SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 1999 Commission file number 0-15148
SCIENTIFIC NRG, INCORPORATED
(Exact name of registrant as specified in its charter)
Minnesota
(State or Other Jurisdiction of Incorporation or Organization)
4695 MacArthur Court, Suite 530
Newport Beach, California 92660
(Address of Principal Executive Offices)
41- 1457271
(I.R.S. Employer Identification No.)
Registrant's telephone number, including area code: (949) 833-2094
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
No Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),and (2) has been
subject to such filing requirements for the past 90 days. Yes 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. [ ]
State issuer's revenues for its most recent fiscal year: $ -0-
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.(See definition of affiliate in Rule 12b-2 of the Exchange Act)
September 1, 1999: $430,375
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. At September 1, 1999, the registrant
had 32,023,897 shares of common stock, no par value, issued and outstanding.
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of business...............................................3
Item 2. Description of property...............................................7
Item 3. Legal proceedings.....................................................7
Item 4. Submission of matters to a vote of security holders...................7
PART II
Item 5. Market for common equity and related stockholder matters..............8
Item 6. Management's discussion and analysis..................................9
Item 7. Financial statements.................................................12
Item 8. Changes in and disagreements with accountants on
Accounting and financial disclosure.........................................12
PART III
Item 9. Directors, executive officers, promoters and control persons;
Compliance with Section 16(a) of the Securities Exchange Act of 1934........13
Item 10. Executive compensation..............................................14
Item 11. Security ownership of certain beneficial owners and
Management..................................................................15
Item 12. Certain relationships and related transactions......................16
Item 13. Exhibits and reports on form 8-K....................................17
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Scientific NRG, Incorporated (the "Company") was originally
incorporated in the State of Minnesota on May 20, 1983 as NRG, Inc. ("NRG"). In
April, 1986, Scientific Component Systems, Inc., a Minnesota corporation
(Scientific), a company engaged in the commercial lighting and
energy-efficient lighting conversion business, was merged into NRG and the
combined entity changed its name to Scientific NRG, Incorporated in December
1986.
On June 29, 1999 the Company entered into an agreement to sell the assets and
current lighting business acquired from Scientific. Effective June 30, 1999 the
Company acquired substantially all of the assets of NuVen Capital Limited
Partnership, a Nevada limited partnership (NuVen Capital), and simultaneously
adopted a new business plan focused on investing in and acquiring businesses and
business interests with a view to assisting such businesses in expanding through
further acquisitions and internal development.
Operating decisions for the Company's various businesses are made by the
management of the respective business units. Investment decisions and all other
capital allocation decisions for the Company as a whole are made by Fred G.
Luke, in consultation with professional advisors for Mr. Luke and the Company.
Mr. Luke is Chairman and President of the Company.
(b) Business Development
The Company was originally organized as a "blank-check" company for the purpose
of acquiring or merging into an operating business. In 1986, the Company
acquired the business of Scientific and, until June 1999, designed, manufactured
and marketed custom energy efficient lighting products utilizing compact
fluorescent lamp technology primarily within the United States. The Company's
principal products were energy efficient, compact fluorescent downlight fixtures
primarily for the commercial downlight canister retrofit market.
On June 30, 1999 pursuant to the authorization given to the Board of Directors
at a stockholders meeting held on August 15, 1998, the Company executed an Asset
Purchase Agreement (the "Scientific Agreement") for the sale of its lighting
business to a former employee of the Company - See Notes to the Financial
Statements.
Following the Scientific Agreement, the Company entered into an Asset Purchase
Agreement with NuVen Capital (the "NuVen Agreement") whereby the Company
acquired the assets of NuVen Capital with a book value of $10,894,729 (the
"NuVen Assets") in exchange for 22,344,652 shares of the Company's no par value
common stock. As a result of this transaction, NuVen Capital acquired 80%
control of the Company.
Following the purchase of the NuVen Assets, the Company changed its business
from the manufacturing and distribution of lighting systems to become a holding
company which acquires, invests in and expands businesses, and provides
financial and management service to such businesses. This new business plan
focuses on making acquisitions of or investments in what management considers to
be businesses which present the greatest opportunities for growth. The Company's
primary interest is in the leisure and
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entertainment, communications (including the Internet), financial services,
natural resources and consumer goods industries.
The Company's current business strategy is to provide management and strategic
business acquisitions, and locate or when possible, working capital to expand
and grow the investments and business interests acquired. The Company intends to
initially concentrate its resources developing the investments acquired from
NuVen Capital, and in the future to identify additional businesses, or
"turn-around" opportunities, where management believes the Company can make the
acquisition or investment at a reasonable price, enhance valuation and provide
its resources to grow each of the subject businesses.
(c) Description of Business
Through June 1999, the Company historically operated as a manufacturer and
distributor of lighting systems. At the end of its fiscal year ended June 30,
1999, the Company sold its lighting system business and embarked upon a new
business focused on investing in, acquiring and developing business interests in
selected industries.
The Company presently intends to act as a holding company owning business
interests and subsidiaries engaged in a number of diverse business activities,
the most prominent of which, currently, are the leisure and entertainment
industry and the communications industry, with a particular emphasis on the
Internet- related businesses. Additionally, through the acquisition of the NuVen
Assets, the Company owns interests in an upscale youth and wome's clothing
brand, various equity investments in inactive, publicly held corporations which
have recently sold or wound-down their historical businesses and are presently
looking for new business opportunities to acquire, merge into or otherwise
participate in the development and future growth of such opportunities.
Former Lighting Business
Principal Products
Prior to June 1999 and the sale of its' lighting business the Company's
principal product was the "X-18 Series" of energy-efficient light fixtures. The
X-18 Series is patented and UL-approved, and was offered by the Company in
several configurations suitable for downlighting, track lighting and
surface-mounted illumination for retrofit installation and new construction
applications. The X-18 Series used a fluorescent PL Lamp developed by the
Phillips Corporation and integrated one or two compact PL lamps with an energy-
efficient housing in a product designed to replace incandescent lamps.
Competitive Business Conditions
The lighting business was highly competitive. Companies that sold alternatives
to the Company's products included Janmar, Lumatech, Techtron, Enertron and
Progressive Technologies, Inc. Most competitors carried a broader product line
than the Company, and Janmar, a direct competitor, marketed a fixture very
similar to the Company's best selling product under a license agreement from the
Company which did not require payment of license fees. In addition, major
lighting fixture companies such as Hubbel, Lightolier, Juno and Halo
manufactured fixtures using the compact fluorescent lamp technology almost
exclusively in the new construction market, as opposed to the retrofit market.
The new construction market has historically constituted less than 15% of the
Company's sales.
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Environmental Compliance
With the recent sale of its lighting business the Company does not anticipate
that any material capital expenditures will be required for environmental
compliance, or to comply with OSHA standards.
Current Business Development and Investment Activities
Leisure and Entertainment Industry
Thru its acquisition of the NuVen Assets, the Company became the single largest
voting shareholder of NuOasis Resorts, Inc., a publicly-held Nevada corporation
("NuOasis") which, thru various foreign subsidiaries, owns interests in gaming
casinos and hotels, provides casino and hotel management services, and food
manufacturing and distribution. NuOasis and its subsidiaries are active both in
the United States and internationally. The most important business activity
conducted by NuOasis is conducted thru a number of subsidiaries including
Cleopatra Palace Resorts and Casinos Limited a British subsidiary ("CPR"), which
operates the LePalace Hotel and Resort in Tunisia, North Africa and has other
resort casino gaming interests outside of the United States. Another NuOasis
subsidiary, Oasis Resorts International Inc. also owns and is in the process of
developing a destination resort hotel and casino in the United States, in Oasis
Nevada near Wendover, Nevada.
The Company's management intends to continue to evaluate possible expansion and
acquisition opportunites in both the domestic and international hotel and casino
gaming markets as well as internet gaming and other forms of entertainment.
These opportunities may include the ownership, management and operation of
facilities within or outside the United States. These opportunities may be
undertaken solely thru subsidiaries of the Company, its subsidiaries and third
parties, and will be subject to the Company or its respective subsidiary
obtaining adequate financing to participate in such opportunities.
At the present time the Company's management is evaluating other potential
expansion opportunities and sources of working capital and expansion financing
for its leisure and entertainment-related investments and business interests.
However, as of the date of this report, the Company has not entered any
agreements to make further acquisitions of or investments in other hotel or
gaming projects, nor has it received financing commitments for future projects
or funding of its present financing commitment related to the completion of its
Cleopatra-Themed projects in North Africa and Europe.
Communications Industry
Through its subsidiaries and equity investments, the Company intends to develop
and market a variety of communication and Internet related products and
services, as well as software technologies. These industries are characterized
by rapid technological development. The Company believes that its future success
will depend in large part on its ability to provide capital to its present
subsidiaries and enhance the products and services of the Company and to develop
or acquire other products and services which complement existing ones. In order
to respond to rapidly changing competitive and technological conditions, the
Company expects to focus on acquisitions of minority interests in existing
businesses with development-stage technology or niche market or invest in new
products through joint ventures with industry known entities.
Non Entertainment or Communications Industry Segments
As part of the acquisition of the NuVen Assets the Company acquired minority
interests and equity ownership interests in development-stage publicly-held
companies and Yes Licensing Partners LLC, a
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Nevada limited liability company ("YLP"). The industry segments in which YLP and
the various publicly- held companies are presently involved, or intend to
pursue, are financial services, natural resource development and brand-name
clothing licensing.
Financial Services Industry
The Company's present management has experience in providing traditional and
creative financing solutions to development-state enterprises and mature
companies seeking expansion capital. The Company intends to seek out and acquire
or invest in companies which presently offer certain financial services
worldwide, including but not limited to debt financing, equipment leasing,
investment and merchant banking, merger and acquisition services, and "workout"
firms also specializing in corporate reorganizations and financial restructuring
including "global debt swaps." To date the Company has not made any acquisitions
of or investments in any financial service-related businesses, but has provided
management and financing for the business interests acquired from NuVen Capital.
Brand Name Clothing Licensing
The Company owns fifty percent (50%) of YLP. YLP owns certain clothing brands,
one of which - YES - was identified in 1997 as the eighth most recognized
brand name in women's clothing. Through YLP the Company intends to solicit
licenses for all of its exclusive "YES"-related brands, each in approximately
twenty (20) clothing categories. Additionally, the Company intends to search
for, identify, acquire and license other brand names in the area of clothing and
other consumer products.
Through YIP the Company intends to enter and develop the business of marketing
and licensing trademarks, and other brands it may develop or acquire in the
future. The Company intends to market its brands and trademarks utilizing a
direct retail licensing strategy premised on the proposition that in North
America nearly all aspects of the moderately priced apparel, footwear and
accessories business can be sourced most effectively by large retailers, who not
only command significant economies of scale, but also interact daily with the
end consumer. In addition, the Company believes that retailers, in general, may
be able to obtain higher gross margins on sales and increase store traffic by
directly sourcing, stocking and selling licensed products bearing widely
recognized brand names, such as the Company's YES-related brands, than through
carrying strictly private label goods or branded product from third-party
vendors. The Company's strategy is to capitalize on these ideas by licensing its
portfolio of brands primarily directly to strong and growing retailers, who,
working in conjunction with Company.
Natural Resources Industry
The Company's present management has extensive experience in the area of natural
resource financing and development, and management believes that the natural
resource industry today is a candidate for "consolidation." The Company intends
to acquire established local or regional natural resource businesses and combine
and integrate them into an effective national organization. The Company believes
that its operating and acquisition expertise, address the financial needs of
most small to medium-sized natural resource companies, together with its ability
to support the needs of management, will allow it to achieve its goal of
effecting an efficient consolidation of this industry.
In order to achieve its goal, the Company will focus on: (1) identifying
acquisition candidates which meet the Company's consolidation criteria; (2)
attracting and acquiring companies through marketing the Company's management
and financial services which the Company believes will differentiate ti from
other consolidators; and (3) achieving operating efficiencies and synergies by
combining administrative functions,
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and eliminating redundant facilities with its own corporate resources.
To date, the Company's efforts to effect the consolidation of the natural
resource industry have consisted of organizational activities, research and
analysis with respect to industry consolidations and acquisition opportunities,
efforts to refine the Company's business strategy, and meetings and negotiations
with potential acquisition candidates.
Employees
As of September 1, 1999 the Company had two (2) employees who are also officers
and directors of the Company.
This report may contain forward-looking statements, which can be identified by
the sue of forward-looking terminology such as "may," "will," "expect,"
"intend," "plans," "anticipate," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. The matters
described herein and certain other factors noted throughout this report and in
any exhibits to this report of which this report is a part, constitute
cautionary statements identifying important factors with respect to any such
forward-looking statements identifying important factors with respect to any
such forward-looking statements, in including certain risks and uncertainties,
that could cause actual results to differ materially, from those in such
forward- looking statements.
ITEM 2. DESCRIPTION OF PROPERTY
From July 1, 1996, through June 30, 1999, the Company maintained its operations
in Glendora, California, in a facility which was owned and operated by Parke
Industries, Inc. ("Parke"), formerly an affiliated company. The Company and
Parke, which also operated in the commercial lighting industry, also shared
certain officers and directors.
On June 30, 1999, the Company relocated its executive offices to 4695 MacArthur
Court, Suite 530, Newport Beach, California 92660, where its telephone number is
(949)833-2094. The Company occupies this facility under a month to month rental
agreement with NuVen Advisors, Inc. ("Advisors"), an affiliate of NuVen Capital,
at the rate of $500 per month.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is a party or to
which any of the Company's properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
The Company's common stock trades on the NASDAQ OTC Bulletin Board. The named
pink sheet market makers in the Company's stock, as reflected by the National
Quotation Bureau in Jersey City, New Jersey, are Miller - Schroeder, Paragon
Capital Corporation, Wein Securities and Sharp Securities. The following table
sets forth the range of high and low reported sales for the common stock from
August 27, 1997 through June 30, 1999:
<TABLE>
<CAPTION>
Sales Price of Common Stock
<S> <C> <C>
Fiscal 1999 High Low
Quarter ended 06/30/99 $ .06 $ .04
Quarter ended 03/31/99 $ .10 $ .03
Quarter ended 12/31/98 $ .10 $ .062
Quarter ended 09/30/98 $ .093 $ .093
Fiscal 1998 High Low
Quarter ended 06/30/98 $ .312 $ .093
Quarter ended 03/31/98 $ .375 $ .125
Quarter ended 12/31/97 $ .25 $ .125
Quarter ended 09/30/97 $ .312 $ .25
</TABLE>
The above prices were obtained from the National Quotation Bureau, Inc. The
prices shown in the above table represent inter-dealer quotations without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions. There were no reported trades for the period July 1, 1996 through
August 28, 1997. At June 30, 1999, there were no broker-dealers publishing
quotes for the common stock.
(b) Holders
As of June 30, 1999, there were approximately 760 holders of record of the
Company's common stock. The transfer agent for the Company is American Stock
Transfer and Trust of New York, New York.
(c) Dividends
The Company has never paid any cash dividends and intends during the foreseeable
future to retain any earnings to finance the growth of its business. Future
dividend policy will be determined by the Company's Board of Directors based
upon such considerations as the Company's earnings and financial condition,
business conditions, and other factors as the Board of Directors may deem
relevant.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read together with the financial
statements and notes thereto included elsewhere herein.
Overview and Recent Developments
Through June 30, 1999, the Company was primarily engaged in the commercial
lighting business. It's products were designed to retrofit existing inefficient
commercial light fixtures to use energy-efficient flourescent lighting reduced
energy consumption significantly. The Company's operations were sustaining
continued losses, and on August 12, 1998, the Board of Directors adopted a
formal plan to discontinue their commercial lighting business and seek new
opportunities. In June 1999, the Company sold all of the assets related to its
commercial lighting business to a former employee for $50,000 realizing a loss
of $30,363.
On June 30, 1999, the Company completed the asset purchase agreement (the
"Agreement") with NuVen, which resulted in the Company acquiring certain assets
of NuVen, in exchange for 22,344,652 shares of the Compan's common stock valued
at $10,090,793, based the estimated fair value of the underlying assets
acquired. No liabilities were assumed in this transaction. The assets obtained
by the Company consisted of certain receivables, primarily from affiliates,
totaling $403,200, net of allowances; the investment in NuOasis Series D
Convertible Preferred Stock totaling $8,000,000; marketable securities in
affiliates totaling $1,136,556; and other non-current assets totaling $551,037.
As a result of this transaction, NuVen obtained control of the Company. The
assets acquired were accounted for at historical bases in the form of a
recapitalization of the Company.
Assets Acquired under the Agreement
During 1993, NuOasis designated a Series D voting, convertible preferred stock
(the "NuOasis Preferred"). The NuOasis Preferred consists of 24,000,000 shares,
which were issued to NuVen in exchange for the investment securities with an
estimated market value, based upon independent legal and valuation opinions at
the time, discounted approximately 50% at the date of transfer, or $10,000,000.
In connection with the asset purchase agreement with NuVen, the Company acquired
19,200,000 shares of NuOasis Preferred on June 30, 1999 with a carrying value of
$8,000,000. The NuOasis Preferred is redeemable, in whole or in part, at the
option of the Board of Directors, at any time, at a redemption price of up to
$24,000,000; there is currently no intent of the Board of Directors to redeem
the NuOasis Preferred due to liquidity issues. The Preferred NuOasis is
convertible, at the option of the holder, into shares of NuOasis common stock at
an exchange rate of .41667 per share, or convertible into shares having a market
value at the time of such conversion of $0.41667 per share. Market value is
determined based on 50% of the closing bid price for 30 days preceding notice of
conversion. Assuming the conversion had occurred on June 30, 1999, the Company
would be entitled to approximately 396 million shares of NuOasis, and ultimate
control of this entity. The right to convert the NuOasis Preferred expires on
December 31, 2001. Management of the Company has no plans to convert the NuOasis
Preferred due to the substantial dilution that conversion will cause existing
common shareholders. The Company's voting rights provided for under the NuOasis
Preferred, representing approximately [30%] of the common stock vote. The
Company currently has no right to the earnings and losses of NuOasis as do the
common shareholders of NuOasis (see below).
On October 4, 1999, the Company obtained an independent appraisal of the fair
value of the NuOasis Preferred. The estimated fair market value was $10.9
million, based on the fair value of the underlying
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common stock of NuOasis. Since the Company is required to record the asset using
the predecessor's basis, management recorded the investment at $8,000,000. The
Company accounts for this investment under the cost method as required under
Accounting Principles Board Opinion No. 18 ("APB 18"), paragraph 18. Under APB
18, the Company does not share in the earnings and losses of NuOasis, as do
common stock holders under the equity method of accounting for investments. The
NuOasis Preferred is designated as a common stock equivalent, therefore, the
accompanying financial statements do not reflect the earnings and losses under
the equity method. APB Opinion No. 15, "Earnings per Share," defines a common
stock equivalent, among others, as a convertible security, which at the time of
issuance has terms that make it for all practical purposes substantially
equivalent to a common stock.
In connection with the asset purchase agreement with NuVen, the Company acquired
equity investments consisting of common stock of Virtual Enterprises, Inc.
("VEI"), Hartcourt Industries, Inc. ("Hartcourt") and Oasis Resorts
International, Inc. ("Oasis"), as well as investments carried at cost consisting
of common stock of Hart Industries, Inc. ("Hart"), Diversified Land &
Exploration Company ("Diversified") and Yes Clothing Co. ("YES"). The common
stock of VEI, Hartcourt, Oasis and YES are traded on the OTC Bulletin Board of
the NASD. VEI, Hartcourt, and Oasis investments in common stock are accounted
for as marketable securities as defined under The Company owns less than 10% of
the outstanding common stock of all these companies, except for YES. Due to the
relative insignificant value of such investment, the Company will record this
investment under the cost method.
Marketable Securities
Marketable securities are accounted for under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities. The Compan's short-term investments
consisted solely of marketable equity securities, which were classified as
"available-for-sale" in accordance with the provisions of SFAS No. 115. Such
investments are presented as current assets and carried at their estimated fair
values in the accompanying financial statements. Unrealized gains and losses are
excluded from net income (loss) and reported as a separate component of
shareholders' equity (deficit), net of related deferred taxes and as a component
of comprehensive income.
Subsequent to June 30, 1999, the Company has experienced declines in the value
of VEI and Oasis by as much as 50%. Management does not believe that the assets
are permanently impaired, and such unrealized losses will be reflected as a
reduction in stockholders' equity and other comprehensive income (loss) as
defined under SFAS 130.
Receivables From Affiliates
Receivables from affiliates represent non-interest bearing amounts acquired in
connection with the Agreement with NuVen in gross amounts aggregating $765,792.
Of this amount, $652,364 is due from certain affiliated companies and
approximately $113,428 is due from an officer of the Company. This officer
repaid the receivable totaling $113,428 after June 30, 1999. Management deemed
that approximately 50% of the receivables were uncollectible. To ensure that the
Company would at least realize 50% of the receivables, one of the Company's
principals guaranteed payment of $382,896.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
As the result of the above transactions, the Company presented its lighting
business as discontinued in the attached financial statements. Thus, continuing
operations for the fiscal years 1999 and 1998, were
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comprised only of the costs and expenses related to the Asset Purchase agreement
with NuVen Capital. The new business strategy of the Company is to make
acquisitions of or investments in what management considers to be businesses
which present the greatest opportunities for growth: entertainment,
communications(including the Internet), financial services, natural resources
and consumer goods.
Results of Operations
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Continuing Operations
As a result of the asset acquisition in June 1999, there were no revenues
generated from continuing operations during fiscal 1999 and 1998 and,
consequently, no operating revenues or cost of revenues were recorded.
Additionally, as the asset acquisition was only completed in June 1999, the only
continuing costs recorded were those which related to the Agreement and legal
services during the year. These costs comprised substantially all of the
$362,182 of expenses, of which $303,447 represented the value of the 2,793,082
common shares issued to Mr. Fred Luke, the new CEO of the Company as a
transaction fee and 1,000,000 common shares issued to Mr. John Forgy, the former
President of the Company as a finders fee in connection with the Agreement. The
shares paid were valued at $.08 per share which was the rolling 30 day average
trading price of the common shares of the Company following the acquisition.
Discontinued Operations
Revenues from discontinued operations were $406,000 in fiscal 1999 as compared
to $422,000 in fiscal 1998. Cost of goods sold were 67% of revenues in fiscal
1999 a reduction of 14% from the 81% recorded in fiscal 1998 due to an effort by
management to reduce costs. Selling general and administrative costs were
$193,000 in fiscal 1999 as compared to $262,000 in fiscal 1998, again due to an
effort to streamline expenses.
Liquidity and Capital Resources
As of June 30, 1999, the Company had a positive working capital of $1.4 million
primarily due to the assets acquired in the acquisition on June 30, 1999.
Management believes that the Company's working capital is sufficient to meet the
operating needs for next 12 months. Subsequent to year end, the Company
collected approximately $280,000 from receivables from affiliates; no
liquidations of marketable securities were made subsequent to year end.
Certain of the Company's assets are valued based on independent appraisals, as
well as estimates by the Company's Board of Directors. Valuations by the Board
of Directors are based on estimates, and those estimates may materially differ
from actual values which may realized upon sale, liquidation or exchange. Such
assets are subject to changes in market conditions, and accordingly, their value
is subject to significant volatility. In the event market conditions change
adversely, the carrying value of these assets could have a material impact on
the Company's financial condition, results of operations and cash flows.
The Registrant has no commitments for capital expenditures or additional equity
or debt financing.
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Year 2000
Many computer systems used today may be unable to interpret data correctly after
December 31, 1999 because they allow only two digits to indicate the year in a
date. The Company and its subsidiaries have been engaged in assessing this Year
2000 issue as it relates to their businesses, including their electronic
interactions with banks, vendors, customers, and others. This project, along
with developing and implementing solutions to the year 2000 issue, is
continuing. Management currently anticipates that the project will be
substantially completed well in advance of year end 1999, and not have a
material impact on the Company's consolidated financial results or position. The
Company's consolidated financial results could also be adversely affected if one
or more of the companies in which it has material investments were materially
adversely affected by the Year 2000 issue.
ITEM 7. FINANCIAL STATEMENTS
The Company's audited financial statements are referred to in Item 13(a), listed
in the Index to Financial statements and included elsewhere herein as a part of
this Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
As previously reported, on July 21, 1999, the accounting firm of Corbin & Wertz
was replaced as the Registrant's independent accountant. Corbin & Wertz
previously issued a report dated August 3, 1998, which was unqualified but
modified as to the uncertainity of the Company's ability to continue as a going
concern. There were no disagreements with Corbin & Wertz on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure during the two year period prior covered by their report and
subsequently through July 21, 1999.
On July 21, 1999, the accounting firm of McKennon, Wilson & Morgan, LLP was
engaged to conduct the audit of the Company's financial statements for the year
ended June 30, 1999.
The decision to replace the accounting firm of Corbin and Wertz was made by the
Board of Directors. At the present time the Board of Directors does not have an
audit committee.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Fred G. Luke. Mr. Luke has been Chairman of the Board and President of the
Company since June, 1999. Mr. Luke has over twenty-nine (29) years of experience
in domestic and international financing and the management of privately and
publicly held companies. Since 1982, Mr. Luke has provided consulting services
and has served, for brief periods lasting usually not more than six months, as
Chief Executive Officer and/or Chairman of the Board of various publicly held
and privately held companies in conjunction with such financial and corporate
restructuring services. In addition to his position with the Company, Mr. Luke
currently serves as Chairman and Chief Executive Officer of NuOasis Resorts,
Inc., (formerly, Nona Morelli's II, Inc.) ("NuOasis Resorts"), Chairman and
former President of Group V Corporation (formerly, NuOasis Gaming, Inc.) ("Group
V"), Chairman and President of NuVen Advisors, Inc., formerly New World Capital,
Inc. ("NuVen Advisors"), Chairman and President of Hart Industries, Inc.
"Hart"), and Chairman and President of Diversified Land & Exploration Co.
"DL&E"). DL&E is a publicly traded independent natural resource development
company engaged in domestic oil and gas exploration, development and production.
Prior to 1995, DL&E was a 90% owned subsidiary of Basic Natural Resources, Inc.
("BNR"). From 1991 through 1994, Mr. Luke served as the President and a Director
of BNR. Hart was formerly in the environmental services business, respectively.
Hart is a public company which was formerly traded on NASDAQ or the OTC Bulletin
Board. Hart does not have ongoing operations. NuOasis is a publicly traded (OTC
Bulletin Board) diversified holding company with overseas gaming and domestic
pasta production subsidiaries. NuVen Advisors provides managerial, acquisition
and administrative services to public and private companies including the
Company, NuOasis and Hart pursuant to independent Advisory and Management
Agreements. NuVen Advisors, which is controlled by Fred G. Luke, as Trustee of
the Luke Family Trust, is an affiliate of the Company. NuVen Advisors is a
stockholder of Hart, DL&E and NuOasis, and beneficial stockholder of the
Company. Mr. Luke also served from 1973 through 1985 as President of American
Energy Corporation, a privately held oil and gas company involved in the
operation of domestic oil and gas properties. From 1970 through 1985 Mr. Luke
served as an officer and Director of Eurasia, Inc., a private equipment leasing
company specializing in oil and gas industry equipment. Mr. Luke received a
Bachelor of Arts Degree in Mathematics from California State University, San
Jose in 1969.
Jon L. Lawver. Mr. Jon L. Lawver has been Secretary and a Director of the
Registrant since June, 1999. Mr. Lawver has twenty-two (22) years of experience
in the area of bank financing where he has assisted medium size companies ($5
million to $15 million) by providing expertise in documentation preparation and
locating financing for expansion requirements. Mr. Lawver was with Bank of
America from 1961 to 1970, ending his employment as Vice President and Manager
of one of its branches. From 1970 to present Mr. Lawver has served as President
and a Director of J.L. Lawver Corp., a financial consulting firm. Since 1988 Mr.
Lawver has served as President and a Director of Eurasia, a private finance
equipment leasing company specializing in oil and gas industry equipment. Mr.
Lawver also serves as an executive officer of Fantastic Foods, Inc. a
wholly-owned subsidiary of NuOasis, Resorts, Inc..
Oliver K. Washburn, 71, resigned as Director and Treasurer of Registrant on June
30, 1999 and is the former President and co-owner of Washburn Laboratories,
Inc., a St. Paul-based manufacturer of advertising specialty products from which
he retired in 1984. Mr. Washburn holds a Bachelor of Mechanical Engineering
degree from the University of Minnesota.
[SNRG\10-KSB:63099]7
13
<PAGE>
Daniel W. Parke, 44, resigned as Director and Chief Executive Officer of
Registrant on June 30, 1999 and is the previous owner of Parke Industries, Inc.
Parke manages annual sales of over $20 million of energy efficient lighting
products and services. Parke has eight divisions covering the United States and
is considered a leader in marketing energy efficient products and solutions
since 1984. Mr. Parke holds a Bachelor of Business Administration from Azusa
Pacific University.
Jonathan D. Forgy, 45,resigned as Director and Chief Executive Officer of
Registrant on June 30, 1999 and is the CFO of Parke Industries since 1993. Prior
to joining Parke Industries, Mr. Forgy was a tax partner in a CPA firm. Mr.
Forgy's experience includes over 15 years of business consulting along with
practical experience in the delivery of energy efficient solutions. Mr. Forgy
holds a dual Bachelor of Business (Accounting and Finance) and a M.S. in
Taxation from Golden Gate University.
Richard O. Weed , 37, resigned as Director on June 30, 1999 and is Special
Project Counsel with Archer & Weed in Newport Beach, California. Archer & Weed
provides advice on capital formation, business strategy and legal matters on a
special project basis. Mr. Weed is known for using analytical firepower,
creative problem solving and resourceful implementation to assist clients. Mr.
Weed's abilities are the result of his association with prominent law firms in
California and Texas and graduate business education. Mr. Weed received a Master
of Business Administration - International Management in 1992 from the
University of Southern California, Juris Doctor in 1987 from St. Mary's
University School of Law, and Bachelor of Business Administration -
International Business in 1984 from The University of Texas at Austin. Mr. Weed
is a member of the State Bar of California and State Bar of Texas.
John Tastad , 32, resigned as Director on June 30, 1999 and is the former
President and Owner of Energy Solutions Incorporated (ESI), a St. Paul based
energy services company with offices nationwide. Mr. Tastad sold ESI to Northern
States Power Company in 1997. Currently, Mr. Tastad serves as President of Pulse
Products, Inc., a major manufacturers representative firm, and Funcepts, a
start-up indoor family entertainment business. Mr. Tastad holds a Bachelor of
Business (Marketing) from Bethel College.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the Company
during each of the years in the three year period ended June 30, 1999 to that
person who, as of the applicable year ended, was the Company's Chief Executive
Officer or President. There were no officers or Directors of the Company who
received more than $100,000 of total compensation. At June 30, 1999, there were
no written employment agreements with any employee of the Company.
TABLE 1. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Fiscal Salary Bonus Compensation Awards Options/SAR's Payouts Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
Daniel W. Parke 1999 12,000
(Former CEO) 1998 24,000
1997
Jonathan D. Forgy 1999 48,000
(President) 1998 48,000
1997
</TABLE>
14
<PAGE>
The following table sets forth certain information with respect to stock options
held as of June 30, 1999 by former executive officers of the Company. All
options are exercisable at the price indicated and none have been exercised. At
June 30, 1999, Mr. Fred G. Luke was the only member of executive management with
outstanding stock options.
<TABLE>
<CAPTION>
Number of Exercise or Expiration
Name Options Price/Share Date
<S> <C> <C> <C>
Daniel W. Parke, Former CEO 300,000 $0.20 September 30, 2005
Jonathan D. Forgy Former President 100,000 $0.20 September 30, 2005
Fred G. Luke, President and CEO 1,505,471 $0.07 December 31, 2004
</TABLE>
There were no Options/SARs exercised in the last fiscal year and there are no
Options/SARs outstanding with regard to Named Executive Officers who are
required to be included in this table, and there were no long-term incentive
plan awards made by the Company in the last fiscal year.
Compensation of Directors
No Director receives compensation for services on the Board or for Board
meetings attended.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table, based upon figures obtained from the Company's transfer
agent, sets forth certain information as of June 30, 1999 relating to the
beneficial ownership of the Company's common stock by (i) all persons known by
the Company to beneficially own more than 5% of the outstanding shares of the
Company's stock, (ii) each director of the Company and (iii) all officers and
directors of the Company as a group. As of June 30, 1999 the Company had
27,930,815 shares of its common stock issued or issuable and outstanding.
Amount and
Nature of
Name and Address of Beneficial Percent of
Beneficial Owner Ownership Class
- --------------------------------- ------------- -----------
Beneficial owners of 5%
or more of common stock:
NuVen Capital,L.P.(1)
4695 MacArthur Court, Suite 530
Newport Beach, California 92660 22,344,652 69.8
Fred G. Luke(2)
4695 MacArthur Court, Suite 530
Newport Beach, California 92660 2,793,082 8.7
All officers and directors as a group (Two) 25,137,735 78.5
15
<PAGE>
(1) The Luke Family Trust (the "Luke Trust") owns 93% of NuVen Advisors,
formerly New World. Fred G. Luke, as Co-Trustee of the Luke Trust
determines the voting of such shares and, as a result, may be deemed to
control the Luke Trust.
(2) Excludes 1,505,471 common shares exercisable by Mr.Fred Luke under a stock
option.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the last two years the Company did not enter into any transactions that
require disclosure under Item 404 of Regulation S-B except the following:
On August 12, 1998, the Company entered into an Advisory Agreement with Mr. Fred
G. Luke and NuVen Advisors, Inc., whereas Mr. Luke and NuVen Advisors, Inc. were
to advise and assist the Company in acquiring or merging with a new line of
business or company.
On August 17, 1999, Mr. Fred G. Luke, the new President and CEO of the Company
was paid an acquisition fee of 2,793,082 shares of common stock of the Company
effective as June 30, 1999, the date of the closing of the acquisition of assets
from NuVen Capital, LP. These shares were paid pursuant to the above described
Advisory Agreement with Mr. Luke and NuVen Advisors, Inc.. The agreement
provided for a fee to be paid to Mr. Luke of 10% of the outstanding common
shares of the Company subsequent to any acquisition that was completed pursuant
to the Advisory Agreement. These shares were valued at $.08 per share which was
110% of the average trading price of common shares of the Company for the 30 day
period subsequent to the acquisition. Additionally, Mr. Luke was granted an
option to purchase 1,505,471 shares of common stock at $.07 per based based upon
the 10 day moving average selling price of the common shares to the acquisition.
The option to Mr. Luke is fully vested and expires on December 31, 2004. The
Company charged general and administrative expense $$238,502 for the shares
issued and stock option granted.
On August 17, 1999, Mr. John Forgy, the former President of the company was paid
a finders fee of 1,000,000 shares of common stock of the Company effective as
June 30, 1999, the date of the closing of the acquisition of assets from NuVen
Capital, LP. These shares were paid pursuant to the employment agreement with
Mr. Forgy dated June 25, 1998. General and administrative expenses were charged
$80,000 for these shares based upon a value of $.08 per share which was the
average trading price of common shares of the Company for the 30 day period
subsequent to the acquisition
Subsequent Events
On July 1, 1999, the Company and Mr. Richard Weed, a former director of the
Company entered into a fee agreement whereby Mr. Weed would continue to provide
legal services for the Company at the rate of $200 per hour. It was further
agreed that as soon as a Registration Statement on Form S-8 became effective,
300,000 shares of the Compan's common stock would be placed in escrow and
shares in a sufficient amount each month sold on the open market to satisfy
monthly bills for legal services provided by Mr. Weed. Additionally, as an
incentive for Mr. Weed to represent the Company, and to increase his proprietary
interest in the success of the Company as well to encourage him to maintain his
relationship with the Company, Mr. Weed was granted a fully vested stock option
for 1,000,000 shares of the Company's common stock exercisable at $.30 per
share. Mr. Weed's option expires on December 31, 2004.
[SNRG\10-KSB:63099]7
16
<PAGE>
ITEM 13. EXHIBITS AND REPORTS' ON FORM 8-K
(a) Financial Statements
The Financial Statements included in this Item are indexed on Page F-1,
"Index to Financial Statements."
(b) Financial Statement Schedules
Not applicable.
(c) Exhibits
The following exhibits are incorporated herein by reference from the Company's
initial Registration Statement on Form 10 filing on or about November 12, 1986
or in other reports filed pursuant to the Securities Exchange Act of 1934.
Exhibit
Number Description
3.1 Articles of Incorporation as in effect on the date hereof (including
Amendment thereto effective December 28,1988). (1)
3.3 Bylaws. (1)
4.1 Specimen of Share Certificate. (1)
10.1 Employment Agreement with John Forgy dated June 25, 1998 (Incorporated
herein by reference to Form S-8 previously filed with the SEC on 8/17/98
file number 333-61481).
10.2 Advisory Agreement with Fred G. Luke and NuVen Advisors, Inc. dated August
12, 1998 (Incorporated herein by reference from Form S-8 previously filed
with the SEC on 7/16/99 file number 333-82881).
10.3 Fee Agreement with Richard O. Weed dated July 1, 1999 (Incorporated herein
by reference from Form S-8 previously filed with the SEC on 7/16/99 file
number 333-82881).
10.4 Asset Purchase Agreement, June 24, 1999 with NuVen Capital Limited
Partnership.
10.5 Asset Purchase Agreement with Juan Flores dated June 29, 1999
23.1 Consent of Independent Auditors
23.2 Consent of Independent Auditors
27.1 Financial Data Schedule
_____________________
(1) Incorporated herein by reference from the Company's initial Registration
Statement on Form 10 filing on or about November 12, 1986.
(d) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of the
fiscal year ended June 30, 1999.
[SNRG\10-KSB:63099]7
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
Dated: October 13, 1999 Scientific NRG, Incorporated
a Minnesota Corporation
By: /s/ Fred G. Luke
----------------------------------
Name: Fred G. Luke
Title: President
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signatures Title Date
- --------------------------- ---------------------- -------------------
/s/ Fred G. Luke Director and President October 13, 1999
- -------------------
Fred G. Luke
/s/ Jon L. Lawver Secretary and Principal October 13, 1999
- ------------------- Accounting Officer
Jon L. Lawver
[SNRG\10-KSB:63099]7
18
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.................................................F-2
Independent Auditors' Report.................................................F-3
Financial Statements:
Balance Sheet as of June 30, 1999.......................................F-4
Statements of Operations for each of the years in the
two-year period ended June 30, 1999.....................................F-5
Statements of Stockholder Equity (Deficit) for each of the years in
the two-year period ended June 30, 1999.................................F-6
Statements of Cash Flows for each of the years in the two-year
period ended June 30, 1999..............................................F-7
Notes to Financial Statements...........................................F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Scientific NRG, Incorporated (dba Scientific Component Systems)
We have audited the accompanying balance sheet of Scientific NRG, Incorporated,
dba Scientific Component Systems (the "Company"), as of June 30, 1999, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scientific NRG, Incorporated,
dba Scientific Component Systems as of June 30, 1999, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Certain of the Company's assets are valued based on independent appraisals, as
well as the Company's Board of Directors. Valuations by the Board of Directors
are based on estimates, and those estimates may materially differ from actual
values which may be realized upon sale, liquidation or exchange. Such assets are
subject to changes in market conditions, and accordingly, their value is subject
to significant volatility. In the event market conditions change adversely, the
carrying value of these assets could have a material adverse impact on the
Company's financial condition, results of operations and cash flows.
McKennon, Wilson & Morgan LLP
Irvine, California
October 4, 1999
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Scientific NRG, Incorporated (dba Scientific Component Systems)
We have audited the accompanying statements of operations, stockholders' equity
(deficit) and cash flows of Scientific NRG, Incorporated (dba Scientific
Component Systems) (the "Company") for the year ended June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Scientific
NRG, Incorporated (dba Scientific Component Systems) for the year ended June 30,
1998 in conformity with generally accepted accounting principles.
CORBIN & WERTZ
Irvine, California
August 3, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
BALANCE SHEET
June 30, 1999
<S> <C>
ASSETS
Current assets:
Cash $ 1,659
Marketable securities 1,136,556
Current portion of receivables from affiliates 200,000
Note receivable 50,000
Other current assets 28,601
Total current assets 1,416,816
Receivables from affiliates, net of allowance of $382,896
net of current portion 182,896
Other receivables, net of allowance of $20,304 20,304
Investments, at cost 519,674
Investment in NuOasis Resorts, Inc.
Convertible Preferred Stock, at cost 8,000,000
Property and equipment, net 31,363
$ 10,171,053
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,494
Accrued professional fees 37,153
Due to affiliates 27,788
Other current liabilities 17,647
Total current liabilities 101,082
Stockholders' equity:
Common stock, no par value; 40,000,000 shares authorized;
31,723,897 shares issued and outstanding 14,065,393
Additional paid-in capital 27,025
Accumulated deficit (4,022,447)
Total stockholders' equity 10,069,971
$ 10,171,053
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
STATEMENTS OF OPERATIONS
June 30, 1999
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ -- $ --
Cost of sales -- --
Gross profit -- --
Selling, general and administrative expenses 362,182 --
Loss from continuing operations (362,182) --
Discontinued operations:
Loss from discontinued operations, net of
income taxes of $800 35,562 182,552
Loss on disposal of discontinued operations,
net of income taxes of $0 30,363 --
Loss before extraordinary item (428,107) (182,552)
Extraordinary gain from forgiveness of debt,
net of income taxes of none -- 14,978
Net loss $(428,107) $(167,574)
Basic and diluted loss per share:
Loss from continuing operations $ (0.06) $ --
Loss from discontinued operations (0.01) (0.04)
Loss on disposal of discontinued operations (0.01) --
Extraordinary gain -- --
Net loss $ (0.08) $ (0.04)
Weighted average number of shares outstanding 5,657,773 4,203,423
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional Stockholders
-------------------------------- Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
--------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1997 4,203,423 $ 3,516,607 $ 11,970 $ (3,426$766) $ 101,811
Services rendered in connection with
common stock issued to related party - 30,100 - - 30,100
Net loss - - - (167,574) (167,574)
Balances, June 30, 1998 4,203,423 3,546,707 11,970 (3,594,340) (35,663)
Common stock issued in connection
with services rendered by related
parties 1,382,740 124,446 - - 124,446
Common stock issued in connection
with asset purchase the agreement
with NuVen Capital L.P. 22,344,652 10,090,793 - - 10,090,793
Common stock issued in connection
with services rendered by related
parties 3,793,082 303,447 - - 303,447
Value of options granted below fair
value - - 15,055 - 15,055
Net loss - - - (428,107) (428,107)
Balances, June 30, 1999 31,723,897 $ 14,065,393 $ 27,025 $ (4,022,447) $ 10,069,971
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (428,107) $ (167,574)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities:
Depreciation 2,129 2,748
Provision for doubtful accounts - 4,198
Loss on disposition of assets 30,363 -
Services rendered in connection with common
stock issued to a related party - 30,100
Issuance of common stock for services rendered 427,893 -
Options granted below fair value 15,055 -
Gain on extinguishments of debt - (14,978)
Changes in operating assets and liabilities:
Decrease in inventories 2,594 16,097
Decrease in other current assets 23,528 9,662
Decrease in accounts payable (21,751) -
Increase in accrued professional fees 25,153 -
(Decrease) increase in other current liabilities (53,602) 98,814
Net cash provided by (used in) operating activities 23,255 (20,933)
Cash flows from financing activities -
Decrease in due to affiliate (35,963) -
Net decrease in cash (12,708) (20,933)
Cash at beginning of year 14,367 35,300
Cash at end of year $ 1,659 $ 14,367
Supplemental disclosure of cash flow information -
Cash paid during the year for -
Income taxes $ 800 $ 800
Non-cash investing and financing activities:
Note receivable issued for sale of business $ 50,000 $ -
Common stock issued for services rendered $ 427,893 $ -
Common stock issued for assets of NuVen $ 10,090,793 $ -
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND HISTORY
Organization and Nature of Operations
Scientific NRG, Incorporated, dba Scientific Component Systems (the "Company"),
was incorporated in the state of Minnesota in 1983. The Company historically
designed, manufactured and marketed custom energy efficient lighting products
utilizing compact fluorescent lamp technology primarily within the United
States. The principal products were energy efficient, compact fluorescent
downlight fixtures primarily for the downlight canister retrofit market.
During the year ended June 30, 1997, the Company relocated its operations to a
new facility in Glendora, California, which was owned and operated by a newly
affiliated company, Parke Industries, Inc. ("Parke") (see Note 7). The Company
and Parke, which operated in the commercial lighting industry, also shared
certain officers and directors. The Company entered into certain management
agreements with two officers, which were also directors, of Parke.
On August 15, 1998, the Company's Board of Directors approved the sale of the
Company's downlight business, which constitutes substantially all of the
Company's assets and operations. On June 29, 1999, the Company closed an asset
purchase agreement with an employee of the Company for the sale of its downlight
business.
Effective June 30, 1999, the Company consummated an asset purchase agreement
with NuVen Capital L.P. ("NuVen"), which resulted in the Company acquiring
certain assets of NuVen, in exchange for 22,344,652 shares of the Company's
common stock valued at $10,090,793, based the estimated fair value of the
underlying assets acquired. No liabilities were assumed in this transaction. The
assets obtained by the Company consisted of Series D Convertible Preferred Stock
totaling $8,000,000; certain receivables, primarily from affiliates, with a net
carrying value of $403,200; marketable securities in affiliates totaling
$1,136,556; and other non-current assets totaling $551,037. As a result of this
transaction, NuVen obtained approximately 70% control of the Company. The assets
acquired were accounted for at historical bases similar to a recapitalization
(see Notes 3 through 8).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Going Concern
During the two-year period ended June 30, 1999, the Company has discontinued its
lighting operations. At June 30, 1999, the Company's operations consisted of
managing certain investments and seeking business opportunities. The Company's
plan is to liquidate or exchange its interests to acquire interests in other
ventures and new operating opportunities. Management believes that its working
capital is sufficient to meet its working capital requirements for a period of
12 months from the balance sheet date.
Marketable Securities
Marketable securities are accounted for under the provisions of Statement of
Financial Accounting Standards "SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities. The Company's short- term investments
consisted solely of marketable equity securities, which were classified as
"available-for-sale" in accordance with the provisions of SFAS No. 115 based on
its intent to continue to exchange the equity securities
F-8
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
for other assets. Accordingly, such investments are presented as current assets
and carried at their estimated fair values in the accompanying financial
statements. Unrealized gains and losses are excluded from net income (loss) and
reported as a separate component of shareholders' equity (deficit), net of
related deferred taxes and as a component of comprehensive income.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to seven years. Maintenance and repairs are charged to
expense as incurred. Significant renewals and betterments are capitalized. At
the time of retirement or other disposition of property and equipment, the cost
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in operations.
Fair Value of Financial Instruments
The Company has financial instruments whereby the fair value of the financial
instruments could be different than that recorded on a historical basis on the
accompanying balance sheet. The Company's financial instruments consist of
receivables, investments and accounts payable. The carrying amounts of the
Company's financial instruments generally approximate their fair values as of
June 30, 1999.
Use of Estimates in the Preparation of Financial Statements
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 the 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.
Significant estimates made by management are, among others, provisions for
losses on accounts receivable and provisions for slow moving and obsolete
inventories and warranty obligations, and in some cases, the valuation of the
Company's common stock, as authorized by the Board of Directors. Actual results
could materially differ from those estimates.
Loss Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share" ("EPS"). SFAS No. 128 requires dual presentation
of basic EPS and diluted EPS on the face of all statements of operations issued
after December 15, 1997 for all entities with complex capital structures. Basic
EPS is computed as net income (loss) divided by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants and other convertible securities. Common stock equivalents, which
relate to shares issuable upon the exercise of common stock purchase warrants
and options, were not included in the per share calculations for fiscal 1999 and
1998 as their effect would be anti-dilutive.
F-9
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
Income Taxes
The Company accounts for income taxes under SFAS No. 109,"Accounting for Income
Taxes." Under SFAS 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. A valuation
allowance is provided for significant deferred tax assets when it is more likely
than not that such assets will not be recovered.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income includes net income (loss), as
well as certain non-shareholder items that are reported directly within a
separate component of stockholders' equity and bypass net income (loss). The
Company had adopted the provisions of this statement during the current fiscal
year, with no impact on the accompanying financial statements.
Reclassifications
Certain amounts in the accompanying 1998 financial statements have been
reclassified to conform to the 1999 presentation.
NOTE 3 - MARKETABLE SECURITIES
In connection with the asset purchase agreement with NuVen, the Company obtained
shares of common stock in affiliated companies of NuVen. Each investment
represents less than 10% of the outstanding common stock of the investee and
each security is nationally quoted on the OTC:Bulletin Board of the National
Association of Securities Dealers. As such, each investment is accounted for in
accordance with the provisions of SFAS No. 115. Marketable securities consist of
the following at June 30, 1999:
<TABLE>
<CAPTION>
Marketable Securities Number of Shares Fair Value
<S> <C> <C>
Oasis Resorts International 1,000,000 $ 343,500
Virtual Enterprises, Inc. 1,071,725 718,056
Hartcourt Companies, Inc. 100,000 75,000
2,171,725 $ 1,136,556
</TABLE>
Management has classified these investments as available-for-sale based on its
intent to liquidate, or exchange these equity securities for other interests or
operating businesses. In accordance with the provisions of SFAS No.115,
F-10
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - MARKETABLE SECURITIES (Continued)
these equity securities are presented in the accompanying balance sheet as
current assets at their estimated fair values. Management has determined the
fair market value of these investments in accordance with the provisions of SFAS
No. 115 as follows:
Oasis Resorts International
NuVen's carrying value of the investment in common stock of Oasis was $629,625
immediately prior to June 30, 1999, the closing date of the asset purchase
agreement. As of June 30, 1999, the closing bid price of the common stock of
Oasis was approximately $0.69 per share. The Board of Directors determined that
as of June 30, 1999, the fair market value of such investment should be based on
a discount 50% from closing bid price due to market conditions. The Company will
continue to discount the quoted bid price until market conditions for Oasis
common stock improve.
Virtual Enterprises, Inc.
The market value of the common stock of VEI was $1.00 per share at June 30,
1999. The Board of Directors determined that as of June 30, 1999, the fair
market value of such investment should be based on a discount of 33% from
closing bid price due to market conditions. The Company will continue to
discount the quoted bid price until market conditions for VEI common stock
improve.
The Hartcourt Companies, Inc.
NuVen's carrying value of the investment in Hartcourt immediately prior to the
asset purchase agreement was $22,551. As of June 30, 1999, the market value of
the common stock of Hartcourt was approximately $0.75 per share for a total
investment at fair market value of $75,000.
NOTE 4 - RECEIVABLES FROM AFFILIATES
Receivables From Affiliates
Receivables from affiliates represent non-interest bearing amounts acquired in
connection with the asset purchase agreement with NuVen in the amount of
$765,792. Of this amount, $652,364 is due from certain affiliated companies and
approximately $113,428 is due from an officer of the Company. This officer
repaid the receivable totaling $113,428 subsequent to year end. Upon the closing
of the transaction, management had deemed the collectable portion of the
receivables to be approximately $382,896, as such, the accompanying financial
statements include an allowance for doubtful accounts.
F-11
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - RECEIVABLES FROM AFFILIATES (Continued)
As of June 30, 1999, receivables from affiliates include the following:
<TABLE>
<CAPTION>
Receivable From: Amount
<S> <C>
Island Flight Services $ 47,378
Casino Management of America, Inc. 174,650
NuOasis International, Inc. 222,000
F.G. Luke 113,428
NuOasis Las Vegas, Inc. 47,552
NuOasis Laughlin, Inc. 39,085
ACI Asset Management, Inc. 39,485
NuOasis Properties, Inc. 59,785
Fantastic Foods International, Inc. 22,429
765,792
Less: allowance for doubtful accounts (382,896)
$ 382,896
</TABLE>
NOTE 5 - INVESTMENTS AT COST
In connection with the asset purchase agreement, the Company acquired certain
investments in affiliated companies. Included in these investments is an
investment in the Yes license at a cost to NuVen of $389,481. In accordance with
generally accepted accounting principles, the acquisition of the Yes license was
recorded at predecessor basis. The Company also has an interest in 3.5 million
shares of common stock of Yes valued at approximately $0.03 per share for a
total investment at fair market value of $91,382. The Company intends to carry
this investment at cost due to relatively immaterial amount of the investment.
Also included in investments at cost are investments in the common stock of Hart
and Diversified. The Company acquired 750,000 and 474,085 shares of common stock
of Hart and Diversified, respectively. Currently, there is no market for these
shares and thus, the fair market price per share is not readily determinable. As
such, these investments are recorded in the accompanying financial statements as
of June 30, 1999 at predecessor basis of $7,500 and $31,311 for Hart and
Diversified, respectively.
NOTE 6 - INVESTMENT IN NuOASIS RESORTS, INC.
NuOasis, formerly Nona Morelli, Inc., was restructured in 1993 to pursue
opportunities in gaming, and food and beverage industries. From 1994 to 1997 the
Company acquired certain gaming interests in Tunisia, Africa and food services
in the United States. The gaming assets in Tunisia were exchanged for 51% of the
issued and outstanding common stock Oasis Resorts International, Inc. ("Oasis")
on October 19, 1998. NuOasis retains interests in food and beverage assets, the
51% interest in Oasis, as well as certain claim rights.
F-12
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN NuOASIS RESORTS, INC. (Continued)
During 1993, NuOasis designated a Series D voting, convertible preferred stock
(the "D Preferred"). The D Preferred consists of 24,000,000 shares, which were
issued to NuVen in exchange for the investment securities with an estimated
market value, based upon independent legal and valuation opinions at the time,
discounted approximately 50% at the date of transfer, or $10,000,000. The D
Preferred is redeemable, in whole or in part, at the option of the Board of
Directors, at any time, at a redemption price of up to $24,000,000. The
Preferred D is convertible, at the option of the holder, into shares of NuOasis
common stock at an exchange rate of 0.41667 per share, or convertible into
shares having a market value at the time of such conversion of $0.41667 per
share. Market value is determined based on 50% of the closing bid price for 30
days preceding notice of conversion. The right to convert the D Preferred
expires on December 31, 2001. .
In connection with the asset purchase agreement with NuVen, the Company acquired
19,200,000 shares of D Preferred on June 30, 1999 with a carrying value of
$8,000,000. The Company obtained an independent appraisal of the D Preferred at
a fair market value of approximately $10.9 million. Since the Company is
required to record the asset using the predecessor's basis, the Company recorded
the investment at $8,000,000.
In accordance with generally accepted accounting principles, the D Preferred is
accounted for under the cost method, since the Company does not share in the
earnings and losses of NuOasis, since participation in earnings and losses is
based on the shares of common stock held by an investor without recognition of
securities of the investee which are designated as common stock equivalents. APB
Opinion No. 15, "Earnings per Share," defines a common stock equivalent, among
others, as a convertible security, which at the time of issuance has terms that
make it for all practical purposes substantially equivalent to a common stock.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of June 30, 1999:
<TABLE>
<CAPTION>
Investment contracts are due as follows:
<S> <C>
Furniture and fixtures $ 6,751
Equipment 42,886
Less accumulated depreciation and amortization (18,274)
$ 31,363
</TABLE>
During the years ended June 30, 1999 and 1998, depreciation expense totaled
$2,129 and $2,748, respectively.
NOTE 8 - STOCKHOLDERS' EQUITY
Common Stock Issuances
On July 1, 1998, the Company issued 502,740 shares of common stock valued at
$0.09 per share to a director of the Company for legal services rendered in
connection with a registration of common stock and general corporate
F-13
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (Continued)
matters. The Company accrued $10,274 of the amount due to this director as of
June 30, 1998 for services rendered in the prior fiscal year.
On July 1, 1998, the Company issued 240,000 shares of common stock valued at
$0.09 per share to a former chief executive officer for services rendered during
fiscal 1998. The Company accrued the amounts due this officer as of June 30,
1998.
During the year ended June 30, 1999, the Company issued 640,000 shares of common
stock valued at $0.09 per share to a former executive officer, who was also a
director of the Company, for services rendered. The Company accrued such
liability at June 30, 1998.
In connection with an employment agreement, a former executive officer who was
also a director of the Company was entitled to a merger and acquisition fee
equal to 1/2 of 1% of the transaction amount involving the asset purchase
agreement with NuVen. On June 30, 1999, upon the closing of the transaction, the
Company issued 1,000,000 shares of common stock at $0.08 per share, based on the
average bid-and-asked price per share during the 30 days immediately after June
30, 1999. The Company recorded $80,000 of compensation expense in connection
with this issuance during fiscal 1999.
In connection with an advisory agreement, and as a result of services rendered
in connection with the asset purchase agreement with NuVen, the Company issued
2,793,082 shares of common stock to an officer and director of the Company. The
Company determined the fair market price per share to be $0.08 based on the
average bid-and-asked price per share during the 30 days immediately subsequent
to June 30, 1999. The Company recorded $223,447 of compensation expense in
connection with this issuance during fiscal 1999.
As discussed in Note 1, pursuant to the asset purchase agreement with NuVen, the
Company issued 22,344,652 shares of common stock valued at $10,090,793. The
Board of Directors valued the assets based on the underlying value of the assets
received. NuVen agreed to a substantially higher value than the value of the
Company's common stock as determined based on the 30-day moving average of the
closing bid price to minimize shareholder dilution.
Also, see Note 12 for subsequent events affecting shareholders' equity.
Common Stock Purchase Warrants and Options
From time to time and in the ordinary course of business, the Company's Board of
Directors grant options to purchase its common stock. The exercise prices have
been determined by the Board of Directors based on the fair value of the
underlying common stock at the date of grant.
F-14
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (Continued)
Common stock purchase options and warrants consist of the following as of the
fiscal years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Options/Warrants
Options/Warrants Price
<S> <C> <C>
Outstanding & exercisable, June 30, 1997 620,000 $0.20 to $0.50
Granted -
Expired -
Outstanding & exercisable, June 30, 1998 620,000 $0.20 to $0.50
Granted 1,505,471 $0.07
Expired (200,000) $0.50
Outstanding & exercisable, June 30, 1999 1,925,471 $0.07 to $0.50
</TABLE>
During the year ended June 30, 1998, the Company issued no options or warrants.
In fiscal 1999, the Company repriced the exercise price of options to purchase
600,000 shares from $0.50 per share to $0.20 per share. Since the estimated fair
value was less than the exercise price, no compensation was recorded in
connection with the repricing.
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for
stock-based compensation. However, SFAS No. 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued to employees
using the intrinsic method of accounting prescribed by APB No. 25, "Accounting
for Stock Issued to Employees." Entities electing to remain with the accounting
method of APB 25 must make pro forma disclosures of net income and earnings per
share, as if the fair value method of accounting defined in SFAS No. 123 had
been applied. The Company has elected to account for its stock-based
compensation to employees under APB 25.
Currently, there is no significant market for trading of the Company's common
stock. The Board of Directors has generally used the pricing of cash stock sales
at or near the date of the transaction or the value of the consideration
received, whichever is more readily determinable, to estimate the fair value of
its common stock issued for non- cash transactions. During the year ended June
30, 1999, the Board of Directors assigned an estimated fair market value for the
Company's common stock ranging from $0.06 to $0.10 per share based on the
average bid-and-asked prices during the 30 days subsequent to June 30, 1999.
In connection with an advisory agreement between the Company and an executive
officer who is also a director, the Company granted options to purchase shares
of common stock equal to four and nine-tenths percent (4.9%) of the shares
outstanding of the Company immediately following the purchase, or 1,505,471
options, exercisable at $0.07 per share. The options are fully vested and expire
on December 31, 2004. The fair market value of the underlying common stock on
the date of grant was deemed to be approximately $0.08 per share. In accordance
with APB No. 25, the Company recorded non-cash compensation expense totaling
$15,055 related to these stock options.
F-15
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (Continued)
Pro forma information regarding net income is required by SFAS No. 123, and has
been determined as if the Company had accounted for its 1,505,471 employee stock
options issued under the fair value method pursuant to SFAS No. 123, rather than
the method pursuant to APB No. 25 as discussed herein. The fair value for these
options was estimated at the date of grant using a Black-Scholes option-pricing
model with the following assumptions:
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998
<S> <C> <C>
Stock price per share $ 0.08 $ 0.10
Dividend yield - -
Volatility factor 0.001 0.001
Risk-free interest rates 5.5% 5.8%
Expected life (years) 4.5 2
</TABLE>
The Black-Scholes valuation model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998
<S> <C> <C>
Net loss, as reported $ (428,107) $ (167,574)
Additional compensation expense - -
Pro forma net loss $ (428,107) $ (167,574)
Pro forma net loss per share $ (0.08) $ (0.04)
</TABLE>
NOTE 9 - INCOME TAXES
For the years ended June 30, 1999 and 1998, the provision for income taxes was
not significant. The current income tax provision differs from the amount of
income tax determined by applying the expected U.S. Federal income tax rate to
pretax loss for the years ended June 30, 1999 and 1998, as a result of the
Company having a 100% valuation allowance for the expected tax benefit.
F-16
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Continued)
As of June 30, 1999, the Company has Federal and state net operating losses
("NOLs") totaling $3.9 million and $1.2 million, respectively, to be offset
against future taxable income. The Federal and state NOLs expire at various
dates through the year 2014 and 2004, respectively. The Federal and state tax
codes provide for restrictive limitations on the annual utilization of net
operating loss carryforwards to offset taxable income when the stock ownership
of a company significantly changes, as defined. In light of the Company's
significant stock activity, certain of the net operating loss carryforwards are
subject to such annual limitations.
At June 30, 1999, the Company's only significant deferred tax asset consists of
its NOL's valued at approximately $1.4 million.
During the years ended June 30, 1999 and 1998, the valuation allowance increased
by approximately $200,000 and $66,000, respectively.
NOTE 10 - DISCONTINUED OPERATIONS
As discussed in Note 1, the Board of Directors approved the discontinuation of
its lighting business. On June 29, 1999, substantially all of the Company's
assets were sold to an employee for a $50,000 promissory note. A loss on
disposal of $30,363 was recorded upon the completion of the sale.
Net losses from the Company's discontinued operations have been segregated from
continuing operations and reported as a separate line item on the statements of
operations. Prior year reported results have been reclassified in order to
provide for consistent presentation.
Operating results from the Company's discontinued operations are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998
<S> <C> <C>
Revenues $ 406,343 $ 422,224
Costs of sales 273,590 341,576
Gross profit 132,753 80,648
Selling, general & administrative 167,195 262,400
Loss from operations (34,762) (181,752)
Provision for income taxes 800 800
Loss from operations $ (35,562) $ (182,552)
</TABLE>
NOTE 11 - RELATED PARTIES TRANSACTIONS
Transactions with Parke
During the years ended June 30, 1999 and 1998, the Company sold approximately
$101,000 and $84,717 (or 25% and 20.1%of total sales) to Parke, respectively. As
of June 30, 1999, there were no amounts due from Parke.
F-17
<PAGE>
SCIENTIFIC NRG, INCORPORATED
dba SCIENTIFIC COMPONENT SYSTEMS
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTIES TRANSACTIONS (Continued)
On January 15, 1998, the Company entered into an administrative services
agreement with Parke. Pursuant to this agreement Parke provided the Company with
general and administrative services for $2,500 per month. During fiscal 1999 and
1998, the Company incurred $26,250 and $45,000, respectively, of certain general
and administrative expenses pursuant to these agreements. At June 30, 1999,
$14,190 remained unpaid and is included in accounts payable.
The Company also shares employees and other general administrative services with
Parke. During the years ended June 30, 1999 and 1998, the Company incurred
approximately $88,137 and $179,500, respectively, in payroll and other general
administrative expenses (exclusive of the service agreement mentioned above), of
which $13,598 remains unpaid as of year-end and is included in accrued
liabilities.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company shares its offices with NuVen under a month-to-month lease for $500
per month.
The Company had an operating lease for the use of certain equipment at $1,500
per quarter. The Company has stopped paying this lease and is, therefore, in
default. As of June 30, 1999, the lessor has demanded $10,484 to satisfy the
breach of this lease. Accordingly, such amount has been included in other
current liabilities in the accompanying balance sheet.
NOTE 13 - CANCELLATION OF INDEBTEDNESS
During the year ended June 30, 1998, the Company's management negotiated with
certain of the Company's vendors in an effort to reduce amounts owed on
delinquent debts. As a result of management negotiations, the Company recognized
$14,978 in cancellation of indebtedness income (the difference in the amount
payable prior to negotiation and post negotiation). Such amount has been
reflected as an extraordinary item in the statement of operations for the year
ended June 30, 1998.
NOTE 14 - SUBSEQUENT EVENTS
On July 14, 1999, the Company issued 300,000 shares of common stock to a related
party for services to be rendered in connection with a retainer agreement
commencing July 1, 1999 and expiring June 30, 2000. Such shares were registered
by management of the Company with the Securities and Exchange Commission
pursuant to Form S-8.
In connection with a fee agreement for professional services, the Company
granted on July 1, 1999, options to purchase 1,000,000 shares of common stock at
an exercise price of $.30 per share for future services to be rendered in
connection with a registration statement and other services. The options are
fully vested and expire on December 31, 2004.
F-18
<PAGE>
EXHIBIT 10.4
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, ("Agreement") dated as of June 24, 1999, among
Scientific NRG, Incorporated, a Minnesota corporation ("Purchaser") and NuVen
Capital L.P., a Nevada limited partnership ("NuVen").
WHEREAS, Purchaser desires to acquire the assets of NuVen (the "NuVen
Assets") for a purchase price of $10,281.082 (the "Purchase Price");
WHEREAS, the NuVen Assets consist of accounts receivable, investments in
subsidiaries, and property, plant and equipment set forth more fully on the
attached Exhibit A;
WHEREAS, NuVen desires to sell the NuVen Assets to Purchaser for the
Purchase Price; and
WHEREAS, Purchaser is a SEC reporting company whose shares of common stock
are traded on the NASDAQ OTC Bulletin Board.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
DEFINITIONS
Definitions. (a) As used in this Agreement, the following defined terms
shall have the meanings indicated below:
"Actions or Proceedings" means any action, suit, proceeding, arbitration or
Governmental or Regulatory Authority investigation or audit.
"Affiliate" means, as applied to any Person, (i) any other Person directly
or indirectly controlling, controlled by or under common control with, that
Person, (ii) any other Person that owns or controls five percent (5%) or more of
any class of equity securities (including any equity securities issuable upon
the exercise of any Option) of that Person or any of its Affiliates, or (iii)
any member, director, partner, officer, agent, employee or relative of such
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with") as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through ownership of voting securities or
by contract or otherwise.
"Agreement" means this Asset Purchase Agreement, the Exhibits and the
Disclosure Schedule and the certificates delivered in connection herewith, as
the same may be amended, modified or restated from time to time in accordance
with the terms hereof.
1
<PAGE>
"Assets and Properties" of any Person means all assets and properties of
every kind, nature, character and description (whether real, personal or mixed,
whether tangible or intangible, whether absolute, accrued, contingent, fixed or
otherwise and wherever situated), including the goodwill related thereto,
operated, owned or leased by such Person, including, without limitation, cash,
cash equivalents, accounts and notes receivable, chattel paper, documents,
instruments, general intangibles, real estate, equipment, inventory, goods and
Intellectual Property.
"Books and Records" means all files, documents, instruments, papers, books
and records relating to the Business, NuVen or the Subsidiaries, including
without limitation financial statements, Tax Returns and related work papers and
letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock transfer
ledgers, Contracts, Permits, customer lists, computer files and programs,
retrieval programs, operating data and plans and environmental studies and
plans.
"Business Combination" means with respect to any Person any (i) merger,
consolidation or combination to which such Person is a party, (ii) any sale,
issuance dividend, split or other disposition of any capital stock or other
equity interests (or any security or loan convertible into or exchangeable for
such capital stock or other equity interests) of such Person, (iii) any tender
offer (including without limitation a self-tender), exchange offer,
recapitalization, liquidation, dissolution or similar transaction, (iv) any
sale, dividend or other disposition of all or a material portion of the Assets
and Properties of such Person or (v) the entering into of any agreement or
understanding, or the granting of any rights or options, with respect to any of
the foregoing.
"Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of California are authorized or obligated to close.
"Business and/or Condition of NuVen" means the Business, condition
(financial or otherwise), results of operations, Assets and Properties of NuVen
and the Subsidiaries taken as a whole.
"Closing Date" means June 30, 1999.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Contract" means any agreement, lease, license, evidence of Indebtedness,
mortgage, indenture, security agreement or other contract or other commitment
(whether written or oral).
"NuVen Assets" means collectively the assets listed on Exhibit A attached
hereto and as defined more fully in paragraph 3.1.
"Disclosure Schedule" means the schedules delivered to Purchaser by or on
behalf of NuVen, containing all lists, descriptions, exceptions and other
information and materials as are required to be included therein by NuVen
pursuant to Article 3 of this Agreement. "Exchange Act" means the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
thereunder.
2
<PAGE>
"GAAP" means United States generally accepted accounting principles,
consistently applied throughout the specified period and in all prior comparable
periods.
"Governmental or Regulatory Authority" means any court, tribunal,
authority, agency, commission, official or other instrumentality of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision, any arbitrator, tribunal or panel of arbitrators
and, shall include, without limitation, any stock exchange, quotation service
and the National Association of Securities Dealers.
"Indebtedness" means, as to any Person: (i) all obligations, whether or not
contingent, of such Person for borrowed money (including, without limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and bankers' acceptances, whether or not matured), (ii) all obligations
of such Person evidenced by notes, bonds, debentures or similar instruments,
(iii) all obligations of such Person representing the balance of deferred
purchase price of property or services, except trade accounts payable and
accrued commercial or trade liabilities arising in the ordinary course of
business, (iv) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (v)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (vi)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (vii) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (vii)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (viii) all
Indebtedness of any other Person referred to in clauses (i) through (vii) above,
guaranteed, directly or indirectly, by that Person.
"Intellectual Property" means all patents and patent rights, trademarks and
trademark rights, trade names and trade name rights, service marks and service
mark rights, service names and service name rights, brand names, inventions,
processes, formulae, copyrights and copyright rights, trade dress, business and
product names, logos, slogans, trade secrets, industrial models, processes,
designs, methodologies, computer programs (including all source codes) and
related documentation, technical information, manufacturing, engineering and
technical drawings, know-how and all pending applications for and registrations
of patents, trademarks, service marks and copyrights.
"IRS" means the United States Internal Revenue Service.
"Laws" means all laws, statutes, rules, regulations, ordinances and other
pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other liabilities of
a Person (whether absolute, accrued, contingent, known or unknown, fixed or
otherwise, or whether due or to become due).
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"Liens" means any mortgage, pledge, assessment, security interest, lease,
lien, adverse claim, levy, charge or other encumbrance of any kind, or any
conditional sale Contract, title retention Contract or Contract committing to
grant any of the foregoing.
"Loss" means any and all damages, fines, fees, penalties, deficiencies,
losses and expenses, including, without limitation, interest, reasonable
expenses of investigation, court costs, reasonable fees and expenses of
attorneys, accountants and other experts or other expenses of litigation or
other proceedings or of any claim, default or assessment (such fees and expenses
to include without limitation, all fees and expenses, including, without
limitation, fees and expenses of attorneys, incurred in connection with (i) the
investigation or defense of any third party claims or (ii) asserting or
disputing any rights under this Agreement against any party hereto or
otherwise).
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock or other equity interests of such Person or any security of any
kind convertible into or exchangeable or exercisable for any shares of capital
stock or other equity interest of such Person or (ii) receive any benefits or
rights similar to any rights enjoyed by or accruing to the holder of shares of
capital stock or other equity interest of such Person, including, without
limitation, any rights to participate in the equity, income or election of
directors, management committee members or officers of such Person.
"Order" means any writ, judgment, decree, injunction or similar order of
any Governmental or Regulatory Authority (in each such case whether preliminary
or final).
"Permits" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"Permitted Lien" means (i) any Lien for Taxes, governmental, charges or
levies not yet due or delinquent or being contested in good faith by appropriate
proceedings for which adequate reserves have been established in accordance with
GAAP, (ii) the Liens set forth in any Disclosure Schedule, (iii) any minor
imperfection of title, easements, rights of way or similar Lien as normally
exist with respect to property similar in character to the property affected
thereby and which individually or in the aggregate with other such Liens does
not impair the value or marketability of the property subject to such Lien or
interfere with the use of such property in the conduct of the business of the
Company or any Subsidiary and which do not secure obligations for money borrowed
and (iv) Liens imposed by any law, such as mechanic's, materialman's,
landlord's, warehouseman's and carrier's Liens, securing obligations incurred in
the ordinary course of business which are not yet overdue or which are being
diligently contested in good faith by appropriate proceedings and, with respect
to such obligations which are being contested, for which the Company has set
aside adequate reserves.
"Person" means any individual, corporation, joint stock corporation,
limited liability company or partnership, general partnership, limited
partnership, proprietorship, joint venture, other business organization, trust,
union, association or Governmental or Regulatory Authority.
"Projections" means the projections for the NuVen assets, results of
operations, assets, liabilities, cash flow and other information supplied by
NuVen.
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"Purchase Price" has the meaning ascribed to it in Section 2.1.
"Purchaser" has the meaning ascribed to it in the forepart of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Subsidiary" means any Person in which NuVen, directly or indirectly
through Subsidiaries or otherwise, beneficially owns more than fifteen percent
(15%) of either the equity interests in, or the voting control of, such Person.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
alternative or add-on minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatever,
whether disputed or not, together with any interest, penalties, additions to tax
or additional amounts with respect thereto.
"Tax Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States Federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
"Transfer Taxes" means sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees.
(b) Unless the context of this Agreement otherwise requires, (i) words
of any gender include each other gender, (ii) words using the singular
or plural number also include the plural or singular number,
respectively, (iii) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement, (iv) the
terms "Article" or "Section" refer to the specified Article or Section
of this Agreement, and (v) the phrases "ordinary course of business"
and "ordinary course of business consistent with past practice" refer
to the business and practice of NuVen or a Subsidiary. All accounting
terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP.
(3) When used herein, the phrase "to the knowledge of " any Person, "to
the best knowledge of "any Person or any similar phrase, means (i)
with respect to any Person who is an individual, the actual knowledge
of such Person, and (ii) with respect to any other Person, the actual
knowledge of the directors, officers, members, general partners and
other similar Person in a similar position or having similar powers
and duties; and, in the case of each of (i) and (ii), the knowledge of
facts that such individuals should have after reasonable inquiry.
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SALE OF PURCHASED INTERESTS; CLOSING
2.1 Purchase and Sale. On the terms and subject to the conditions of this
Agreement,
(a) At the Closing, Purchaser shall purchase from NuVen, free and clear of
all Liens, all of the NuVen Assets.
(b) The Purchase Price shall be Ten Million Two Hundred Eighty One Thousand
Eighty Two Dollars (US$10,281,082) payable at the Closing as set forth
below.
(c) The Purchase Price shall consist of Twenty-Two Million Three Hundred
Forty Four Thousand Six Hundred Fifty Two (22,344,652) shares of
Purchaser's Common Stock. (the "Shares").
2.2 Closings. The Closing will take place at the offices of Archer & Weed,
4695 MacArthur Court, Suite 530, Newport Beach, California 92660 on
the Closing Date in accordance with the terms of this Agreement, or at
such other place or time as Purchaser and NuVen mutually agree. At the
Closing, Purchaser shall pay to NuVen the Purchase Price pursuant to
Section 2.1. Simultaneously, NuVen shall deliver to Purchaser one or
more certificates representing the NuVen Assets together with all
necessary instruments of transfer, in form and substance reasonably
satisfactory to Purchaser. At the Closing, there shall also be
delivered to Purchaser and NuVen the opinions, certificates and other
Contracts, documents and instruments required to be delivered under
the terms of this Agreement.
REPRESENTATIONS AND WARRANTIES OF NUVEN
NuVen represents and warrants to Purchaser that the statements contained in this
Article III are true and correct as of the date of this Agreement, and will be
true and correct as of the Closing Date (as though made then and as though such
Closing Date was substituted for the date of this Agreement throughout this
Article III). NuVen has delivered a Disclosure Schedule (including exhibits
thereto) to Purchaser setting forth certain information, the disclosure of which
is required or appropriate in relation to any or all of the following
representations and warranties.
3.1 Organization of NuVen. (a) NuVen is a limited partnership duly
organized, validly existing and in good standing under the laws of the
State of Nevada. The property and business activity of NuVen is the
ownership (beneficial and of record), on the Closing Date, of the
NuVen Assets, that are set forth in detail on Exhibit A attached
hereto.
(a) NuVen is duly qualified, licensed or admitted to do business and is in
good standing in those jurisdictions in which the ownership, use or
leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary.
NuVen agrees, prior to the Closing Date, to deliver to Purchaser true
and complete copies of its (i) certificate of limited partnership with
all amendments thereto (the "Charter") and (ii) the limited
partnership agreement with all amendments, in each case as in effect
on the date hereof and the name of each general partner, limited
partner and officer and the position held by each of them with NuVen.
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3.2 Power and Authority. NuVen has the requisite power and authority to
execute and deliver this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The
execution and delivery by NuVen of this Agreement, the performance by
NuVen of the obligations hereunder and the consummation of the
transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action. This Agreement has been duly and
validly executed and delivered by NuVen and constitutes a legal, valid
and binding obligation of NuVen enforceable against NuVen in
accordance with its terms.
3.3 No Conflicts. The execution and delivery by NuVen this Agreement, the
performance by NuVen of its obligations hereunder and the consummation
of the transactions contemplated hereby does not and will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the Charter or the
certificate or articles of incorporation or organization
or by-laws (or other comparable charter documents) of NuVen,
or any Subsidiary;
(b) conflict with or result in a violation or breach of any term
or provision of any Law or Order applicable to NuVen, or any
Subsidiary or any of their respective Assets and Properties;or
(c) (i) conflict with or result in a violation or breach of,
(ii) constitute (with or without notice or lapse of time
or both) a default under,
(iii) require NuVen, or any Subsidiary to obtain any
consent or approval, make any filing with or give any
notice to any Person as a result or under the terms
of,
(iv) result in or give to any Person any right of
termination, cancellation, acceleration or
modification in or with respect to,
(v) result in or give to any Person any additional rights
or entitlement to increased, additional, accelerated
or guaranteed payments under,
(vi) result in the creation of any new additional or
increased liability of the Company or any Subsidiary
under or
(vii) result in the creation or imposition of any Lien
upon, NuVen or any Subsidiary or any of their
respective Assets and Properties under, any Contract
or Permit to which NuVen, or any Subsidiary is a
party or by which any of their respective Assets and
Properties are bound.
3.4 Governmental Approvals and Filings. No consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on
the part of NuVen, or any Subsidiary is required in connection with the
execution, delivery and performance of this Agreement, or the
consummation of the transactions contemplated hereby.
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3.5 Corporate Formalities; Books and Records.
(a) NuVen has complied in all material respects with all corporate
formalities required to be complied with under applicable laws.
(b) The minute books and other similar records of NuVen and each Subsidiary
as made available to Purchaser prior to the Closing Date under this
Agreement contain a true and complete record, in all material respects,
of all action taken at all meetings and by all written consents in
lieu of meetings of directors, members, stockholders, the management
committee or boards of directors, subcommittees and committees of the
boards of directors of NuVen and each Subsidiary.
3.6 Financial Statements.
(a) NuVen has furnished the Purchaser with true and complete copies of the
unaudited consolidated balance sheets of NuVen and its Subsidiaries as
of May 31, 1999 and the related consolidated statements of operations,
statement of changes in stockholder's equity and cash flows for the
period then ended, together with the notes thereto, (the "Financial
Statements"). The Financial Statements fairly present in all material
respects the consolidated financial position of NuVen and its
Subsidiaries as of the respective dates thereof, and the results of
operations, and cash flows for the periods set forth therein, all in
conformity with GAAP.
Absence of Changes. Since December 31, 1997 except (a) as set forth in
Section 3.7 of the Disclosure Schedule or (b) the transactions
contemplated by this Agreement, there has not been any event or
development which, individually or together with other such events,
could reasonably be expected to have a material adverse effect on the
NuVen Assets. In addition, without limiting the foregoing, except as
disclosed in Section 3.7 of the Disclosure Schedule and except for the
transactions contemplated by this Agreement since May 31, 1999 neither
NuVen nor any Subsidiary:
(a) has (i) declared, set aside or paid any dividend or other distribution
in respect of the capital stock of NuVen or any Subsidiary or
(ii) directly or indirectly redeemed, purchased or otherwise
acquired any such capital stock or other equity interests;
authorized, issued, sold or otherwise disposed of, or granted any
Option with respect to any shares of capital stock or other equity
interests of NuVen or any Subsidiary, or modified or amended any right
of any holder of any outstanding shares of capital stock or other
equity interests of NuVen or any Subsidiary or Option with respect
thereto;
(c) (i) increased salary, wages or other compensation (including,
without limitation, any bonuses, commissions and any other
payments) of any officer, employee or consultant of NuVen or
any Subsidiary whose annual salary, wages and such other
compensation is, or after giving effect to such change would
be, in the aggregate, $100,000 or more per annum;
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(ii) established or modified (A) targets, goals, pools or similar
provisions under any benefit plan, employment contract or
other employee compensation arrangement or (B) salary ranges,
increase guidelines or similar provisions in respect of any
benefit plan, employment Contract or other employee
compensation arrangement; or
(iii) adopted, entered into, amended, modified or terminated (in
whole or in part) any benefit plan;
(d) (i) incurred any Indebtedness,
(ii) made or agreed to make any loans to any Person or (iii) made
or agreed to make any voluntary purchase, cancellation,
prepayment or complete or partial discharge in advance of a
scheduled payment date with respect to, or waiver of any right
of NuVen or any Subsidiary under, any Indebtedness of or owing
to NuVen or any Subsidiary;
(iii) suffered any physical damage, destruction or other casualty
loss (whether or not covered by insurance) adversely affecting
any of the real or personal property or equipment of the
material Assets and Properties of NuVen or any Subsidiary;
(iv) failed to pay or satisfy when due any obligation of NuVen or
any Subsidiary, except when the failure would not have a
material adverse effect on the Business or Condition of NuVen
or its Subsidiaries;
(v) acquired any business or Assets and Properties of any Person
(whether by merger, consolidation or otherwise) or disposed or
leased, or incurred a Lien (other than a Permitted Lien) on,
any Assets and Properties of NuVen or any Subsidiary, in each
case, other than acquisitions or dispositions of products in
the ordinary course of business of NuVen or such Subsidiary
consistent with past practice;
(vi) entered into, amended, modified, terminated (in whole or in
part) or granted a waiver under or given any consent with
respect to any Intellectual Property;
(vii) commenced, terminated or changed any line of the Business;
(viii) entered into any transaction with any stockholder or Affiliate
of NuVen or any Subsidiary, other than pursuant to any
Contract in effect on the Financial Statement Date;
(ix) made any change in the accounting methods or procedures of
NuVen or any Subsidiary or became subject to any conditions or
event which has or could reasonably be expected to have
a material adverse effect on the Business or Condition
of NuVen; or
(x) entered into any agreement to do any of the things described
in the preceding paragraphs, including, without limitation,
with respect to any Business Combination not otherwise
restricted by the preceding paragraphs.
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3.8 No Undisclosed Liabilities. At Closing, NuVen will have no Liabilities
of, relating to or affecting the NuVen Assets or any Subsidiary or any
of their respective Assets and Properties, except (i) Liabilities
reflected or reserved against in the Financial Statements, (ii)
Liabilities disclosed in Section 3.8 of the Disclosure Schedule, or
(iii) Liabilities incurred in the ordinary course of business
consistent with past practice since the Financial Statement Date and
in accordance with the provisions of this Agreement.
3.9 Taxes.
(a) All Taxes which could constitute a lien on the Assets and Properties
of NuVen or the Subsidiaries and which were due and payable by NuVen
or the Subsidiaries with respect to the Closing Date and all periods
beginning and ending prior thereto have been or will be paid by NuVen
prior to delinquency. All Tax Returns that have been filed by or with
respect to NuVen or any Subsidiary, or any affiliated, combined,
consolidated, unitary or similar group of which NuVen is or was a
member with any Taxing Authority correctly and completely reflects the
income, franchise or other Tax liability and all other information
required to be reported thereon. NuVen and the Subsidiaries have
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or due and payable to any employee,
creditor, independent contractor or other third party.
(b) NuVen does not expect any Taxing Authority to assess any additional
Taxes against or in respect of it or any Subsidiary for any past
period. There is no dispute or claim concerning any Tax liability of
NuVen or any Subsidiary either (i) claimed or raised by any Taxing
Authority or (ii) otherwise known to NuVen, or any Subsidiary. NuVen
has delivered to Purchaser, with respect to NuVen and each Subsidiary,
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all correspondence, agreements,
notices, reports or statements of deficiencies with, from or to any
Taxing Authority, in each case since January 1, 1999.
3.10 Legal Proceedings.
(a) (i) Neither NuVen nor any Subsidiary has knowledge of any Orders
outstanding against NuVen or any Subsidiary; and (ii) there
are no Actions or Proceedings pending or, to the knowledge of
NuVen, or any Subsidiary, threatened against, relating to or
affecting NuVen or any Subsidiary or any of their respective
Assets and Properties. Neither NuVen nor any Subsidiary is in
default with respect to any Order of any court or Governmental
or Regulatory Authority and there are no unsatisfied judgments
against NuVen, or any Subsidiary.
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3.11 Compliance With Laws and Orders. NuVen and the Subsidiaries and the
conduct of the Business are in compliance with all applicable Laws and
Orders, except where the failure to comply would not have a material
adverse effect on the Business or Condition of NuVen or the NuVen
Assets. None of NuVen, or any Subsidiary has any knowledge that it is
not in compliance with any of such Laws or Orders where the failure to
comply would have a material adverse effect on the Business or
Condition of NuVen or the NuVen Assets. None of NuVen, or any
Subsidiary has any reasonable basis to anticipate that any presently
existing circumstances are likely to result in violations of any such
Laws or Orders which would, individually or in the aggregate, have a
material adverse effect on the Business or Condition of NuVen.
3.12 Permits. Section 3.12 of the Disclosure Schedule contains a true and
complete list of all Permits used in and material to the business or
operations of NuVen or any Subsidiary, setting forth the owner, the
function and the expiration and renewal date of each. Prior to the
execution of this Agreement, NuVen has delivered to Purchaser true and
complete copies of all such Permits. Except as disclosed in Section
3.12 of the Disclosure Schedule: (i) NuVen and each Subsidiary own or
validly hold all Permits that are material to the Business, (ii) each
Permit listed in Section 3.12 of the Disclosure Schedule is valid,
binding and in full force and effect and (iii) neither NuVen nor any
Subsidiary is, or has received any notice that it is, in default (or
with the giving of notice or lapse of time or both, would be in
default) under any such Permit.
3.13 Affiliate Transactions. (a) Except as disclosed in Section 3.13(a) of
the Disclosure Schedule and except as contemplated by this Agreement,
(i) there are no Liabilities owed to NuVen or any Subsidiary, on the
one hand, by any current or former equity holder or Affiliate of
NuVen, on the other hand, (ii) there are no liabilities owed by NuVen
or any Subsidiary on the one hand, to any such current or former
stockholder or Affiliate of NuVen or any Affiliate of any such
stockholder or Affiliate, on the other hand, (iii) neither NuVen, nor
any such current or former stockholder or Affiliate provides or causes
to be provided any Assets and Properties, services or facilities to
NuVen or any Subsidiary, and (iv) neither NuVen nor any Subsidiary
provides or causes to be provided any assets, services or facilities
to any such current or former stockholder or Affiliate.
(b) Except as disclosed in Section 3.13(b) of the Disclosure Schedule,
each of the Liabilities and transactions listed in Section 3.15(a) of
the Disclosure Schedule was incurred or engaged in, as the case may
be, on an arm's-length basis on competitive terms.
3.14 Business Relationships. Since May 31, 1999, no business relationship
of NuVen or any Subsidiary with any customer, supplier or any group of
customers or suppliers whose purchases or sales, as the case may be,
are individually or in the aggregate material to the Business or
Condition of NuVen has been, or to the knowledge of NuVen, or any
Subsidiary, has been threatened to be, terminated, canceled, limited
or changed or modified adversely, and, to the knowledge of NuVen, or
any Subsidiary, there exists no present condition or state of facts or
circumstances with respect to such business relationship that would
materially adversely affect the Business or Condition of NuVen, or
prevent NuVen from conducting the Business after the consummation of
the transactions contemplated by this Agreement, in substantially the
same manner in which it has heretofore been conducted.
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3.15 Other Negotiations; Brokers. Except as set forth in Section 3.15 of
the Disclosure Schedule, neither NuVen, nor any of their respective
Affiliates (nor any investment banker, financial advisor, attorney,
accountant or other Person retained by or acting for or on behalf of
NuVen, any Subsidiary, or any such Affiliate) (i) has entered into any
agreement that conflicts with any of the transactions contemplated by
this Agreement or (ii) has entered into any agreement or had any
discussions with any third party regarding any transaction involving
the Company or any Subsidiary which could result in Purchaser or its
members, officers, director, employee, agent or Affiliate of any of
them being subject to any claim for liability to said third party as a
result of entering into this Agreement or consummating the
transactions contemplated hereby or thereby.
3.16 Disclosure. This Agreement does not, and the documents and
certificates executed by NuVen or otherwise furnished by NuVen to
Purchaser do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances
under which they were made, not misleading. 4. Representations and
Warranties of Purchaser
Purchaser represents and warrants to NuVen that:
4.1 Organization and Authority. Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of
the State of Minnesota, with the corporate power and authority to
carry on its business as now being conducted. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated in this Agreement have been, or will be prior to closing,
duly authorized by all requisite corporate actions on the part of
Purchaser. This Agreement has been duly executed and delivered by
Purchaser and constitutes the valid, binding, and enforceable
obligation of Purchaser.
4.2 Ability to Carry Out Agreement. To the best of Purchaser's knowledge
and belief, the execution and performance of this Agreement will not
violate, or result in a breach of, or constitute a default in, any
provisions of applicable law, any agreement, instrument, judgment,
order or decree to which Purchaser is a party or to which Purchaser is
subject. No consents of any persons under any contract or agreement
required to be disclosed pursuant to this Agreement are required for
the execution, delivery, and performance by Purchaser of this
Agreement.
4.3 The Shares. The Shares to be issued pursuant to this Agreement will be
issued at Closing, free and clear of liens, claims, and encumbrances,
and Purchaser has all necessary right and power to issue the Shares to
NuVen as provided in this Agreement without the consent or approval of
any person, firm, corporation, or governmental authority.
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4.4 Capitalization of Purchaser. The capitalization of Purchaser is, as of
the date hereof, comprised of forty million (40,000,000) shares of
authorized no par value common stock of which, as of the Closing Date,
not more than Five Million Five Hundred Eighty Six Thousand One
Hundred Sixty Three (5,586,163) shares will be issued and outstanding.
All issued and outstanding shares are legally issued, fully paid, and
non-assessable, and are not issued in violation of the preemptive or
other right of any person. In addition to the shares outstanding,
there will be, as of the Closing Date, certain outstanding options and
warrants to purchase shares of Purchaser's common stock as follows:
(i) stock options with an exercise price of $.20 per share covering
400,000 shares.
4.5 Financial Information. Purchaser has provided to NuVen, or will
provide prior to Closing, copies of its Annual Report on Form 10-K
and/or 10-KSB for the two (2) years ending at or prior to June 30,
1998 and the interim quarterly financial statement on Form 10-QSB for
the quarters ended September 30, 1998 December 31, 1998, and March 31,
1999. The quarterly financial statements and such Annual Reports, and
all other information included in such reports, shall be referred to
as the "Purchaser's Financials." Purchaser has no obligations or
liabilities (whether accrued, absolute, contingent, liquidated or
otherwise, including without limitation any tax liabilities due or to
become due) which are not fully disclosed and adequately provided for
in Purchaser Financials, excepting current liabilities incurred and
obligations under agreements entered into in the usual and ordinary
course of business since the date of Purchaser Financials, none of
which (individually or in the aggregate) are material except as
expressly indicated in Purchaser Financials. Purchaser is not a
guarantor or otherwise contingently liable for any material amount of
such indebtedness. Except as indicated in Purchaser Financials or
Purchaser Disclosure Documents, there exists no default under the
provisions of any instrument evidencing such indebtedness or of any
agreement relating thereto.
4.6 Litigation. To the best knowledge and belief of Purchaser, except as
disclosed pursuant to this Agreement, there is neither pending nor
threatened, any action, suit or arbitration to which its property,
assets or business is or is likely to be subject and in which an
unfavorable outcome, ruling or finding will or is likely to have a
material adverse effect on the condition, financial or otherwise, or
properties, assets, business or operations, which would create a
material liability on the part of Purchaser, or which would conflict
with this Agreement or any action taken or to be taken in connection
with it.
4.7 Tax Matters. Purchaser has filed or will file all federal, state, and
local income, excise, property, and other tax returns, forms, or
reports, which are due or required to be filed by it and has paid, or
made adequate provision for payment of all taxes, interest, penalty
fees, assessments, or deficiencies shown to be due or claimed to be
due or which have or may become due on or in respect to such returns
or reports.
4.8 Contracts. Except as disclosed pursuant to this Agreement, there are
no contracts, actual or contingent obligations, agreements,
franchises, license agreements, or other commitments between Purchaser
and other third parties which are material to the business, financial
condition, or results of operation of Purchaser, taken as a whole. For
purposes of the preceding sentence, the term "material" refers to any
obligation or liability which by its terms calls for aggregate
payments of more than $25,000.
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The following material contracts will be valid and binding obligations of
Purchaser with third parties as of the Closing Date:
4.8.1 Advisory Agreement with NuVen Advisors Inc.
4.8.2 Stock Option Agreement with Daniel W. Parke.
4.8.3 Stock Option Agreement with Jonathan D. Forgy.
4.8.4 Stock Option Agreement with SRS (expires June 30, 1999).
4.8.5 Employment Agreement with Jonathan D. Forgy (provides for a 1/2 of 1%
fee for any merger or acquisition).
4.9 Material Contract Breaches; Defaults. To the best of Purchaser's
knowledge and belief, except as disclosed in Purchaser Financials, it
has not materially breached, nor has it any knowledge of any pending
or threatened claims or any legal basis for a claim that it has
materially breached, any of the terms or conditions of any agreements,
contracts, or commitments to which it is a party or is bound and which
might give rise to a claim by anyone against Purchaser. To the best of
its knowledge and belief, Purchaser is not in default in any material
respect under the terms of any outstanding contract, agreement, lease,
or other commitment which might give rise to a claim against
Purchaser, and there is no event of default or other event which, with
notice or lapse of time or both, would constitute a default in any
material respect under any such contract, agreement, lease, or other
commitment which might give rise to a claim against Purchaser in
respect of which Purchaser has not taken adequate steps to prevent
such a default from occurring.
4.10 Securities Laws. Purchaser is a public company and represents that,
except as disclosed in Purchaser Disclosure Documents and in
Purchaser's Financials, it has no existing or threatened liabilities,
claims, lawsuits, or basis for the same with respect to its original
stock issuance to its founders, its initial public offering, any other
issuance of stock, or any dealings with its stockholders, the public,
the brokerage community, the SEC, any state regulatory agencies, or
other persons. Purchaser is required to file periodic reports under
Section 12(g) of the '34 Act. Purchaser represents that all reports
required to be filed pursuant to the '34 Act and any applicable U.S.
state "Blue Sky" laws have been filed.
4.11 Brokers. Purchaser has not agreed to pay any brokerage fees, finder's
fees, or other fees or commissions with respect to the transactions
contemplated in this Agreement which could give rise to a claim
against the Shares. To the best of Purchaser's knowledge, no person or
entity, except NuVen Advisors Inc. is entitled, or intends to claim
that it is entitled, to receive any such fees or commissions in
connection with such transactions. Purchaser further agrees to
indemnify and hold harmless the other parties to this Agreement
against liability to any other broker claiming to act on behalf of
Purchaser.
14
<PAGE>
4.12 Corporate Records. Copies of all corporate books and records,
including, but not limited to, any other documents and records of
Purchaser relating to the proceeding of its shareholders and directors
will be provided to NuVen prior to Closing at the request of NuVen.
All such records and documents are and will be complete, true, and
correct.
4.13 Approvals. Except as otherwise provided in this Agreement, no
authorization, consent, or approval of, or registration or filing
with, any governmental authority or any other person is required to be
obtained or made by Purchaser in connection with the execution,
delivery, or performance of this Agreement.
4.14 Full Disclosure. The information concerning Purchaser, set forth in
this Agreement, and in Purchaser Disclosure Documents, is, to the best
of Purchaser's knowledge and belief, complete and accurate in all
material respects and does not contain any untrue statement of a
material fact or omit to state a material fact required to make the
statements made, in light of the circumstances under which they were
made, not misleading.
4.15 Date of Representations and Warranties. Each of the representations
and warranties of Purchaser set forth in this Agreement is true and
correct at and as of the Closing Date, with the same force and effect
as though made at and as of the Closing Date, except for changes
permitted or contemplated by this Agreement. Without limiting the
generality of the foregoing, Company represents and warrants that as
of the Closing Date, its payables will be $20,000 or less.
5. Conditions Precedent to Obligations of NuVen
All obligations of NuVen under this Agreement are subject to the
fulfillment, prior to or as of the Closing Date, of each of the
following conditions:
5.1 Representations and Warranties. The representations and warranties by
Purchaser set forth in this Agreement shall be true and correct at and
as of the Closing Date, with the same force and effect as though made
at and as of the Closing Date, except for changes permitted or
contemplated by this Agreement. Purchaser shall deliver on the Closing
Date a certificate to this effect, referred to as Purchaser
Certificate of Representations and Warranties.
5.2 No Breach or Default. Purchaser shall have performed and complied with
all covenants, agreements, and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing.
5.3 Action to Pay Purchase Price. Purchaser shall have taken all corporate
and other action necessary to issue and deliver the Shares
representing the Purchase Price to NuVen pursuant to this Agreement at
Closing.
5.4 Company Disclosure Documents. Before Closing, Purchaser will have
delivered to NuVen, or caused the delivery of, Purchaser Disclosure
Documents.
15
<PAGE>
5.5 Approval of Other Instruments and Documents by NuVen. All instruments
and documents delivered to NuVen pursuant to the provisions of this
Agreement shall be reasonably satisfactory to their legal counsel.
5.6 Opinion of Counsel. Purchaser shall have delivered to NuVen an opinion
of counsel dated the Closing Date to the effect that:
(A) Purchaser is duly organized, validly existing, and in good standing
under the laws of the United States, State of Minnesota. (B)
Purchaser has the corporate power to conduct business and,
specifically, to carry on its business as now being conducted and is
duly qualified to do business in the United States, State of
Minnesota.
(C) All corporate actions and director approvals have been properly
obtained and completed by Purchaser, to the extent, if any, that they
are necessary, for all actions required under this Agreement prior to
Closing.
(D) This Agreement has been duly authorized, executed, and delivered by
Purchaser and is a valid and binding obligation of Purchaser and, in
this regard, Purchaser shall provide NuVen at Closing with a copy of
the resolution or resolutions of the Board of Directors of Purchaser,
approving and authorizing the issuance by Purchaser of the Shares upon
the terms and conditions herein set forth.
6. Conditions Precedent to Obligations of Purchaser
All obligations of Purchaser under this Agreement are subject to the
fulfillment, prior to or as of the Closing Date, of each of the
following conditions:
6.1 Representations and Warranties. The representations and warranties
executed by and on behalf NuVen set forth in this Agreement shall be
true and correct at and as of the Closing Date, with the same force
and effect as though made at and as of the Closing Date, except for
changes permitted or contemplated by this Agreement. NuVen shall cause
to be delivered on the Closing Date the certificate to this effect,
referred to in this Agreement as the Certificate of Representations
and Warranties executed by the President and Chief Executive Officer
of NuVen.
6.2 No Breach or Default. NuVen shall have performed and complied with all
covenants, agreements, and conditions required by this Agreement to be
performed or complied with by them prior to or at the Closing.
16
<PAGE>
6.3 Action to Transfer the NuVen Assets. NuVen shall have taken all action
necessary to transfer the NuVen Assets to Purchaser pursuant to this
Agreement. In this regard, the conveyance(s) of the NuVen Assets shall
contain such good and sufficient stock powers, and other good and
sufficient instruments of sale, conveyance, transfer, and assignment,
in form and substance reasonably satisfactory to Purchaser's counsel
and with all requisite documentary stamps, if any, affixed, as shall
be required or as may be appropriate in order effectively to vest in
Purchaser's good, indefeasible, and marketable title to the NuVen
Assets free and clear of all liens, mortgages, conditional sales, and
other title retention agreements, pledges, assessments, covenants,
restrictions, reservations, easements, and all other encumbrances of
every nature.
In addition to the conveyance and delivery of the NuVen Assets, NuVen
shall have taken all action necessary to deliver all of NuVen's
corporate books and records, including but not limited to its files,
documents, papers, agreements, formulas, books of account, and records
pertaining to its business, and evidence of compliance with applicable
securities laws, if required and requested by Purchaser's counsel.
6.4 NuVen Financials. Before Closing, NuVen will have delivered the
Financial Statements to Purchaser.
6.5 Approval of Other Instruments and Documents by Purchaser. All
instruments and documents delivered to Purchaser pursuant to the
provisions of this Agreement shall be reasonably satisfactory to
Purchaser and its legal counsel.
6.6 Opinions, Affidavits and Declarations of NuVen. NuVen shall have
delivered to Purchaser an opinion of qualified legal counsel
reasonably satisfactory to Purchaser, and its counsel and auditors,
dated as at the Closing Date, that:
(A) NuVen is duly organized, validly existing, and in good standing under
the laws of the State of Nevada and that the NuVen Assets are free and
clear of any and all liens, encumbrances or contingent liabilities
except as disclosed pursuant to this Agreement.
(B)
NuVen has the power to carry on its business as now being conducted
and is duly qualified to do business in any other jurisdiction where
required or where the non-qualification to do business would have a
material adverse affect on the value of its business.
(C) All action and approvals required in connection to the transfer of the
NuVen Assets to Purchaser have been properly taken, completed or
obtained by NuVen, to the extent, if any, that they are necessary.
(D) This Agreement has been duly authorized, executed, and delivered by
NuVen and is a valid and binding obligation of NuVen.
17
<PAGE>
7. Covenants and Agreements of NuVen
Up to and including the Closing Date, NuVen covenants that:
7.1 Access and Information. After the execution of this Agreement, NuVen
will permit Purchaser to have reasonable access to all information
necessary to verify the representations and warranties made herein.
After the Closing, NuVen will continue to permit Purchaser access to
such additional documentation and information as is reasonably
necessary to completion of the transactions contemplated under this
Agreement.
7.2 Conduct of Business as Usual. Up until the Closing Date, NuVen shall
insure that NuVen's operations shall be conducted only in the usual
and ordinary course, and that no change will be made to such
operations which might adversely affect the value of the NuVen Assets
to be transferred to Purchaser.
7.3 Best Efforts. NuVen shall use its best efforts to fulfill all
conditions of the Closing including the timely solicitation of
affirmative consent of all third parties necessary to effect a Closing
under this Agreement.
7.4 Assent to Sale of NuVen Assets. In the event the sale of the NuVen
Assets is consummated, then the partners of NuVen agree to such sale
and waive, surrender, and agree not to exercise any rights which such
partners might have concerning the sale of the NuVen Assets.
8. Covenants and Agreements of Purchaser
Up to and including the Closing Date, Purchaser covenants that:
8.1 Change in Purchaser Directors. Purchaser's Board of Directors
currently consists of five (5) seats. At Closing, Purchaser agrees
that three (3) of the five (5) seats on Purchaser's Board will be
vacant and may be filled by three (3) new directors to be chosen by
NuVen. Following appointment of the new directors, the remaining
directors will resign.
8.2 Maintenance of Capital Structure. Up until the Closing Date, or
termination hereof, whichever is the earlier, except as disclosed
herein or required under the terms of this Agreement, no change shall
be made in the Articles of Incorporation or Bylaws of Purchaser, or
the authorized capital stock of Purchaser.
8.3 Avoidance of Distributions. Up until the Closing Date, Purchaser shall
not declare any dividends, make any payments or distributions to its
stockholders or purchase for cash or redeem any of its shares of
capital stock.
8.4 Conduct of Business as Usual. Up until the Closing Date, Purchaser
shall conduct its operations only in the usual and ordinary course,
and that no change will be made to such operations which might
adversely affect the value of Purchaser.
18
<PAGE>
8.5 Access and Information. After the execution of this Agreement,
Purchaser will permit NuVen to have reasonable access to all
information necessary to verify the representations and warranties of
Purchaser. After the Closing, Purchaser will continue to permit NuVen
access to such additional documentation and information regarding
Purchaser as is reasonably necessary to completion of the transactions
contemplated under this Agreement.
8.6 Best Efforts. Purchaser shall use its best efforts to fulfill or
obtain the fulfillment of all conditions of the Closing, including the
timely solicitation of affirmative consent of all third parties
necessary to effect a Closing under this Agreement.
9. Termination
9.1 Termination Without Cause. This Agreement may be terminated at any
time prior to the Closing Date without cost or penalty to either
party:
(A) Mutual Consent. By mutual consent of NuVen and Purchaser.
(B) Actions or Proceedings. By NuVen or Purchaser, (unless the action or
proceeding referred to is caused by a breach or default on the part of
NuVen or Purchaser of any of their representations, warranties, or
obligations under this Agreement), if there shall be any actual or
threatened action or proceeding by or before any court or any other
governmental body which shall seek to restrain, prohibit, or
invalidate the transactions contemplated by this Agreement and which,
in the judgment of NuVen or Purchaser, made in good faith and based
upon the advice of legal counsel, makes it inadvisable to proceed with
the transactions contemplated by this Agreement.
9.2 Termination with Cause
This Agreement may be terminated, with the terminating party to be
reimbursed by the other party of all expenses and costs related to
this Agreement, if:
(A) Breach or Noncompliance by NuVen. NuVen shall fail to comply in any
material aspect with any of their representations, warranties, or
obligations under this Agreement, or if any of the representations or
warranties made by NuVen under this Agreement shall be inaccurate in
any material respect and is not cured within ten (10) business days of
notice of such breach.
(B) Breach or Noncompliance by Purchaser. Purchaser shall fail to comply
in any material aspect with any of its representations, warranties, or
obligations under this Agreement, or if any of the representations or
warranties made by Purchaser under this Agreement shall be inaccurate
in any material respect and is not cured within ten (10) business days
of notice of such breach.
19
<PAGE>
10. Securities Registration; Disclosure
10.1 Private Transaction. NuVen understand that the Shares issued pursuant
to this Agreement, have not been nor will they be registered under the
Securities Act of 1933 as amended ("'33 Act"), but are issued pursuant
to exemptions from registration including but not limited to
Regulation D and Section 4(2) of the '33 Act, and Purchaser's reliance
on such exemptions in issuing the Shares is predicated in part on the
representations of NuVen set forth herein and in the Investment Letter
attached hereto as Exhibit "1" (the "Investment Letter"), to be
executed by NuVen and delivered to Purchaser at Closing.
10.2 Access to Information. NuVen represents that, by virtue of its
economic bargaining power or otherwise, it has had access to or has
been furnished with, prior to or concurrently with Closing, the same
kind of information that would be available in a registration
statement under the '33 Act should registration of the Shares issued
pursuant to this Agreement have been necessary, and that they have had
the opportunity to ask questions of and receive answers from
Purchaser's officers and directors, or any party acting on their
behalf, concerning the business of Purchaser and that they have had
the opportunity to obtain any additional information, to the extent
that Purchaser possesses such information or can acquire it without
unreasonable expense or effort, necessary to verify the accuracy of
information obtained or furnished by Purchaser.
11. Indemnification
As provided herein, NuVen and Purchaser shall each indemnify and hold
harmless the other for one (1) year following the date of Closing
under this Agreement against and in respect of any liability, damage,
or deficiency, all actions, suits, proceedings, demands, assessments,
judgments, costs and expenses resulting from any misrepresentations,
breach of covenant or warranty, or from any misrepresentation
contained in any certificate furnished hereunder. In this regard,
NuVen agrees that Purchaser is held harmless from and indemnified
against any loss, damage, or expense resulting from the falsity or
breach of any of the representations, warranties, or agreements of
NuVen contained herein under which the Shares hereunder are
transferred to NuVen.
12. Confidential Information
Notwithstanding any termination of this Agreement, Purchaser, NuVen
and their representatives, agree to hold in confidence any information
not generally available to the public received by them from the other
party pursuant to the terms of this Agreement. If this Agreement is
terminated for any reason, Purchaser, NuVen and their representatives
will continue to hold such information in confidence and will, to the
extent requested by any party, promptly return to the requesting party
all written material and all copies or abstracts thereof previously
furnished.
20
<PAGE>
13. Miscellaneous Provisions
13.1 Survival of Representations and Warranties. All representations,
warranties, and covenants made by any party in this Agreement shall
survive the Closing hereunder and the consummation of the transactions
contemplated hereby for three (3) years from the Closing Date. NuVen
and Purchaser are executing and carrying out the provisions of this
Agreement in reliance on the representations, warranties, and
covenants and agreements contained in this Agreement or at the Closing
of the transactions herein provided for including any investigation
upon which they might have made or any representations, warranty,
agreement, promise, or information, written or oral, made by the other
party or any other person other than as specifically set forth herein.
13.2 Costs and Expenses. Subject to paragraph 9 herein, all costs and
expenses in the proposed sale and transfer described in this Agreement
shall be borne by NuVen and Purchaser in the following manner:
(A) Attorneys Fees and Costs. Each party has been represented by its own
attorney(s) in this transaction, shall pay the fees of its own
attorney(s), except as may be expressly set forth herein to the
contrary.
(B) Costs of Closing. Each party shall bear its reasonable share of all
other Closing costs and expenses arising from this Agreement.
13.3 Further Assurances. At any time and from time to time, after the
effective date, each party will execute such additional instruments
and take such action as may be reasonably requested by the other party
to confirm or perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this Agreement.
13.4 Waiver. Any failure of any party to this Agreement to comply with any
of its obligations, agreements, or conditions hereunder may be waived
in writing by the party to whom such compliance is owed. The failure
of any party to this Agreement to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a
waiver of any such provision or a waiver of the right of such party
thereafter to enforce each and every such provision. No waiver of any
breach of or non-compliance with this Agreement shall be held to be a
waiver of any other or subsequent breach or non-compliance.
13.5 Notices. All notices and other communications hereunder shall either
be in writing and shall be deemed to have been given if delivered in
person, sent by overnight delivery service or sent by facsimile
transmission, to the parties hereto, or their designees, as follows:
21
<PAGE>
To Purchaser:
Mr. Jonathan D. Forgy
Scientific NRG, Incorporated
2246 Lindsay Way
Glendora, CA 91740
Telephone (909) 305-0322
Facsimile (909) 599-3054
To NuVen:
Mr. Fred G. Luke
NuVen Capital L.P.
4001 South Decatur Blvd., Suite 37-130
Las Vegas, NV 89103-5800
Telephone (801) 277-8755
Facsimile (801) 277-8755
13.6 Headings. The paragraph and subparagraph headings in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.7 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
13.8
Governing Law. This Agreement shall be governed by the laws of the
United States, State of
California.
13.9 Binding Effect. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective
heirs, administrators, executors, successors, and assigns.
13.10 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto and supersedes any and all prior agreements,
arrangements, or understandings between the parties relating to the
subject matter of this Agreement. No oral understandings, statements,
promises, or inducements contrary to the terms of this Agreement
exist. No representations, warranties, covenants, or conditions,
express or implied, other than as set forth herein, have been made by
any party.
13.11 Severability. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in full force
and effect.
13.12 Amendment. This Agreement may be amended only by a written instrument
executed by the parties or their respective successors or assigns.
22
13.13 Facsimile Counterparts. A facsimile, telecopy or other reproduction of
this Agreement may be executed by one or more parties hereto and such
executed copy may be delivered by facsimile of similar instantaneous
electronic transmission device pursuant to which the signature of or
on behalf of such party can be seen, and such execution and delivery
shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties agree to execute an
original of this Agreement as well as any facsimile, telecopy or other
reproduction hereof.
13.14 Time is of the Essence. Time is of the essence of this Agreement and
of each and every provision hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
"Purchaser"
Scientific NRG, Incorporated
By: /s/ JONATHAN D. FORGY
Name: Jonathan D. Forgy
Title: President
"NuVen"
NuVen Capital L.P., a Nevada limited partnership
By: /s/ FRED G. LUKE
Name: Fred G. Luke
Title: President, Chief Executive Officer
23
<PAGE>
EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made this 29th day of June
1999 by and between Scientific NRG, Incorporated., a Minnesota corporation
("SNRG"), and Juan Flores ("Flores") 1356 W. Washington Avenue, Santa Ana,
California 92706.
WHEREAS, SNRG desires to sell certain assets from SNRG's downlight business
listed on Exhibit A to Flores; and
WHEREAS, Flores desires to purchase the assets listed on Exhibit A and to
assume the liabilities set forth on Exhibit B; and
WHEREAS, the shareholders of SNRG approved the sale of SNRG's downlight
business on August 15, 1998; and
WHEREAS SNRG agrees to sell and Flores agrees to purchase the assets and
assume the liabilities of the downlight business subject to the terms and
conditions of this Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. SNRG agrees to sell to Flores all of the assets listed on Exhibit A.
2. Flores agrees to purchase all of the assets listed on Exhibit A and to
assume all of the liabilities set forth on Exhibit B.
3. The purchase price shall be $50,000 cash.
4. SNRG represents and warrants to Flores that it is the owner of the
assets conveyed.
5. Flores represents and warrants to SNRG that he assumes all of the
liabilities set forth in Exhibit B and further agrees to indemnify and
hold harmless SNRG from any and all claims from the liabilities set
forth on Exhibit B, including, but not limited to all liability for any
warranties, royalties or accounts payable.
6. The closing of this Agreement shall occur on or before June 30, 1999
(the "Closing Date").
7. All representations and warranties made by any party in this Agreement
shall survive the Closing hereunder and the consummation of the
transactions contemplated hereby for one (1)year from the Closing Date.
1
<PAGE>
At any time and from time to time, after the effective date, each party will
execute such additional instruments and take such action as may be reasonably
requested by the other party to confirm or perfect title to any property
transferred hereunder or otherwise to carry out the intent and purposes of this
Agreement.
Any failure of any party to this Agreement to comply with any of its
obligations, agreements, or conditions hereunder may be waived in writing by the
party to whom such compliance is owed. The failure of any party to this
Agreement to enforce at any time any of the provisions of this Agreement shall
in no way be construed to be a waiver of any such provision or a waiver of the
right of such party thereafter to enforce each and every such provision. No
waiver of any breach of or non-compliance with this Agreement shall be held to
be a waiver of any other or subsequent breach or non-compliance.
This Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by the laws of the United States, State of
California.
This Agreement shall be binding upon the parties hereto and inure to the benefit
of the parties, their respective heirs, administrators, executors, successors,
and assigns.
This Agreement contains the entire agreement between the parties hereto and
supersedes any and all prior agreements, arrangements, or understandings between
the parties relating to the subject matter of this Agreement. No oral
understandings, statements, promises, or inducements contrary to the terms of
this Agreement exist. No representations, warranties, covenants, or conditions,
express or implied, other than as set forth herein, have been made by any party.
A facsimile, telecopy or other reproduction of this Agreement may be executed by
one or more parties hereto and such executed copy may be delivered by facsimile
of similar instantaneous electronic transmission device pursuant to which the
signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties agree to execute an original of
this Agreement as well as any facsimile, telecopy or other reproduction hereof.
Time is of the essence of this Agreement and of each and every provision hereof.
2
<PAGE>
IN WITNESS HEREOF the parties have executed this agreement as of the date set
forth above.
Scientific NRG, Incorporated
By: /s/ Jonathan d. Forgy
Name: Jonathan D. Forgy
Title: President
Juan Flores
By: /s/ Juan Flores
Name: Juan Flores
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Scientific NRG, Incoprporated (dba Scientific Component Systems)
We hereby consent to the incorporation by reference in the previously filed
Registration Statement on Form S-8 (File No. 333-82881) of our report dated
August 3, 1998, appearing in the Annual Report on Form 10-KSB of Scientific NRG,
Incorporated (dba Scientific Component Systems) for the year ended June 30,1999.
CORBIN & WERTZ
Irvine, California
October 12, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Scientific NRG, Incoprporated (dba Scientific Component Systems)
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-82881) of Scientific NRG, Incorporated of
our report dated October 4, 1999, appearing on page F-2 of this Annual Report on
Form 10-KSB. CORBIN & WERTZ Irvine, California October 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,659
<SECURITIES> 1,136,556
<RECEIVABLES> 453,197
<ALLOWANCES> 403,200
<INVENTORY> 0
<CURRENT-ASSETS> 1,416,816
<PP&E> 49,637
<DEPRECIATION> 18,274
<TOTAL-ASSETS> 10,171,053
<CURRENT-LIABILITIES> 101,082
<BONDS> 0
0
0
<COMMON> 14,065,393
<OTHER-SE> (3,995,422)
<TOTAL-LIABILITY-AND-EQUITY> 10,171,053
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 362,182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (362,182)
<DISCONTINUED> (65,925)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (428,107)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
