D Preferred Stock is subject to certain demand and piggy-back
registration rights as set forth in the I-Storm Series D Preferred Stock
Registration Rights Agreement.
CA also has the option under the I-Storm Series D Stock Purchase
Agreement, to make up to three additional purchases of Series D Preferred Stock
in $500,000 increments, upon I-Storm's and CA's mutual approval of three
E-commerce partnership agreements. CA's total proposed investment in I-Storm is
a maximum of 163,268 shares of Series D Preferred Stock for an aggregate
purchase price of $2,000,000.
On March 20, 2000, CA made a second purchase of an additional 40, 817
shares of I-Storm's Series D Preferred Stock for and additional $500,000, in
connection with a qualifying E-commerce partnership agreement proposal entered
into between I-Storm and Sheridan Reserve Incorporated d/b/a Nevadabobs.com.
I-Storm and CA have also entered into a Professional Services Agreement
for CA to provide a minimum of $800,000 of professional services during the
period commencing August 1, 1999 through December 31, 2001, and a License
Agreement to provide CA software products during the same time period.
<PAGE>
I-STORM, INC.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2000
NEVADABOBS.COM E-PARTNERSHIP
On March 20, 2000, I-Storm entered into a Professional Services
Agreement with Sheridan Reserve Incorporated d/b/a Nevadabobs.com, Inc.
("Sheridan") to build and operate "Nevadabobs.com," the dot.com spinoff of
Nevada Bob's Golf, Inc., a worldwide specialty golf retailer. Under the
Professional Services Agreement, I-Storm will provide the technical architecture
and platform for Nevadabob.com's e-store site and will also provide development
and implementation services for the site.
In connection with this transaction, I-Storm entered into a
subscription agreement with Sheridan to purchase up to 1,350,000 shares, or
7.94% of Sheridan's outstanding common stock at a price of $2.25 Canadian
dollars per share. It is anticipated that the proceeds of Sheridan's payments
for I-Storm's professional services will be used for this purchase of Sheridan's
common stock. Sheridan's common stock currently trades on the Canadian Dealing
Network (CDN:SHRI) exchange.
DECLARATION OF DIVIDENDS ON SERIES B AND C PREFERRED STOCK
At the Board's annual meeting of March 23, 2000, the Board approved the
declaration of quarterly dividends, as of February 15, 2000, on a 9% annual
basis upon the Company's outstanding shares of Series B and Series C Preferred
Stock, in shares of Series B and Series C Preferred Stock, respectively.
COMPENSATION ACTIONS
At the March 23, 2000 Board meeting, the Board also approved certain
compensation actions as follows:
DAVID BEACH - VICE PRESIDENT OF TECHNOLOGY
The Board approved an increase in salary for David Beach from $125,000
to $175,000, and approved a grant to increase the number of Common Stock Options
held by 250,000 options, such new options being exercisable at $2.50 per share.
Mr. Beach shall now hold a total of 400,000 options. These options will vest
ratably over 36 months, subject to certain acceleration provisions, for every
E-commerce site that becomes operational, Mr. Beach will at such time receive a
$20,000 cash bonus, and 20,000 of his options will immediately vest.
RICHARD LIN - VICE PRESIDENT OF SALES
The Board approved a grant of an additional 50,000 Common Stock
options, exercisable at $2.50 per share, to Mr. Lin, bringing the total number
of Mr. Lin's options to 200,000 options.
<PAGE>
I-STORM, INC.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2000
Such options shall vest ratably over 36 months subject to acceleration
provisions; upon an execution of each future definitive agreement for the
Company to develop an E-commerce partnership, 15,000 of Mr. Lin's unvested
purchase options shall immediately vest, and Mr. Lin shall also receive a
$15,000 cash bonus. Further, the Board agreed to lift a current maximum cap on
Mr. Lin's bonus structure, so his bonus shall be performance and
commission-based, rather than discretionary.
JEFFREY HO - CONTROLLER
The Board agreed to increase Mr. Ho's salary to $90,000, commencing
April 1, 2000, and to increase the number of his Common Stock options to 125,000
options from 100,000 options. The additional 25,000 options will be exercisable
at $2.50 per share and shall ratably vest over 36 months.
The Board also acknowledged the departures in January and February,
respectively, of Gordon Leong, former Operations Chief Financial Officer, and
Irfan Salim, Acting Chief Operating Officer.
REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on January 19, 2000 to report
the CA transaction, as also detailed in this 10-Q Report. The Company also filed
an 8-K report on February 22, 2000 to reflect the appointment of a new board of
directors and the approval of the Company's 1998 B-Plan by the written consent
of a majority of the Company's shareholders. The company also filed a Form 8-K
on March 28, 2000 to report a transaction with Sheridan, as also detailed in
this 10-Q Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
Date: May 24, 2000 I-STORM, INC.
By: /s/ Calbert Lai
-------------------------------------
Calbert Lai, President
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