FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year ended December 31, 1997
Commission File Number 0-13338
INFOAMERICA, INC.
Colorado 84-0853869
(State or other juris- (IRS Employer
diction of incorpora- Identification No.)
tion or organization)
2600 Canton Court
Suite G
Fort Collins, Colorado 80525
(970) 221-5599
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and, (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]_
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not 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.[X]
Issuer's revenues for fiscal year 1997 were $495,602. The aggregate market
value of the Registrant's voting stock held as of December 31, 1997 by
nonaffiliates of the Registrant was $0.00.
As of December 31, 1997, Registrant had 3,405,731 shares of its $0.025 par
value common stock issued and outstanding. An additional 256,199 shares have
been authorized but not issued as of December 31, 1997. After issuing these
256,199 shares, the number of outstanding shares will total 3,661,930.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business. InfoAmerica, Inc. ("Company") was
incorporated under the laws of the state of Colorado on June 9, 1981. The
Company operated as a Colorado general partnership from October, 1980 until its
incorporation.
Prior to 1986, the Company provided a unique advertising medium targeted at
travelers, tourists and conventioneers. From 1986 to 1989 the Company focused
almost exclusively on the financial institution marketplace and made its
software compatible with hardware available from major automated teller machine
(ATM) vendors. Since 1990, the Company has devoted part of its resources to
software consulting and the balance to the development and marketing of a
product for the fast-food industry.
(b) Financial Information About Industry Segments. Since inception the
Company's revenues, operating profits and losses and identifiable assets have
been attributable to one industry segment-the production, marketing, consulting
and operation of touchscreen, interactive video information systems and
software.
(c) Narrative Description of Business. The Company's primary business has
been the licensing of software to operate touch sensitive computer systems
targeted for the fast food industry.
(i) Product, Marketing and Sales.
Product
General. The current version of the Company's DOS based software has been
designated as Touchware-4.0. The Touchware-4.0 software activates a Point of
Sale (POS) terminal for use by either a clerk or a customer when a user touches
the video monitor. Once a touch is made, the video monitor displays several
options the user can select from, called a "menu". Using a menu type approach,
the user can view and select from a series of displays on the monitor. This
allows users to move quickly from general categories to the specific information
being sought. This process, from general to specific, is accomplished by a
series of well organized menus controlled by the Touchware-4.0 software. The
Touchware-4.0 software permits a user to have easy access to computer-based
information as well as place orders in a retail environment. The Company
believes that its software, coupled with touchscreen, color graphics based
hardware, is simple to use and is considered "user friendly".
Benefits of the System. The Company believes that its software executing on
a POS or Customer Activated Terminal (CAT) allows fastfood clerks and customers
to place their orders more accurately and faster compared to more traditional
ordering methods. Additionally, with increases in the minimum wage, employee
health care costs and difficulty in hiring qualified personnel, fast-food
operators are searching for methods to improve the productivity of an
increasingly expensive labor supply.
CATs, in particular, seem to offer the benefit of handling the same or more
customers without adding additional labor. Also, the CAT has provided the
following benefits to fast-food operators: 1) improved customer satisfaction,
and 2) perceived faster speed of service.
Marketing and Sales
The Company developed the Touchware-4.0 software product to satisfy the
needs of the fast-food industry. The Company has been marketing products
directly to major chain fast food accounts. The Company's continued success will
depend on its ability to market the Touchware-4.0 software to the fast-food
industry. As of December 31, 1997, the Company has installations and pilots in
progress within the fast-food industry. There is no assurance that the Company
will be successful with its fastfood products nor that it will be able to
successfully market these products to the fastfood industry.
Additionally, the Company has not had the financial resources required to
either develop and/or port the Touchware-4.0 product to the Windows operating
system from DOS. The inability to offer a Windows product is beginning to have a
significantly negative impact on the Company's sales and marketing efforts as
well as the ability to attract talented software engineers. Without development
of a Windows based product, the Company's future is uncertain.
Exclusive Licensees.
In May, 1993, the Company signed an exclusive licensing agreement with a
major fast food chain to provide the Touchware350 product(earlier version of
Touchware 4.0). This exclusive license lapsed on January 1, 1994.
Other Marketing Arrangements.
(i) Status of Product. As of December 31, 1997, the Company continues
to pilot and develop the Touchware-4.0 software product for the fast-food
industry.
(ii) Raw Materials. Not applicable.
(iii) Patents, Trademarks and Licenses. The Company filed a patent
application for its Touchware 350 software technology during 1995. The Company
has registered its trade names and service mark with the U.S. Patent and
Trademark Office.
The Company has received copyrights on its Touchware-200 and 300 software
products from the U.S. Copyright Office.
(iv) Seasonality. The Company's business is not seasonal in nature.
(v) Working Capital Items. The nature of the Company's business does
not require that it carry significant amounts of inventory or that it be
prepared to meet rapid delivery require ments of customers or that it provide
extended payment terms to customers; and, therefore, such considerations do not
mandate that the Company maintain a significant working capital position.
(vi) Customer Dependence. In 1997, the Company received 99% of its
total revenue from two customers.
(vii) Backlog of Orders. The Company has no backlog of orders.
(viii) Government Contracts. No portion of the business of the
Company is subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the government.
(ix) Competition. Many companies compete in the POS business although
few compete in the CAT business. The Company expects that a number of
competitors will be entering the CAT business in the next several years. Most of
the competitors have much greater financial, marketing and technical resources
than the Company. Other CAT competitors are expected to enter the business and
compete directly with the Company as the potential size of the fast-food
customer activated terminal market is realized. The business of the Company is
relatively easy to enter with few barriers to entry. Although the Company
considers that its CAT software operates the computer system more efficiently
than software otherwise presently available, there is generally available other
software which permits operation of computers using touch sensitive video
screens. Therefore, it is probable that other companies will enter the business.
The Company's ability to compete effectively against new entrants will
depend on its ability to capitalize on its experience, current reputation,
existing software and customer base. It is imperative that the Company develop a
Windows based version of its Touchware-4.0 software to remain competitive in the
market.
(xi) Research and Development. Product enhancements were created in
response to customer requests and are not classified as Research and
Development.
(xii) Environmental Regulations. Since its inception, the Company has
not made any material capital expenditures for environmental control facilities
and the Company does not expect to make any such expenditures during the current
or forthcoming fiscal year.
(xiii) Employees. On December 31, 1997, the Company employed four
persons on a full-time basis including its two corporate officers. The Company
also utilizes, on a part-time basis, approximately 10 technical and management
consultants who work with the Company on an as needed basis.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales. The Company is not engaged in material operations in foreign countries
and no material portion of sales is derived from customers of foreign countries.
ITEM 2. PROPERTIES
Since September 1985, the Company has leased approximately 2,000 square
feet of office space in Fort Collins, Colorado under a lease that expires
November 1, 1999. The current monthly lease payment is $1,572.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information. On March 15, 1985 the Company completed a public
offering of 160,000,000 shares of its common stock (on a reverse split basis,
the shares offered were 640,000. The common stock Company's common stock did
not trade between 1987 and February 1998. In February 1998 the Company's common
stock was listed for trading on the NASD's OTC Bulletin Board under the symbol:
IFOA.
(b) Holders. As of December 31, 1997, the Company had approximately 982
shareholders of record.
(c) Dividends. The Company has not declared cash dividends on its common
stock since its inception. The Company does not anticipate paying dividends in
the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following is selected financial information concerning the Company.
This information should be read in conjunction with the financial statements
appearing elsewhere herein.
Year Ended December 31,
1997 1996 1995
---- ---- ----
Revenues $495,602 $732,345 $479,366
Income(loss) (1,997) 31,305 (128,119)
Income (loss)
per common share * .01 (.04)
Total assets $166,026 $159,208 $145,851
Long-term
obligations $81,838 $50,000 $50,000
Working capital
(deficit) $(145,861) $(130,052) $(159,916)
* Less than $.01 per share.
<PAGE>
Liquidity and Capital Resources.
General.
In 1990, the Company began developing a software product specifically
targeted for the fast-food industry. The Company's financial success in 1998 and
beyond will depend on its ability to continue development of this product,
Touchware-4.0, and customer acceptance.
During 1996, the Company began development work on a new product for a
major fast food chain. The arrangement with this customer involves a combination
of development and licensing fees. The development fees from this customer
allowed the Company to operate during 1996 and 1997.
The Company is continuing to pursue other chain business. There is no
assurance that the Company will be successful in negotiating additional chain
agreements in order to sustain operations after the conclusion of this
development work.
During 1992 and 1993, the Company raised $15,000 in the form of long term
convertible debt to help finance operations. The lenders loaned the Company a
total of $15,000 in return for the right to either (a) convert the debt into
63,000 shares of the Company's outstanding common stock (which number of shares
shall be increased by an amount equal to 1% of all the Company shares purchased
by officers or directors of the Company by exercising existing stock options
before conversion of the Note) or (b) convert the debt into 31,500 shares of the
Company's outstanding common stock (which number of shares shall be increased by
an amount equal to 1% of all the Company shares purchased by officers or
directors of the Company by exercising existing stock options before conversion
of the Note) and receive $25,000 in cash. Although the Company is hopeful that
fund raising/revenue generating strategies will be successful, there is no
assurance that success will be achieved.
In September 1996 the Company entered into a two year consulting agreement
with a nonaffiliated entity. Under the agreement the consultant was to provide
advice and assistance to the Company in connection with identifying, qualifying
and negotiating with candidates for a merger with the Company for the purpose of
restructuring the Company's capitalization, initiating and expanding public
trading and improving shareholder liquidity with the goal of assisting the
Company to raise shareholder values. As compensation to the advisor, the Company
was to issue options to purchase up to 300,000 shares of the Company's common
stock at various prices, and warrants to purchase up to 1% of the outstanding
common stock. The Company's obligation to the consultant was intended to be
subject to completion of acceptable transactions. The consultant brought one
potential acquisition or merger candidate to the attention of the Company which
the Company and the consultant concluded would be unacceptable. The consultant
did not provide additional advisory services to the Company and the Company
considers that obligations of the Company under the agreement have terminated
due to nonperformance by the consultant. Certain ambiguities in the agreement
could be subject to other interpretation, although the Company would vigorously
contest any assertion by the consultant that compensation is owed under the
agreement.
1997 Review
During 1997, the Company continued to devote its efforts to developing and
piloting its POS and CAT products for the fast food industry. The Company's
working capital position should be stable during 1998 resulting primarily from
ongoing product development and support contracts.
1996 Review
During 1996, the Company devoted its efforts to developing and piloting its
POS and CAT products for the fast food industry. The Company's working capital
position was stable during 1996 resulting primarily from ongoing product
development and support contracts.
Capital Resources. As of December 31, 1997, the Company had no capital
commitments.
Results of Operations
1997 Compared to 1996
Revenues. Total revenues of $495,602 for 1997 decreased 32% from 1996
levels due exclusively to a major development contract with a major fast food
company that was 70% completed in 1996. This development contract was totally
completed by the end of 1997.
Expenses. Total expenses including interest decreased 29% from 1996 levels
due to the reduction of outside consulting services needed to complete the
development project described above.
1996 Compared to 1995
Revenues. Total revenues of $732,345 for 1997 increased 53% from 1995
levels due to major development contracts with a major fast food company.
Expenses. Total expenses excluding interest increased 15% from 1995 levels
due to increased use of outside consulting services.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements attached to and made a part of this report.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors.
The name, position with the Company and the age of each officer and
director, and the period during which each officer and director has served are
as follows:
Name and Position Director
__________________ Age Since__
Paul F. Knight 50 1981
(President, Treasurer and
Director)
Larry J. Salmen 50 1981
(Vice President, Secretary
and a Director)
Michael J. Scanlan 57 1984
(Director)
The executive officers of the Company are elected at the first meeting of
the Company's Board of Directors held after each shareholder meeting. Each
executive officer holds office until his successor is duly elected and
qualified, until his resignation or until he is removed in the manner provided
by the Company's Bylaws. The term of office of each director expires at the next
annual meeting of shareholders.
The following is a brief account of the business experience during the past
five years of each director and executive officer:
Principal Occupation
Name During the Last Five Years
Paul F. Knight Chairman of the Board and Treasurer of
the Company since July 1986; President, Chief Executive
Officer and a director of the Company since
1981.
Larry J. Salmen Vice President and Secretary of the Company
since 1982; Director of the Company since 1981.
Michael J. Scanlan President and Chief Executive Officer
of SCANSCO Management Company, Inc. which acts as a
parttime Chief Executive Officer and/or Chief
Financial Officer for small entities, since
March 1991; Independent consultant as Scanlan
& Associates from October 1990 to February
1991. Director, and Executive Officer of Data
National, Inc., a consulting firm from March
23, 1987 to October, 1990. Owner of Scanlan
and Associates, a management consulting and
accounting service firm, since July 1981;
Executive officer of The Rockies Fund, Inc.,
a publicly held venture capital company, from
August 1983 to March 1990; Director of TEAM
Marketing Group, Inc., Director of First
Denver Mortgage Company and a Director of
Newport Associates.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows all compensation paid by the Company during the
fiscal years ended December 31, 1997, 1996 and 1995 to all executive officers:
SUMMARY COMPENSATION TABLE
NAME AND YEAR SALARY BONUS ($) RESTRICTED OPTIONS
PRINCIPAL ($) STOCK SARs(#)
POSITION AWARDS
($)
- --------- ---- --------- ---------- ---------- --------
Paul 1997 $90,363(1) -- -- --
Knight 1996 $84,061(2) -- -- --
CEO 1995 $84,432(3) -- -- --
Larry 1997 $90,061(4) -- -- --
Salmen 1996 $85,982(5) -- -- --
COO 1995 $78,982(6) -- -- --
(1) All salaries were cash compensation except for $8,400 that was unpaid
as of December 31, 1997.
(2) All salaries were cash compensation except for $6,336 that was unpaid
as of December 31, 1996.
(3) All salaries were cash compensation except for $14,432 that was unpaid
as of December 31, 1995.
(4) All salaries were cash compensation except for $19,944 that was unpaid
as of December 31, 1997.
(5) All salaries were cash compensation except for $422 that was unpaid as
of December 31, 1996.
(6) All salaries were cash compensation except for $20,040 that was unpaid
as of December 31, 1995.
Compensation Pursuant to Plans.
In addition to the 1984 Incentive Stock Option Plan described below under
Section (b)(4), the Company also has a 401K plan that was instituted in 1989.
The basic elements of the Company's 401K plan are outlined below:
1. Employee contributions are voluntary and participants may make
discretionary nontax-deductible contributions.
<PAGE>
2. Employee participants may not make discretionary tax- deductible
contributions.
3. The Company's contribution will be allocated among all eligible
employees who are employed at the end of the Plan Year provided that the
employee has completed 1,000 hours of service during the Plan Year. The employer
shall also make a contribution for each participant who separated from
employment during the Plan Year as a result of retirement, disability, death or
termination upon completion of 1,000 hours of service. In the case of a top
heavy Plan Year, the employer will make a contribution to all participants who
are employed on the last day of the Plan Year regardless of the amount of hours
worked.
4. The employee may make personal salary reduction contributions to the
plan in any amount up to 15% of annual compensation.
Options
Although no formal plan exists, the Company has in the past and may in the
future make grants of common stock to qualified employees as additional and
incentive compensation. During 1991, the Company granted non-qualified options
to the Company's officers and directors. To date, none of the options have been
exercised. The following table presents further information concerning these
options:
Shares Price Grant Expiration
Date Date
Mr. Knight 100,000 .11 10/1/91 September 30, 1998
Mr. Knight 100,000 .13 10/1/91 September 30, 1999
Mr. Knight 100,000 .15 10/1/91 September 30, 2000
Mr. Salmen 100,000 .11 10/1/91 September 30, 1998
Mr. Salmen 100,000 .13 10/1/91 September 30, 1999
Mr. Salmen 100,000 .15 10/1/91 September 30, 2000
Mr Scanlan 20,000 .11 10/1/91 September 30, 1998
Mr Scanlan 20,000 .13 10/1/91 September 30, 1999
Mr Scanlan 20,000 .15 10/1/91 September 30, 2000
During 1996, the Company issued 191,500 shares to five employees not
including executive officers. These shares were to vest over a three to four
year period based on the employee's continued employment with the Company.
During 1997, 137,250 of the 191,500 shares were returned to the Company's
treasury due to employees leaving the Company prior to the vesting requirements
being satisfied.
Incentive Stock Option Plan.
The Company grants options to key employees, including officers of the
company (excluding any person who serves only as a director), pursuant to its
1984 Incentive Stock Option Plan. The plan was designed to comply with Section
422A of the Internal Revenue Code of 1954 as amended by the Economic Recovery
Tax Act of 1981. The plan authorizes the granting of options to purchase up to
64,000 shares of the Company's $.025 par value common stock.
The plan is administered by the Compensation Committee of the Board of
Directors which may be composed of shareholders, chosen by the directors, who
are not, and have not been during the past 12 months, employed by the Company.
The Compensation Committee consists of Michael Scanlan, the outside director of
the Company. The Compensation Committee has authority to set reasonable terms
and conditions as to options granted under the plan, including requirements that
the employees granted an option must remain employed for a specified time
period.
<PAGE>
The plan also authorizes the Committee to grant stock appreciation rights
in connection with options. Stock appreciation rights, if authorized by the
Committee, would permit an employee to receive an amount equal to the difference
between the exercise price of the option and the fair market value of the
Company's common stock upon exercise date in paid-up stock of the Company or in
cash, depending upon the Committee's determination. Stock appreciation rights
have not been granted in connection with any outstanding options and it is not
presently intended that stock appreciation rights will be granted.
No options to purchase any securities from the Company were granted to or
exercised by any executive officer of the Company under the 1984 Incentive Stock
Option Plan during the fiscal year ended December 31, 1997 and there were no
outstanding options held by any executive officer on that date.
Other Compensation.
The Company pays each officer (Mr. Knight and Mr. Salmen) incidental
compensation from time to time, consisting primarily of reimbursement for
business-related activities on behalf of the Company. The aggregate of all such
other compensation did not exceed 10% of the cash compensation reported for the
fiscal year ended December 31, 1997.
Compensation of Directors
Standard Arrangements. In 1992, Mr. Scanlan was not paid for attending
director meetings; however, he received a stock option entitling him to acquire
up to 40,000 restricted shares at a per share price of $.038. In 1993, the board
approved compensating Mr. Scanlan with 3,500 shares of restricted common stock
for attending each board meeting. Since 1993, Mr Scanlan has earned a total of
49,000 shares that have not been issued as of December 31, 1997.
Other Arrangements. On November 24, 1992, the Board of Directors authorized
the issuance of 800,000 shares of the Company's common stock to officers in lieu
of compensation valued at $30,000 ($.038 per share). Since Mr. Knight and Mr.
Salmen will each receive 400,000 shares (total of 800,000) on January 1, 1993, a
forfeiture provision based on their continued employment was made part of this
issuance. On January 1, 1996, all these shares became fully vested.
The Directors also authorized the issuance of two convertible notes in the
amount of $25,000 each for compensation due officers but unpaid during 1992.
These two notes were issued during 1994. Each note, can be converted into
657,894 shares of common stock ($.038 per share) or repaid in cash with
interest. Each note has interest payable at the rate of 19% per annum.
Additionally, the Board of Directors authorized on July 1, 1993 the
issuance of 315,790 shares to the officers for previous expenses and salaries
that were not paid in 1993 and 1992. Each officer was owed $6,000 in salaries
and car allowance that was unpaid as of March 31, 1993. This total of $12,000
was converted into 315,790 shares of common stock at the conversion rate of
$.038 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows as of December 31, 1997, the shares of the
Company's $.025 par value common stock beneficially owned by each director of
the Company, by all the officers and directors as a group, and by each person
known to the Company who owns more than 5% of the Company's common stock.
Amount of Beneficial
Name and Address Ownership (1) Percent of Class
- ---------------- ------------------ ----------------
Paul F. Knight 1,230,574(2) 32.5%
Larry J. Salmen 1,193,764(2) 31.5%
Michael Scanlan 188,000(2) 5.3%
All Officers and Directors
as a Group (Three Persons) 2,611,338(2) 63.0%
-------------
(1) Beneficial owners listed have sole voting and investment power with
respect to the shares unless otherwise indicated.
(2) Includes presently exercisable options of 300,000 each to Messrs
Knight and Salmen and 60,000 to Mr. Scanlan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Company granted stock options to officers and directors - see Item 11 of this
report. The Company also authorized the issuance of stock to officers and
directors in lieu of compensation - see Item 11 of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements:
Index to Financial Statements
Independent Auditor's Report
Balance Sheet - December 31, 1996 and 1997 Statement of Operations - for
the Years Ended December 31,
1996 and 1997
Statement of Changes in Stockholders' Equity - for the
years ended December 31, 1996 and 1997
Statement of Cash Flows - for the Years Ended December 31,
1996 and 1997
Notes to Financial Statements
(a)(2) Schedules:
none
<PAGE>
(b) 8-K Reports:
none
(c) Exhibits:
Exhibit 27 - Financial Data Schedule
<PAGE>
INFOAMERICA, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants...........................F-2
Balance Sheet - December 31, 1996 and 1997...................................F-3
Statement of Operations - Years Ended December 31,
1996 and 1997.............................................................F-5
Statement of Changes in Stockholders' Equity -
Years Ended December 31, 1996 and 1997....................................F-6
Statement of Cash Flows - Years Ended December 31,
1996 and 1997.............................................................F-7
Notes to Financial Statements................................................F-9
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
InfoAmerica, Inc.
We have audited the balance sheet of InfoAmerica, Inc. as of December 31, 1996
and 1997, and the related statements of operations, changes in stockholders'
equity, and cash flows for the years 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 upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InfoAmerica, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years 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 discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and at December
31, 1997, the Company has a working capital deficit of $132,016 and a
stockholders' deficit of $136,715. These conditions 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.
January 13, 1998
Denver, Colorado CAUSEY DEMGEN & MOORE INC.
F-2
<PAGE>
INFOAMERICA, INC.
BALANCE SHEET
December 31, 1996 and 1997
ASSETS
------
1996 1997
Current assets:
Cash $ 34,201 $ 50,255
Trade accounts receivable, net of allowance for
doubtful accounts of $-0- 94,487 38,632
------- ------
Total current assets 128,688 88,887
Property and equipment, at cost:
Furniture and fixtures 35,344 35,344
Computer equipment 70,954 75,662
Vehicles (Note 3) - 52,170
-- ------
106,298 163,176
Less accumulated depreciation and amortization 77,376 87,635
------- ------
Net property and equipment 28,922 75,541
Other assets:
Deposits 1,598 1,598
------ -----
$ 159,208 $ 166,026
========== =========
See accompanying notes.
F-3
<PAGE>
INFOAMERICA, INC.
BALANCE SHEET
December 31, 1996 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
1996 1997
Current liabilities:
Accounts payable $ 14,082 $ 10,019
Accrued salaries and payroll taxes 3,213 4,387
Accrued interest (Note 2) 42,373 52,924
Accrued profit sharing plan contribution 25,311 14,542
Customer deposits 82,250 40,000
Accrued bonuses and expenses due officers 61,511 63,925
Advances payable - officers - 11,979
Current portion of notes payable (Note 3) - 6,972
Convertible notes payable (Note 3) 15,000 15,000
Deferred revenue 15,000 15,000
------- ------
Total current liabilities 258,740 234,748
Long-term liabilities:
Convertible notes payable - officers (Note 2) 50,000 50,000
Notes payable (Note 3) - 31,838
-------- -------
Total long-term liabilities 50,000 81,838
Commitments and contingencies (Notes 3, 6 and 7)
Stockholders' equity (deficit) (Notes 2, 7 and 9):
Preferred stock, $1 par value; 5,000,000 shares
authorized, none issued - -
Common stock, $.025 par value; 900,000,000 shares
authorized, 3,405,731 shares (3,542,981 shares in
1996) issued and outstanding 88,572 83,356
Additional paid-in capital 1,977,228 1,977,228
Accumulated deficit (2,209,147)(2,211,144)
Deferred compensation (6,185) -
--------- ---------
Total stockholders' equity (deficit) (149,532) (150,560)
--------- ---------
$ 159,208 $ 166,026
========== =========
See accompanying notes.
F-4
<PAGE>
INFOAMAERICA, INC.
STATEMENT OF OPERATIONS
For the years ended December 31, 1996 and 1997
1996 1997
Revenues (Note 5):
Software sales $ 723,171 $ 490,832
Consulting and other sales 9,174 4,770
------ -----
Total revenues 732,345 495,602
Operating costs and expenses:
General and administration (Note 8) 680,559 477,411
Depreciation and amortization 8,250 10,259
------ ------
Total operating costs and expenses 688,809 487,670
-------- -------
Income from operations 43,536 7,932
Other income (expense):
Interest income 418 791
Interest expense (12,649) (10,720)
-------- --------
Total other income (expense) (12,231) (9,929)
-------- -------
Net income (loss) (Note 4) $ 31,305 $ (1,997)
========= =========
Basic net income per share $ 0.01 *
======= =
Diluted net income per share $ 0.01 *
======= =
* less than $.01 per share
See accompanying notes.
F-5
<PAGE>
INFOAMERICA, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1996 and 1997
<TABLE>
Common stock Additional Deferred
paid-in Accumulated compen-
Shares Amount capital deficit sation
<S>
Balance, <C> <C> <C> <C> <C>
December 31, 1995 3,351,481 $ 83,784 $ 1,974,738 $ (2,240,452) $ (570)
Common stock issued as com-
pensation to employees at
$.038 per share, subject to
forfeiture (Note 7) 191 4,788 2,490 - (5,615)
Net income for the year ended
December 31, 1996 - - - 31,305 -
Balance, December 31, 1996 3,542,981 88,572 1,977,228 (2,209,147) (6,185)
Return of unvested shares
issued as compensation
(Note 7) (137,250) (5,216) - - 5,216
Deferred compensation
earned during 1997 (Note 7) - - - - 969
Net income for the year ended
December 31, 1997 - - - (1,997) -
Balance, December 31, 1997 3,405,731 $ 83,356 $ 1,977,228 $ (2,211,144) $ -
========== ========= ============ ============= ===
</TABLE>
See accompanying notes.
F-6
<PAGE>
INFOAMERICA, INC.
STATEMENT OF CASH FLOWS
For the years ended December 31, 1996 and 1997
1996 1997
Cash flows from operating activities:
Net income (loss) $ 31,305 $ (1,997)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Depreciation and amortization 8,250 10,259
Common stock issued for services 1,663 -
Deferred compensation earned - 969
Decrease (increase) in trade accounts receivable (34,930) 55,855
Decrease in employee accounts receivable 10,000 -
Decrease in accounts payable and accrued
liabilities (19,984) (3,107)
Increase (decrease) in accrued bonuses and
expenses due officers 12,858 2,414
Decrease in customer deposits (10,217) (42,250)
-------- --------
Total adjustments (32,360) 24,140
-------- ------
Net cash provided by (used in) operations (1,055) 22,143
Cash flows from investing activities:
Purchase of property and equipment (11,354) (16,687)
Cash flows from financing activities:
Advances from officers - 11,979
Payments on notes payable - (1,381)
Repayments of capital lease obligations (2,268) -
------- -
Net cash provided by (used in) financing activities (2,268) 10,598
------- ------
Net increase (decrease) in cash (14,677) 16,054
Cash balance at beginning of year 48,878 34,201
------- ------
Cash balance at end of year $ 34,201 $ 50,255
========= ========
Supplemental disclosure of cash flow information:
Interest paid during the period $ 1,704 $ 974
======== =====
(Continued on following page) See accompanying notes.
F-7
<PAGE>
INFOAMERICA, INC.
STATEMENT OF CASH FLOWS
For the years ended December 31, 1996 and 1997
(Continued from preceding page)
Supplemental disclosure of non-cash investing and financing activities:
During the year ended December 31, 1996, the Company's Board of Directors
approved the issuance of 191,500 shares of the Company's common stock for
services valued at $7,278 of which $5,615 has been recorded as deferred
compensation.
During the year ended December 31, 1997, the Company financed the acquisition of
$40,191 in vehicles by the issuance of notes payable.
See accompanying notes.
F-8
<PAGE>
INFOAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
1. Organization and summary of significant accounting policies
- -----------------------------------------------------------------
InfoAmerica, Inc. (the "Company") is in the business of developing and marketing
software applications for touch-sensitive computer display systems primarily for
national fast food chains.
Basis of presentation:
The financial statements have been prepared on a going concern basis which
contemplates the realization of assets and liquidation of liabilities in the
ordinary course of business. As shown in the accompanying financial statements,
the Company has incurred significant losses and at December 31, 1997, the
Company has a working capital deficit of $145,861 and a stockholders' deficit of
$150,560. As a result, substantial doubt exists about the Company's ability to
continue to fund future operations using its existing resources.
The Company intends to reduce operating expenses where appropriate and attempt
to secure consulting contracts with current as well as new customers. In
addition, the Company has been pursuing debt and equity financing to support its
fast food business strategy and intends to settle outstanding debt by the
issuance of common stock, where possible. Although the Company is hopeful these
cost cutting and revenue generating strategies will be successful, there is no
assurance that sufficient cash flows will be generated to fund current
operations.
The financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
Revenue recognition policy:
Revenue from the sale of equipment and software systems is recognized upon
delivery and installation of the system in situations where the Company has no
significant obligations after the sale, or ratably over the term of the support
agreement for the software portion of the sale where the Company has significant
obligations after the sale.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-9
<PAGE>
INFOAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
1. Organization and summary of significant accounting policies (continued)
- -----------------------------------------------------------------------------
Property and equipment:
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line and accelerated methods over the assets' estimated useful lives of
three to five years.
Software development costs:
Costs to develop and enhance software under contracts with third parties have
been charged to expense as incurred.
Costs incurred to establish the technological feasibility of computer software
to be sold are research and development costs, and charged to expense as
incurred. Software development costs incurred subsequent to establishment of
technological feasibility are capitalized and amortized on the greater of the
straight-line method over the remaining estimated economic life of the product
or the estimate of current and future revenue for the related software product.
Income taxes:
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, under which deferred income taxes are provided based upon enacted tax
laws and rates applicable to the periods in which the taxes become payable.
Net income per share:
During 1997, the Company adopted Statement of Financial Accounting Standards No.
128, Earnings per Share. Basic net income per share of common stock is computed
using the weighted average number of shares outstanding during each period.
Basic net income per share includes the shares of common stock pending issuance
as if the shares were outstanding for all of the periods presented and excludes
shares issued which have not vested (the weighted average number of shares was
approximately 3,599,000 and 3,660,000 for 1996 and 1997, respectively).
Diluted net income per share gives effect to all dilutive potential common
shares that were outstanding during the years. The weighted average number of
shares was approximately 3,728,000 and 3,660,000 for 1996 and 1997,
respectively.
Fair value of financial instruments:
The following methods and assumptions were used to estimate the fair value of
each financial instrument for which it is practicable to estimate that value:
F-10
<PAGE>
INFOAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
1. Organization and summary of significant accounting policies (continued)
- -----------------------------------------------------------------------------
For cash, cash equivalents, and trade accounts receivable, the carrying amount
is assumed to approximate fair value due to the short-term maturities of these
instruments.
The carrying amounts of the Company's notes payable approximate their fair
value, estimated by discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Cash flows:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Credit risk:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. The Company provides
credit, in the normal course of business, to its customers. The Company is
directly affected by the well-being of two major customers, which accounted for
approximately 100% of all revenue in 1997.
2. Related party transactions
- --------------------------------
During 1994, the Company issued $50,000 of convertible subordinated promissory
notes in exchange for accrued bonuses and expenses owed to two officers of the
Company. Interest is payable quarterly at the rate of 19% per annum upon the
attainment of certain financial goals or upon conversion of the notes into
common stock of the Company. The notes are convertible at the option of the
holder into 1,315,790 shares of common stock of the Company in the aggregate
($.038 per share) and are unsecured. The notes had a maturity date of January 1,
1996 and technically are in default. However, due to their subordination to
other liabilities and the intent of the officers, the notes are considered
long-term liabilities. As of December 31, 1996 and 1997, accrued but unpaid
interest amounted to $38,000 and $47,500, respectively.
3. Notes payable
- -------------------
During July 1992, the Company borrowed an aggregate of $10,000 from two
individuals. The notes bear interest at the rate of 7% per annum and all
principal and accrued interest was due in July 1995. The notes are in default at
December 31, 1996 and 1997. During June 1993, the Company borrowed $5,000 from
an individual evidenced by a note bearing interest at 7% per annum maturing in
June 1996 and the note is in default at December 31, 1996 and 1997. Each of the
three notes are secured by 21,000 shares of the Company's common stock plus
accrued interest. The notes are convertible at the option of the lender into
21,000 shares of the Company's common stock each or, if the Company successfully
completes a public offering of its common
F-11
<PAGE>
INFOAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
3. Notes payable (continued)
- -------------------------------
stock each of the notes are convertible at the option of the lender into (1)
21,000 shares of the Company's common stock plus accrued interest or (2) $25,000
plus accrued interest and 10,500 shares of the Company's common stock.
During 1997, the Company financed the acquisition of vehicles by the issuance of
notes payable. The notes bear interest at rates between 6.90% and 8.15%, are
payable monthly through October 2002 at $808 in the aggregate and the vehicles
are pledged as collateral on the notes. Principal maturities of these notes are
as follows:
Year ended December 31,:
1998 $ 6,972
1999 7,525
2000 8,121
2001 8,766
2002 7,426
-------
Principal balance $38,810
=======
4. Income taxes
- ------------------
No provision for income taxes is required for 1996 and 1997, since the Company
has net operating loss carryforwards.
As of December 31, 1996 and 1997, total deferred tax assets, liabilities and
valuation allowance are as follows:
1996 1997
Deferred tax assets $ 28,300 $ 17,400
Deferred tax assets resulting from loss carryforward 359,400 364,500
Valuation allowance (387,700) (381,900)
--------- ---------
$ - $ -
========= ========
At December 31, 1997, the Company had a net operating loss for tax purposes of
approximately $1,402,000 which, if not utilized, will expire as follows:
F-12
<PAGE>
INFOAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
4. Income taxes (continued)
- ------------------------------
December 31,
2000 $ 185,000
2001 283,000
2002 112,000
2005 133,000
2006 317,000
2007 166,000
2008 88,000
2010 118,000
-------
$ 1,402,000
===========
The net operating loss for financial reporting purposes differs from that for
tax purposes primarily due to differences in recording depreciation, the
compensatory element of stock options, and common stock issued for services and
extinguishment of debt.
5. Major customers
- -----------------------
The following table summarizes sales to major customers for the years ended
December 31, 1996 and 1997, respectively.
1996 1997
---- ----
Customer #1 84% 64%
Customer #2 * 36%
* less than 10%
6. Commitments and contingencies
- -------------------------------------
Lease commitments:
The Company has a lease agreement for its office space expiring November 1,
1999. Future minimum lease payments under this lease as of December 31, 1997,
are as follows:
Year ending December 31
1998 $ 13,717
1999 11,431
--------
$ 25,148
========
Rent expense for the years ended December 31, 1996 and 1997, was $17,002 and
$17,932, respectively.
F-13
<PAGE>
INFOAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
6. Commitments and contingencies (continued)
- -------------------------------------------------
Employment agreements:
In June, 1989, the Company entered into three year employment agreements with
two officers which contain self-renewing terms, subject to the option of the
Company to terminate the self-renewing provision near the end of each three year
term. The agreements provide severance benefits under certain conditions, of the
greater of two times annual salary or $180,000 each, are payable upon
termination of employment. The aggregate estimated contingency under these
agreements at December 31, 1997 is $360,000.
7. Common stock
- --------------------
Incentive stock option plan:
On March 1, 1984, the stockholders approved an incentive stock option plan (the
"plan") for key employees, officers and directors of the Company, covering
64,000 shares of common stock. Under the terms of the plan, the purchase price
of the shares granted will not be less than the estimated fair market value at
the date of grant unless the purchaser owns more than 5% of the total combined
voting power of all classes of stock on the date of grant, in which case the
purchase price shall not be less than 110% of the estimated fair market value at
the date of grant. Options granted are exercisable for periods from two to five
years from the date of the grant for stockholders owning more than 5% of the
total combined voting power of the Company's stock. Options granted to other
employees are exercisable for periods from two to ten years from the date of
grant. The plan contains provisions that permit the granting of stock
appreciation rights by the committee that administers the plan. The rights may
be exercised by surrendering the option and receiving an amount equal to the
difference in the fair market value of the shares on the date of surrender and
the option price of such shares.
All previously issued options have been canceled under the terms of the plan,
and options covering the 64,000 shares of common stock reserved for the plan are
available for issuance.
Stock options:
On September 27, 1991, the Company granted options to purchase an aggregate of
880,000 shares of common stock to three officers and directors as follows:
Shares Option price Vesting date Expiration date
220,000 $0.09 October 1, 1991 September 30, 1997
220,000 0.11 October 1, 1992 September 30, 1998
220,000 0.13 October 1, 1993 September 30, 1999
220,000 0.15 October 1, 1994 September 30, 2000
F-14
<PAGE>
INFOAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
7. Common stock (continued)
- --------------------------------
On November 24, 1992, the Company granted an option to purchase 40,000 shares of
the Company's common stock to a director exercisable at $.038 per share.
As of December 31, 1997, none of the above options have been exercised, and no
compensation expense has been recorded relating to the options granted. During
the year ended December 31, 1997, options to purchase 220,000 shares of the
Company's common stock expired.
Stock grants:
During April 1993, the Company issued an aggregate of 60,000 shares of the
Company's common stock to two employees, which stock vests one-third each
January 1 commencing January 1, 1994. Compensation expense with respect to the
above shares is being amortized over the restriction period, resulting in a
charge against operations of $570 for 1997.
During February 1996, the Company issued 191,500 shares of common stock to five
employees, which stock vests over a period of four years. Compensation expense
with respect to the above shares is being amortized over the restriction period,
resulting in a charge against operations of $1,663 and $399 for 1996 and 1997,
respectively. The remaining deferred compensation of $5,216 was offset against
common stock when the unvested shares were returned in 1997.
Common stock to be issued:
Due to the Company's cash flow problems in prior years, the Company agreed to
issue stock in order to pay certain accounts payable; however, due to the lack
of funds, the Company could not afford to physically issue the shares. All of
the shares promised have been issued except for 40,000 shares as consideration
for making loans, 40,000 shares for conversion of debt into equity and 699
shares for services rendered for a total of 80,699 shares of common stock to be
issued, as of December 31, 1996 and 1997.
Contingent issuance of common stock:
As of December 31, 1997, the Company has agreed to issue 175,500 shares of
common stock for the performance of services to the Company valued at between
$.025 and $.038 per share. This liability is reflected as accrued salaries until
such time as the shares of stock are issued.
In September 1996 the Company entered into a two year consulting agreement with
a nonaffiliated entity. Under the agreement the consultant was to provide advice
and assistance to the Company in connection with identifying, qualifying and
negotiating with candidates for a merger with the Company. As compensation to
the advisor, the Company was to issue options to purchase up to 300,000 shares
of the Company's common stock at various prices, and warrants to purchase up to
1% of the outstanding common stock.
F-15
<PAGE>
INFOAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
7. Common stock (continued)
- --------------------------------
The Company's obligation to the consultant was intended to be subject to
completion of acceptable transactions. The Company considers that obligations of
the Company under the agreement have terminated due to nonperformance by the
consultant. Certain ambiguities in the agreement could be subject to other
interpretation, although the Company would vigorously contest any assertion by
the consultant that compensation is owed under the agreement.
8. Retirement plan
- -----------------------
The Company maintains a 401(k) plan for the benefit of substantially all of its
employees. The amount of the Company's contribution is determined annually by
the Board of Directors. During 1996 and 1997, the Company recognized expense in
the amount of $7,924 and $8,632, respectively.
9. Subsequent event
- ------------------------
During January 1998, the Company's Board of Directors authorized the issuance of
140,000 shares of the Company's common stock to an employee of the Company. The
stock would vest 35,000 shares each January 1, commencing January 1, 1999 for
continued employment with the Company.
F-16
<PAGE>
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant duly has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: April 18, 1997.
INFOAMERICA, INC.
By /s/ Paul Knight
Paul F. Knight, Principal
Executive, Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
Date Name and Title Signature
April 6, 1998 Paul F. Knight, /s/ Paul F. Knight
Director
April 6, 1998 Larry J. Salem, /s/ Larry J. Salem
Director
Michael J. Scanlan,
Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 50,255
<SECURITIES> 0
<RECEIVABLES> 38,632
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 88,887
<PP&E> 163,176
<DEPRECIATION> 87,635
<TOTAL-ASSETS> 166,026
<CURRENT-LIABILITIES> 234,748
<BONDS> 50,000
0
0
<COMMON> 83,356
<OTHER-SE> (233,916)
<TOTAL-LIABILITY-AND-EQUITY> 166,026
<SALES> 490,832
<TOTAL-REVENUES> 495,602
<CGS> 0
<TOTAL-COSTS> 487,670
<OTHER-EXPENSES> (791)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,720
<INCOME-PRETAX> (1,997)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,997)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
