<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
TO
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________.
COMMISSION FILE NUMBER: 0-20462
CHATCOM, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3746596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 TOPANGA CANYON BOULEVARD, CHATSWORTH, CALIFORNIA 91311
(Address of principal executive offices) (Zip Code)
(818) 709-1778
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
(Title of each class)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
---------- ---------
State the registrant's revenues for its most recent fiscal year:
$7,271,000.
The aggregate market value of the registrant's common stock held by non-
affiliates of the registrant as of June 25, 1998, was approximately $4,764,000.
The number of shares of common stock outstanding on June 25, 1998 was 11,591,215
shares.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not 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. [_]
Documents incorporated by reference: None.
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<PAGE>
PART III
Safe Harbor Statement under the Private Securities Litigation Reform Act of
---------------------------------------------------------------------------
1995.
- ----
This Amendment to the Annual Report contains forward-looking statements
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, such as statements of the Company's plans,
objectives, expectations and intentions, that involve risks and uncertainties
that could cause actual results to differ materially from those discussed in
such forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the section
entitled "Cautionary Statements and Risk Factors" as well as those discussed
elsewhere in the Annual Report.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
MANAGEMENT OF THE COMPANY
The following sets forth certain information with respect to the directors
and executive officers of Chatcom, Inc. (the "Company"):
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITIONS WITH THE COMPANY SINCE
---- --- -------------------------- -----
<S> <C> <C> <C>
Richard F. Gordon, Jr. 68 Chairman of the Board 1982
A. Charles Lubash 66 Director 1982
James D. Edwards 57 Director 1995
E. Carey Walters 49 President, Chief Executive Officer 1998
and Director
Gordon L. Almquist 48 Vice President of Finance, Chief --
Operating Officer and Chief Financial
Officer
Russell Jackson 47 Senior Vice President, Research & --
Development and Chief Technology
Officer
</TABLE>
RICHARD F. GORDON, JR. has served as a director of the Company since 1982,
and had served as the Company's President from April 1982 to August 1991.
During January and February 1998, Mr. Gordon served as an Interim Chief
Executive Officer of the Company. Mr. Gordon is the founder and has served as
the President of Dick Gordon Enterprises, Inc. (a marketing and promotional
firm) since May 1995. He served as the President of Space Age America, Inc. (an
aerospace consulting firm) from August 1991 to September 1995. Mr. Gordon is a
director of Action Products International, Inc., a public company.
A. CHARLES LUBASH has served as a director of the Company since 1982. Mr.
Lubash served as the Company's President and Chief Executive Officer from August
1991 to July 1995, as the Company's Vice Chairman of the Board from July 1995 to
June 1996 and as a consultant to the Company from June 1996 to February 1998 and
from 1988 to 1991.
2.
<PAGE>
JAMES D. EDWARDS has served as a director of the Company since November
1995. Mr. Edwards served as the President, Chief Executive Officer and Director
of Tricord Systems, Inc. (a computer hardware manufacturer) from May 1989 to May
1995. He is a director of Capital Associates, Inc. (an equipment leasing
company), and Netstar, Inc. (a network hardware manufacturer), which are both
public companies.
E. CAREY WALTERS has served as the Company's President and Chief Executive
Officer and as a director of the Company since March 1998. Mr. Walters is a co-
founder and was the Executive Vice President of The Sabine Group (a network
services company) from 1997 through February 1998. He served as the Vice
President Americas and Strategic Accounts for Objective Systems Integrators, an
operations systems support software company from 1996 to 1997. From 1993 to
1995, Mr. Walters served as the Vice President Alliance Services and General
Manager Strategic Alliances at Ameritech. He was an early participant at
InteCom Inc. (a voice/data PBX manufacturer) holding various positions over a
ten year period (1981 to 1991), including Vice President Contracts and Business
Development and Vice President Sales. Mr. Walters came to InteCom from EDS
(Financial Services Division) where he was the Markets Manager.
GORDON L. ALMQUIST has served as the Company's Vice President of Finance
and Chief Financial Officer since November 1997 and as the Company's Chief
Operating Officer since February 1998. From September 1991 through April 1997,
Mr. Almquist served as the Vice President, Finance and Chief Financial Officer
of 3D Systems Corporation, a developer, manufacturer and marketer of rapid
prototyping systems to a broad range of global industries. From March 1990 to
September 1991 he served as Vice President, Finance and Administration of
Quadratron Systems Incorporated, a developer and marketer of office automation
software. From November 1989 to February 1990, Mr. Almquist served as a
financial consultant; and from August 1988 to October 1989, Mr. Almquist served
as Vice President, Finance and Treasurer of Premier Pump and Pool Products, Inc.
From January 1978 to July 1988, Mr. Almquist served in various financial
management positions (most recently as Vice President, Finance, Treasurer and
Secretary) for Bishop Incorporated, a corporation which was engaged in the
marketing and distribution of drafting and engineering equipment and supplies
for the electronics and architectural industries. Mr. Almquist is a Certified
Public Accountant.
RUSSELL JACKSON has served as the Company's Senior Vice President, Research
& Development and Chief Technology Officer since February 1996. Mr. Jackson
served as the Senior Vice President of J&L Information Systems, a former
operating division of the Company, from August 1988 to February 1996.
Directors serve until the next annual meeting of the Company's shareholders
or until their successors are elected or appointed. Officers are elected by and
serve at the discretion of the Board of Directors. There are no family
relationships among the officers or directors of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than 10 percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "Commission"). Directors, executive officers and
greater than 10 percent shareholders are required by the Commission's
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of the forms furnished to the
Company and the representations made by the reporting persons to the Company,
the Company believes that during the fiscal year ended March 31, 1998, its
directors, executive officers and 10 percent shareholders complied with all
filing requirements under Section 16(a) of the Exchange Act, with the exception
of the following: except that Mr. Walters was late in reporting his initial
statement of beneficial ownership upon being appointed as an officer and the
Company believes that certain other executive officers and directors of the
Company may have failed to report their ownership and changes in ownership of
the Company's Common Stock.
3.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding the
compensation for the fiscal years ended March 31, 1998, 1997 and 1996 paid by
the Company to its Chief Executive Officer and the other executive officers of
the Company who earned in excess of $100,000 (collectively, the "Named Executive
Officers") based on salary and bonus for the fiscal year ended March 31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
---------------------------------- ---------------
OTHER
ANNUAL SECURITIES
NAME AND FISCAL COMPEN- UNDERLYING
PRINCIPAL POSITION YEAR SALARY* BONUS SATION OPTIONS
- ------------------------------- ------ -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
E. Carey Walters 1998 $ 13,076 $ -0- $ -0- 500,000
Chief Executive Officer(2)
James B. Mariner, 1998 152,306 -0- -0- -0-
Chief Executive Officer(3) 1997 165,000 20,000(4) -0- -0-
1996 9,520 -0- -0- 360,000(5)
A. Charles Lubash(6) 1998 $157,692 -0- 75,000(7) 50,000
1997 150,000 -0- -0- -0-
1996 150,000 -0- -0- -0-
Gordon L. Almquist 1998 $ 50,500 -0- -0- 175,000
Chief Financial Officer(8)
Russell Jackson 1998 $145,000 -0- -0- 173,000
Senior Vice President 1997 145,000 -0- -0- -0-
1996 145,000 -0- -0- -0-
</TABLE>
___________
* Includes accrued vacation salary
(1) The compensation described in this table does not include medical insurance,
retirement benefits and other benefits received by the foregoing executive
officers which are available generally to all employees of the Company and
certain perquisites and other personal benefits, including automobile
allowances, received by the foregoing executive officers of the Company, the
value of which did not exceed the lesser of $50,000 or 10% of the executive
officer's cash compensation in the table.
(2) Mr. Walters began service as the President and Chief Executive Officer of
the Company on March 2, 1998.
(3) Mr. Mariner began service as the President and Chief Executive Officer of
the Company on March 11, 1996 and resigned as the President and Chief
Executive Officer of the Company on February 26, 1998.
(4) Mr. Mariner was awarded a $20,000 bonus for the fiscal year ended March 31,
1997, payment of which had been deferred, by agreement of the Board of
Directors and Mr. Mariner, until such time as the Company has received
$2,000,000 of proceeds of private placements of the Company's equity
securities. The $20,000 bonus was paid to Mr. Mariner in September 1997.
(5) 240,000 of the 360,000 options were cancelled in February 1998.
(6) Mr. Lubash was the President and Chief Executive Officer of the Company from
August 1991 until July 1995. From July 1995 to June 1996, Mr. Lubash served
as Vice Chairman of the Board of Directors. From July 1996 to February
1998, Mr. Lubash has served as a director and consultant to the Company.
(7) Represents payment in consideration for Mr. Lubash not competing with the
Company as provided in his employment agreement.
(8) Mr. Almquist began service as the Vice President of Finance and the Chief
Financial Officer of the
4.
<PAGE>
Company on November 11, 1997.
OPTION GRANTS
The following table sets forth certain information regarding grants of
stock options to the Named Executive Officers during the fiscal year ended March
31, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted(#) in Fiscal Year ($/Share) Date
- --------------------- ---------- -------------- -------- ----------
<S> <C> <C> <C> <C>
E. Carey Walters..... 500,000 31.6% $0.375 2-28-08
James B. Mariner..... 0 -- -- --
A. Charles Lubash.... 50,000 3.2 0.406 2-26-08
Gordon L. Almquist... 175,000 11.0 0.406 2-26-08
Russell Jackson...... 173,000 10.9 0.406 2-26-08
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
No stock options were exercised by any of the Named Executive Officers
during the fiscal year ended March 31, 1998. The following table sets forth
certain information regarding stock options held by the Named Executive Officers
as of March 31, 1998:
FISCAL YEAR-END OPTIONS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
NAME YEAR-END (#) FISCAL YEAR END ($)(1)
- --------------------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
E. Carey Walters..... 166,667 333,333 $26,042 $52,083
James B. Mariner..... 120,000 0 0 --
A. Charles Lubash.... 441,667 33,333 2,083 4,167
Gordon L. Almquist... 58,333 116,667 7,292 14,583
Russell Jackson...... 57,667 115,333 7,208 14,417
</TABLE>
___________________
(1) Amounts are shown as the positive spread between the exercise price and the
closing sales price of $0.53125 per share as of March 31, 1998.
DIRECTOR COMPENSATION
The Company pays its directors who are not otherwise employed by the
Company for service to the Company, a fee of $1,500 per regular board meeting
attended, $750 per special meeting or meeting of a
5.
<PAGE>
committee of the Board of Directors attended, and $400 per telephonic meeting in
which they participated. Employee directors receive no fees.
The Company has adopted a program pursuant to which it has awarded to all
current non-employee Directors options to purchase (i) 25,000 shares of Common
Stock on the date on which the Director is elected or appointed as a non-
employee Director, which options vest pro rata quarterly over a period of two
years, (ii) 3,000 shares of Common Stock upon re-election as a non-employee
Director, which options vest entirely six months after the date of grant, (iii)
25,000 shares of Common Stock upon appointment as a committee chair, and (iv)
4,000 shares of Common Stock upon re-appointment as a committee chair. The
options so granted will be exercisable at the market price of the Common Stock
on the date of grant and have terms of 10 years from the date of grant. Such
grants of stock options to non-employee Directors by Board resolution replaced
the formula grant provision of the 1994 Stock Option Plan. On February 26,
1998, options to purchase 100,000 shares of Common Stock were granted to each of
Messrs. Gordon and Edwards, options to purchase 50,000 shares of Common Stock
were granted to Mr. Lubash and options to purchase 25,000 shares of Common Stock
were granted to Gerald R. Sayer, who was a director of the Company at that time,
all at an exercise price of $0.406 per share.
EMPLOYMENT AGREEMENTS
In February 1998, the Company entered into a Letter of Employment with E.
Carey Walters pursuant to which Mr. Walters has served as the Company's
President and Chief Executive Officer since March 2, 1998. The letter provides
for an annual salary of $170,000, bonuses of up to $25,000 per quarter based on
the Company's financial performance and options to purchase 500,000 shares of
Common Stock at an exercise price of $0.375 per share. The stock options vest
at a rate of 1/3 of such options each year commencing on February 28, 1998.
In November 1997, the Company entered into a Letter of Employment with
Gordon L. Almquist pursuant to which Mr. Almquist has served as the Company's
Vice President and Chief Financial Officer since November 11, 1997. The letter
provides for an annual salary of $130,000, bonuses of up to $32,500 per year
based on the performance of the Company and Mr. Almquist, and options to
purchase 125,000 shares of Common Stock at an exercise price of $1.303 per
share. On February 26, 1998, the Board of Directors of the Company cancelled
the options to purchase 125,000 shares of Common Stock and issued replacement
options to purchase 175,000 shares of Common Stock at an exercise price of
$0.406 per share. The replacement stock options vest at a rate of 1/3 of such
options each year commencing on February 26, 1998.
As of April 1, 1997, the Company entered into an employment agreement with
James B. Mariner (the "Mariner Agreement"), pursuant to which he served as the
President and Chief Executive Officer of the Company. The Mariner Agreement
provided for annual cash compensation of $165,000, which increases retroactively
to April 1, 1997 to $185,000 upon completion by the Company of a financing of at
least $2,000,000, a cash bonus of up to $65,000 per year based upon the Company
meeting certain revenue, net income and financing goals, the vesting of 120,000
of the 360,000 options to purchase shares of the Common Stock, previously
granted to Mr. Mariner, the vesting of 120,000 options for the fiscal year
ending March 31, 1998, based upon the Company meeting certain revenue, net
income and financing goals, and the vesting of 120,000 options for the fiscal
year ending March 31, 1999, and the grant and vesting of additional options,
based upon the achievement of performance standards to be agreed to by the
Company and Mr. Mariner prior to the commencement of each such year. The
options have an exercise price equal to $1.875 per share and expire in March
2003. Effective February 26, 1998, the Mariner Agreement was terminated
pursuant to an agreement between the Company and Mr. Mariner. The termination
agreement provides that all of the rights to compensation and any other benefits
granted or contemplated to be granted to Mr. Mariner under the Mariner
Agreement, including unvested options, shall be cancelled and be null and void
as of February 26, 1998.
6.
<PAGE>
In April 1994, the Company entered into an employment agreement with A.
Charles Lubash, who was the Company's President and Chief Executive Officer
until July 1995 and the Company's Vice Chairman from July 1995 to June 1996.
The agreement was for a three-year term, unless sooner terminated in accordance
with the terms of the agreement. The agreement provided an annual base salary
of $150,000, and provided that cash and/or stock option bonuses can be
awarded at the discretion of the Board of Directors for each fiscal year during
the agreement's term. No stock options or bonuses were awarded for the fiscal
years ended March 31, 1998, 1997, 1996, or 1995. The agreement continued on an
at-will basis until terminated on February 20, 1998. Pursuant to the agreement
the Company began paying Mr. Lubash $6,250 per month for a one-year period
commencing February 21, 1998 in consideration for Mr. Lubash not competing with
the Company as provided in the agreement.
Russell Jackson, the Senior Vice President of the Company, previously
provided services to the Company under an employment agreement. The Jackson
agreement, as amended, initially had a term of three years, beginning April 1,
1993, and ended March 31, 1996. The Jackson agreement provided for a base
salary of $115,000 for the first year, $130,000 for the second year, and
$145,000 for the third year. Mr. Jackson's employment has continued after March
31, 1996 on an "at-will" basis, with the same compensation terms as those
contained in his prior agreement until either he or the Company provides written
notification of termination to the other. On February 26, 1998, the Board of
Directors of the Company cancelled options to purchase 173,000 shares of Common
Stock and issued replacement options to purchase 173,000 shares of Common Stock
at an exercise price of $0.406 per share.
7.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 25, 1998, by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, (ii) each of the directors of the Company, (iii) each
of the Named Executive Officers, and (iv) all executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage of
of Beneficial Owner Beneficial Ownership Class(1)
- --------------------------------------- ------------------------ ----------------
<S> <C> <C>
D.H. Blair Investment 2,154,667(2) 17.6%
Banking Corporation
44 Wall Street
New York, NY 10005
The Tail Wind Fund Ltd. 2,334,665(3) 16.8%
c/o European American Securities
1 Regent Street
London, SW1Y 4NS
United Kingdom
Martin Stern 1,272,261(4) 9.9%
9 Meadowbrook Lane
Monsey, NY 10952
The High View Fund, L.P. 4,756,857(5) 29.1%
805 Third Avenue, 14th Floor
New York, NY 10022
Vermont Research Products, Inc. 3,587,857(6) 23.6%
c/o Storage Computer Corporation
11 Riverside Street
Nashua, NH 03062-1373
Barry Saxe 1,200,375 10.4%
325 East 41st St.
New York, NY 10017
Strategic Growth International, Inc. 1,641,250(7) 13.3%
111 Great Neck Road, Suite 606
Great Neck, NY 11021
E. Carey Walters 166,667(8) 1.4%
9600 Topanga Canyon Boulevard
Chatsworth, CA 91311
James B. Mariner 120,000(8) 1.0%
9600 Topanga Canyon Boulevard
Chatsworth, CA 91311
</TABLE>
8.
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage of
of Beneficial Owner Beneficial Ownership Class(1)
------------------- -------------------- -------------
<S> <C> <C>
Richard F. Gordon, Jr. 392,065(9) 3.4%
3115 Calle del Montana
Sedona, AZ 86336
A. Charles Lubash 853,493(10) 7.1%
9600 Topanga Canyon Blvd.
Chatsworth, CA 91311
James D. Edwards 89,333(8) *
5415 Sunshine Canyon Road
Boulder, CO 80302
Gordon L. Almquist 58,333(8) *
9600 Topanga Canyon Boulevard
Chatsworth, CA 91311
Russell Jackson 57,667(8) *
9600 Topanga Canyon Blvd.
Chatsworth, CA 91311
All Executive Officers and Directors 1,617,558(11) 12.9%
as a Group (6 Persons)
</TABLE>
_____________
* Less than 1%.
(1) Shares which the person (or group) has the right to acquire within 60 days
after June 25, 1998 are deemed to be outstanding in calculating the
percentage of the person (or group), but are not deemed to be outstanding
as to any other person (or group).
(2) Includes 666,667 shares issuable upon the exercise of Common Stock purchase
warrants.
(3) Consists of 2,169,905 shares of Common Stock issuable upon the conversion
of 712 shares of Series E Convertible Redeemable Preferred Stock ("Series E
Preferred Stock") at a conversion price of $0.3281 and 164,760 shares of
Common Stock issuable upon exercise of outstanding warrants. The actual
number of shares issuable upon conversion of the Series E Preferred Stock
is variable and depends on the market price of the Common Stock during the
five trading days preceding the applicable date of conversion.
(4) Consists of 1,182,476 shares of Common Stock issuable upon the conversion
of 388 shares of Series E Preferred Stock at a conversion price of $0.3281
and 89,785 shares of Common Stock issuable upon exercise of outstanding
warrants. The actual number of shares issuable upon conversion of the
Series E Preferred Stock is variable and depends on the market price of the
Common Stock during the five trading days preceding the applicable date of
conversion.
(5) Includes 1,664,000 shares of Common Stock issuable upon the conversion of
2,496 shares of Series D Convertible Preferred Stock ("Series D Preferred
Stock") at a conversion price of $1.50, 2,542,857 shares of Common Stock
issuable upon the conversion of certain convertible notes at a conversion
price of $0.35 and 550,000 shares of Common Stock issuable upon exercise of
outstanding warrants. The actual number of shares issuable upon conversion
of the Series D Preferred Stock and upon conversion of the convertible
notes is variable and depends on the market price of the Common Stock
during the ten trading days preceding the applicable date of conversion.
Includes shares beneficially owned by certain affiliates of The High View
Fund, L.P.
9.
<PAGE>
(6) Consists of 2,160,000 shares of Common Stock issuable upon the conversion
of 945 shares of Series F Convertible Redeemable Preferred Stock ("Series F
Preferred Stock") at a conversion price of $0.4375, 1,142,857 shares of
Common Stock issuable upon the conversion of 400 shares of Series G
Convertible Preferred Stock at a conversion price of $0.35 and 285,000
shares of Common Stock issuable upon exercise of outstanding warrants. The
actual number of shares issuable upon conversion of the Series F Preferred
Stock is variable and depends on the market price of the Common Stock
during the five trading days preceding the applicable date of conversion.
(7) Includes 128,500 shares issuable upon the exercise of Common Stock purchase
warrants owned by Richard E. Cooper; 91,250 shares of Common Stock and
121,500 shares issuable upon the exercise of Common Stock purchase warrants
owned by Stanley Altschuler; and 800,000 shares of Common Stock, 100,000
shares issuable upon the exercise of warrants issued to Strategic Growth
International, Inc. ("SGI"), and 400,000 shares issuable upon the exercise
of options granted to SGI. Both Messrs. Cooper and Altschuler are founders
and principals of SGI.
(8) Consists of options to purchase Common Stock.
(9) Includes 89,333 shares issuable upon the exercise of stock options.
(10) Includes 441,667 shares issuable upon the exercise of stock options and
12,500 shares issuable upon the exercise of Common Stock purchase warrants.
(11) Does not include options held by James B. Mariner.
The following table sets forth, as of June 25, 1998, certain information
regarding the beneficial ownership of the Company's Series D Preferred Stock by
each beneficial owners of more than 5% of the Series D Preferred Stock. No
shares of Series D Preferred Stock are owned by any director, or executive
officers of the Company and no options or warrants have been issued that are
exercisable for shares of Series D Preferred Stock. Each such person has sole
voting and dispositive power with respect to such securities.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership of Class
- ------------------------------- -------------------- ------------
<S> <C> <C>
The High View Fund 1,248 50%
805 Third Avenue, 14th Floor
New York, NY 10022
The High View Fund LP 1,248 50%
805 Third Avenue, 14th Floor
New York, NY 10022
All Executive Officers and 0 0
Directors as a Group
</TABLE>
The Company does not know of any arrangements that may at a subsequent date
result in a change of control of the Company.
10.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May and December 1997, the Company issued certain convertible notes in
the aggregate principal amount of $890,000 and bearing interest at a rate of
9.5% per annum and warrants to purchase a total of 150,000 shares of Common
Stock at an exercise price of $0.375 per share to The High View Fund, The High
View Fund, L.P. and their affiliates. The High View Fund and The High View
Fund, L.P. are principal shareholders of the Company.
In September 1997, the Company issued its Series F Convertible Redeemable
Preferred Stock in an aggregate stated amount of $1,100,000 and warrants to
purchase a total of 254,545 shares of Common Stock at an exercise price of $1.25
per share to The Tail Wind Fund Ltd. and Martin Stern.
In March 1998, pursuant to a settlement of a lawsuit filed by Strategic
Growth International, Inc. ("SGI") against the Company, the Company issued to
SGI 800,000 shares of Common Stock and options to purchase 200,000 shares of
Common Stock at an exercise price of $0.50 per share. The settlement also
provided for the payment by the Company to SGI of cash in the amount of $100,000
and SGI's legal fees in the amount of $10,000. The Company also agreed to
register the foregoing shares under the Securities Act of 1933, including the
shares issuable upon the exercise of the options. SGI is a principal
shareholder of the Company and has previously provided merger and acquisition
consulting services, capital financing consulting services and services relating
to the introduction of the Company's products to potential customers.
In March 1998, the Company completed a conversion of unsecured debt in the
amount of $1,345,000 owed to a supplier, Vermont Research Products, Inc.
("VRPI"), into the Company's Series F Convertible Redeemable Preferred Stock and
Series G Convertible Preferred Stock and warrants to purchase a total of 285,000
shares of Common Stock at an exercise price of $0.35 per share. The agreement
with VRPI also provides for the remittance by the Company of proceeds from
certain collections of foreign accounts receivable and net proceeds form certain
equity financings, until all amounts due to VRPI are paid in full. The Company
also agreed to register the shares of Common Stock underlying the preferred
stock and the warrants under the Securities Act of 1933. In June and July 1998,
VRPI provided debt financing to the Company in the aggregate amount of $200,000
evidenced by short-term promissory notes bearing interest at 15.0 percent per
annum.
In March 1998, the Company sold an aggregate of 809,523 shares of Common
Stock to Barry Saxe for an aggregate consideration of $300,000.
Pursuant to an agreement, dated February 26, 1998, by and between the
Company and James B. Mariner, Mr. Mariner has been engaged as an independent
sales representative of the Company. The agreement provides for payment by the
Company to Mr. Mariner at a rate of $85,000 per annum and commissions based on
the amount of sales directly effected by Mr. Mariner. The agreement expires on
March 31, 1999, unless sooner terminated. Mr. Mariner had served as the
Company's President and Chief Executive Officer until February 26, 1998.
The Assistant Secretary of the Company is also a shareholder of a law firm
that provides legal consultation to the Company. During the years ended March
31, 1998 and 1997, fees relating to services provided by this law firm in the
amounts of $41,000 and $74,000, respectively, were included in general and
administrative expenses of the Company.
During fiscal 1998, the Company paid a finder's fee of $110,000 to Maximum
Partners, Ltd. ("Maximum"), an investment banking firm, in connection with the
Company's Series E Preferred Stock financing. Mark D. Lubash, Managing Director
of Maximum, is a shareholder of the Company and son of A. Charles Lubash, a
member of the Company's Board of Directors and former Chief Executive Officer of
the Company. During fiscal 1996, the Company paid Maximum a finder's fee in the
amount of $150,000 related to the placement of the Series B Preferred Stock. In
fiscal 1997, Maximum received $150,000 and warrants to purchase 30,000 shares of
Common Stock at an exercise price of $3.00 per share as a finder's fee for the
placement of the Series C Preferred Stock.
11.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to the
Annual Report on Form 10-KSB to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHATCOM, INC.
Date: July 28, 1998
By /s/ E. CAREY WALTERS
---------------------------------------
E. Carey Walters
President and Chief Executive Officer
12.
