FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Mark One
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE OF 1934
FOR THE FISCAL YEAR ENDED: June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO N/A
COMMISSION FILE NUMBER: 33-21239
TRAVEL DYNAMICS, INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 0462569
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STATE OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
4150 North Drinkwater Boulevard, Fifth Floor
SCOTTSDALE, AZ 85251
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(480) 949-9500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
files such reports), and (2) has been subject to such filing
requirements for the past 90 days. (1) X Yes as to filing; (2)
X Yes as to requirement. ----
---
As of September 26, 2000 the aggregate value of the voting stock
held by non-affiliates of the Registrant, computed by reference
to the average of the bid and ask price on such date was
$4,398,651.
As of June 30, 2000 the Registrant had outstanding approximately
5,790,080 shares of common stock ($.001 par value).
An index of the documents incorporated herein by reference and/or
annexed as exhibits to the signed originals of this report
appears on page 23.
<PAGE>
TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-KSB
YEAR ENDED JUNE 30, 2000
PART I
Page
Item 1. Description of Business 1
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 6
Item 6. Management's Discussion and Analysis of Financial
Condition and Plan of Operation 8
Item 7. Financial Statements and Supplementary Data 13
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons 14
Item 10. Executive Compensation 16
Item 11. Security Ownership of Certain Beneficial Owners and
Management. 20
Item 12. Certain Relationships and Related Transactions 22
PART IV
Item 13. Exhibits, Financial Statements and Schedules and
Reports on Form 8-K 23
<PAGE>
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
--------------------------------
A. GENERAL DESCRIPTION
Travel Dynamics, Inc., as the parent company, and Tru
Dynamics, Inc., as the sole operating subsidiary, are
collectively referred to herein as "the Company." Both are
Nevada corporations. The Company is a marketing firm that
wholesales and distributes educational and lifestyle products and
materials through independent sales associates ("ISAs") and
through the Internet. The products and materials are designed to
support individuals in their development of income for home-based
businesses. This product line consists primarily of travel
products, training conferences and packages and e-commerce
packages.
The Company's travel product is comprised of travel premium
certificates and vouchers that include airline discounts, condo
rentals, car rentals, hotel accommodations, cruises, golf and
dining discounts. These components are purchased at a discount
from various independent suppliers and vendors, assembled into
packages by the Company, and sold to ISAs who purchase the
packages from the Company at wholesale and resell them at a
retail price.
The Company also conducts training and motivational
seminars. These seminars are marketed primarily through its
ISAs. The seminars educate the participants in a variety of
topics that teach the fundamental aspects of running a home-based
business including tax reduction opportunities, personal
effectiveness and personal finances. The Company charges a fee
for attending such seminars. The sale of the seminars and travel
packages to the Company's ISAs is the most significant revenue
source of the Company's business.
The Company also is engaged, to an increasing extent, in
direct marketing via the Internet. In addition, the Company has
developed several new educational and lifestyle products related
to the home-based business industry. These include the primary
components of nationally recognized retail stores, retail travel,
discounted travel packages, website development and maintenance
and a tax savings and management program for ISAs and their small
business clients. The Company believes these "new products" have
the potential to contribute significantly to revenue growth in
its 2001 fiscal year.
As of June 30, 2000, the Company had twenty-seven full-time
employees and two part-time employees and had a contract
relationship with approximately 10,000 ISAs engaged in the sale
of its travel and other products.
Distribution
The Company distributes its products and services under
agreements with its ISAs and through sales on the Internet.
Status of Publicly Announced New Products and Services
The Company's website and Internet mall were announced June
2000. The Company currently is deploying several new strategies
to expand its customer base through opt-in programs and the
websites' unusual "stickiness". The Company also is making
enhancements to its travel offerings and expanding the electronic
retailers and services available through the Company's websites.
The Company recently introduced and is marketing short
notice travel opportunities with the help of experts in these
areas. This approach provides significant advantages to the
Company's customers.
Competition
The barriers to entry in the direct marketing arena and
Internet retail market are relatively low. Except in the case of
regulation of multi-level marketing, there are few, if any,
regulatory constraints which preclude smaller companies from
gaining significant market share. With low barriers to entry,
competition is significant and is likely to continue. The
Company's competition in the Internet retailing arena includes a
host of companies which have replicating Internet malls, such as
the ones offered by Bigsmart.com and KM.net. However, the Company
believes it has significant advantages in the travel product
offerings over other competitors because of its relationships and
access which cannot be so easily duplicated.
The Company believes that its ability to compete in the
direct marketing and Internet retail market depends upon a number
of factors including: the pricing policies of competitors and
suppliers; the capacity, reliability, availability and security
of the Internet website marketing strategies; the development and
timing of introductions of new products and services; the ability
to support existing products and services; the ability to balance
demand with the fixed expenses associated with supply; and market
and general economic trends.
Suppliers
The Company supplies its travel packages and Internet retail
services by entering into agreements with certain suppliers and
linking agreements to online retailers. One of the Company's
larger suppliers is Columbus Companies. The Company has signed a
letter of intent to acquire Columbus Companies. See
"Management's Discussion and Analysis of Financial Condition and
Plan of Operation."
Dependence on Major Customers
The Company depends largely on its ISAs to sell its travel
packages, educational seminars and drive traffic to its Internet
retail mall. The Company provides monetary incentives to its
ISAs by discounting its travel packages and paying commissions
for customers referred to the Company's website and those
products sold directly by the ISAs.
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Patents, Trademarks and Copyrights
The Company does not hold and has not applied for any
patents. The Company has filed for trademark protection for key
names and symbols.
Effect of Existing or Probable Governmental Regulation on the
Business
The Company currently is not required to be licensed by any
federal agency. Notwithstanding the current state of the rules,
the FCC's potential jurisdiction over the Internet is broad. The
Company also may be required to comply with the regulations
regarding the operation of its business in several foreign
jurisdictions and may be subject to compliance with the
requirements of the authorities of these locales regarding the
establishment and operation of the Company's business.
The Company is subject to varying levels of regulation in
the states for its multi-level operations. Certain states
require the Company to file registrations for providing direct
marketing programs that might qualify under multi-level statutes.
The Company currently is not subject to any state regulation
with respect to its Internet related retail services. However,
there can be no assurances that the Company will not be subject
to such regulations in the future. Additionally, the Company is
not aware of any pending legislation that would have a material
adverse effect on its operations.
As the Company's products and services are available over
the Internet in multiple jurisdictions, these jurisdictions may
claim that the Company is required to qualify to do business as a
foreign corporation in such jurisdictions. New legislation or
the application of laws and regulations from jurisdictions in
this area could have a detrimental effect upon the Company's
business, but probably not any more than for its competition.
Due to the increasing popularity and use of the Internet, it
is possible that additional laws and regulations may be adopted
with respect to the Internet, covering issues such as content,
privacy, access to adult content by minors, pricing, bulk e-mail
(spam), encryption standards, consumer protection, electronic
commerce, taxation, copyright infringement and other intellectual
property issues. The Company cannot predict the impact, if any,
that future regulatory changes or developments may have on its
business, financial condition, or results of operation. Changes
in the regulatory environment relating to the Internet access
industry, including regulatory changes that directly or
indirectly affect the costs of doing business on the Internet or
increase the likelihood or scope of competition from others,
could increase operating costs, limit the Company's ability to
offer services and reduce the demand for the Company's products
and services in the Internet areas. However, a significant
amount of the Company's business can be conducted outside of the
Internet.
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Cost of Research and Development
The Company has paid independent contractors to develop its
Internet retail website and conduct research and develop
enhancements. The Company plans to continue making such
enhancements. The Company paid third-parties approximately
$323,650 for these services during the fiscal year ended June 30,
2000.
The Company plans to and currently conducts research and
development on a continuing basis, particularly in connection
with its Internet retail services and services and products to
home-based businesses and other products. At the current time,
the Company does not anticipate that such costs will be borne
directly or indirectly by the customer or its ISAs; however there
is no guarantee that such costs will not be borne by customers or
ISAs in the future.
Cost and Effects of Compliance with Environmental Laws
The Company's business is not directly subject to regulation
under the state and federal laws regarding environmental
protection and hazardous substances control. The Company is
unaware of any bills currently pending at the federal level,
which could change the application of such laws so that they
would affect the Company.
B. HISTORICAL BACKGROUND
Travel Dynamics, Inc. is a Nevada corporation (the "Parent")
and has a wholly-owned operating subsidiary known as Tru
Dynamics, Inc. (the "Subsidiary"). The Parent previously was
known as Greenway Environmental Systems, Inc. ("Greenway"). The
Parent adopted its current name after it acquired the Subsidiary
as its sole wholly-owned subsidiary in September 1998 through a
reorganization (the "1998 Reorganization"). As a result of the
1998 Reorganization, the issued and outstanding shares of the
Subsidiary were acquired by the Parent.
Before the Subsidiary was acquired by the Parent, the
Subsidiary originally was organized as an Arizona limited
liability company in March 1998 and was reorganized as a newly-
formed Nevada corporation in July 1998.
After the 1998 Reorganization closed, Greenway, as the
parent company, changed its name to "Travel Dynamics, Inc." The
Subsidiary, then known as "Travel Dynamics, Inc." changed its
name to "Travel Dynamics Services, Inc." and continued to operate
under such name until March 2000, when the Subsidiary changed its
name to its current name, "Tru Dynamics, Inc.", by filing a
Certificate of Amendment to the Articles of Incorporation with
the Secretary of State of the State of Nevada. After the name
change of the Subsidiary, the Company started promoting its
products and services under the name "Tru Dynamics," as further
described under "Management's Discussion and Analysis of
Financial Condition and Plan of Operation" below.
The Parent's common stock currently trades on the OTC
Bulletin Board under the symbol "TDNM".
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ITEM 2. DESCRIPTION OF PROPERTY
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The Company maintains a single administrative office and
meeting center at 4150 North Drinkwater Boulevard, Fifth Floor,
Scottsdale, AZ 85251. This facility is comprised of
approximately 9,600 square feet of which approximately 8,600
square feet are used as administrative space and 1,000 square
feet are used as a meeting/training area.
These premises are retained by the Company on a 5-year lease
with a monthly rental of $20,685.60 and a remaining term under
the lease of approximately 50 months. The Company also has a 3
year right of renewal for the premises. The Company does not own
or lease any other real property or facilities.
The Company generally owns basic office equipment,
furnishings, and telephones, computer hardware, software and
network primarily used in the normal course of daily business.
The Company also owns audio and visual equipment related to
conducting the seminars.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
The Company presently is not engaged in any material legal
disputes or litigation and management does not know of any
material legal claims which have been or may be asserted as to
the Company at the present time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the fourth quarter ending June 30, 2000 the Company
did not submit any matter to a vote of security holders. The
Company presently does not have any matters pending which would
require shareholder vote or approval, except the ratification of
the Company's Board of Director's issuance of options to acquire
common stock to Board members as further described in "Executive
Compensation". The Company anticipates scheduling its annual
meeting in early December 2000. At the proposed annual
shareholder meeting no extraordinary matters are anticipated to
be presented. The shareholder meeting is anticipated to be
devoted primarily to election of directors; ratification of the
appointment of the Company's independent auditors; and other
routine businesses as may come before the meeting. The
shareholders of the Company also will be presented with the
opportunity to ratify the Company's Board of Director's issuance
of common stock and certain options to acquire common stock to
Board members and others, as further described in Item 10
entitled "Executive Compensation".
5
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PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company has only one class of stock issued and
outstanding, being its common stock. There is a limited trading
market for this common stock on the OTC Bulletin Board. The
common stock of the Company is not actively traded with limited
transactions occurring over the OTC Bulletin Board. The OTC
Bulletin Board is an informal "dealer" listing mechanism for
small companies, which does not involve a Stock Exchange and is
generally limited to low priced, low volume securities, such as
those of the Company.
The Company's common stock currently is quoted on the OTC
Bulletin Board under the symbol "TDNM" and has been since January
1999. The high and low for each calendar quarter since January
1999 to June 30, 2000 is presented below. This information is
derived from the OTC Bulletin Board. The quotations are
interdealer prices without adjustment for retail markups,
markdowns or commissions and do not necessarily represent actual
transactions. These prices may not necessarily be indicative of
any reliable market value.
Quarter High Low
1999
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First Quarter $5.75 $2.00
Second Quarter $3.31 $1.25
Third Quarter $2.12 $0.94
Fourth Quarter $3.00 $1.00
2000
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First Quarter $3.50 $1.31
Second Quarter $2.50 $0.75
The Company does not pay any dividends and does not
anticipate the payment of dividends for the foreseeable future.
The Company also has a class of Convertible Debentures which
can be converted into shares of the Company's common stock at a
ratio of one share per one dollar ($1.00) face value of the
Convertible Debentures. There is no publicly traded market for
such Convertible Debentures, nor is one anticipated to develop.
The Convertible Debentures were sold in a private offering
between April and June 1999 at $10,000 per Convertible Debenture.
Certain financial aspects of the Convertible Debentures are
described under Item 6 entitled "Management's Discussion and
Analysis of Financial Condition and Plan of Operation" below.
Upon the closing of the offering of Convertible Debentures, there
were 66.8 Convertible Debentures issued and outstanding.
Each Convertible Debenture provides for 10% simple annual
interest on the face value, payable quarterly, with the
computation of interest commencing from the issue date of June
30, 1999. Interest will be imputed on a daily basis in the event
of call, conversion or maturity of Convertible Debenture. The
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Convertible Debentures are redeemable for their face value at
maturity on January 2, 2015. Any accrued interest will be paid
through the date of redemption, but no interest will be paid
after the date of redemption.
Each Convertible Debenture with a face value of $10,000 is
convertible into 10,000 shares of restricted common stock. No
partial conversions will be allowed. Upon conversion and
physical surrender of the Convertible Debenture instrument,
properly endorsed, the holder will be issued the appropriate
number of restricted common shares of the Company. The right of
conversion expires on the second anniversary date of the
Convertible Debenture being June 30, 2001. As of June 30, 2000,
eight Convertible Debentures have been converted to 80,000 shares
of common stock.
The Company also has the right to call (redeem) the
Convertible Debenture at its face value plus 10% (i.e. $11,000
per Convertible Debenture) at any time after the first
anniversary date of the instrument on June 30, 2000. In the
event the Company exercises such call right, at the time of call
any accrued interest will be fully computed and paid. At present
the Company has no intent to call any of the Convertible
Debentures. In addition, following notice of the Company's intent
to exercise its call right, the legal holder may convert the
Convertible Debenture to common stock, as described above, within
30 days after such notice.
The Company regards the Convertible Debentures and any
conversion stock issued pursuant to conversion of the Convertible
Debentures as restricted securities issued in reliance on Rule
506 of the Securities Act of 1933, as amended (the "Securities
Act"). The Company relied upon the representations and responses
to questions in the subscription agreements that the investors
were "accredited investors" within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act. The Company
has no obligation or intent to provide registration rights for
the Convertible Debenture holders and is anticipating that in the
event of conversion, the shares common stock would subsequently
be sold by shareholders pursuant to Rule 144 under the Securities
Act, or such other exemption as may then be made available to
subscribers. The Company believes the holding period of the
Convertible Debenture counts as a holding period for stock issued
upon conversion under current Rule 144.
From March 27, 2000 to May 31, 2000 the Company engaged in a
second private placement under Rule 506 of the Securities Act of
units consisting of one share of common stock and a warrant to
purchase one share of common stock at an exercise price of $3 per
share. This private placement was for up to 1,200,000 units with
a minimum subscription of 50,000 units, unless otherwise agreed
to by the Company. Each unit was sold for $1 per unit. Each
warrant allows the holder to purchase one share of common stock
at an exercise price of $3 per unit beginning May 31, 2000. The
terms of the warrant agreement provide that all warrants not
exercised after May 31, 2003 or after certain other conditions
occur, will expire. The Company sold a total of 735,000 units
through the closing date for proceeds of $735,000, of which
$685,000 was cash proceeds and $50,000 was in exchange for
consulting services received by the Company. The Company
employed the net proceeds for web-site development and general
working capital. The Company paid an aggregate of $89,050 in
cash and granted warrants for 68,500 shares of common stock at an
exercise price of $1.20 per share as commissions in connection
with the sale of the 735,000 units.
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As of fiscal year end June 30, 2000, the Company had not
engaged in the sale of any other restricted securities of any
type or nature, except the issuance of common stock and options
to acquire common stock to directors and under the Company's
employee stock option plan. The issuance of stock and options to
directors is further described in Item 10 entitled "Executive
Compensation".
As of June 30, 2000, the approximate number of record
shareholders of the Company was 447.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND PLAN OF OPERATIONS
--------------------------------
Certain statements in this 10-KSB, including without
limitation information set forth under Item 6 entitled
`Management's Discussion and Analysis of Financial Condition and
Plan of Operation" contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
(the "Act"), including, without limitation, statements regarding
the Company's expectations, beliefs, estimates, intentions, and
strategies about the future. Words such as, "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates,"
or variations of such words and similar expressions are intended
to identify such forward-looking statements, but their absence
does not mean that the statement is not forward-looking. The
Company desires to avail itself of certain "safe harbor"
provisions of the Act and is therefore including this special
note to enable the Company to do so. Forward-looking statements
in this 10-KSB or hereafter included in other publicly available
documents filed with the Securities and Exchange Commission,
reports to the Company's shareholders and other publicly
available statements issued or released by the Company involve
known and unknown risks, uncertainties and other factors which
could cause the Company's actual results, performance (financial
or operating) or achievements to differ from the future results,
performance (financial or operating) or achievements expressed or
implied by such forward-looking statements and are not guarantees
of future performance. Similarly, statements that describe the
Company's future operating performance, financial results, plans,
objectives or goals are also forward-looking statements. Such
future results are based upon management's best estimates of
current conditions and the most recent results of operations.
Such information contained in such statements is difficult to
predict; therefore actual results may differ materially from
those expressed or forecasted. The forward-looking statements
made herein are only made as of June 30, 2000, unless otherwise
expressly stated and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect
subsequent events or circumstances.
This Management's Discussion and Analysis of Financial
Condition and Plan of Operation should be read in conjunction
with the Company's accompanying audited Consolidated Financial
Statements for the fiscal year ended June 30, 2000. The
accompanying Consolidated Financial Statements include
comparative data for the following predecessors of the
Subsidiary: (i) accounts of the Subsidiary when it was a limited
liability company known as Travel Dynamics, L.L.C., from July 1,
1998 through July 31, 1998; and (ii) accounts of the Subsidiary
when it was known as Travel Dynamics, Inc. (before it was
acquired by the Parent) from July 31, 1998 (inception as a
corporation) to September 29, 1998 (the date of the 1998
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Reorganization). The Company's Consolidated Financial Statements
for comparative purposes also include the accounts of the Parent,
when it was known as Greenway Environmental Systems, Inc.,
through the date of the 1998 Reorganization on September 29,
1998. These two entities (Travel Dynamics, Inc. as the Parent
company and Tru Dynamics, Inc. as the sole operating Subsidiary)
are collectively referred to herein as "the Company." In March
2000, the name of the Subsidiary, Travel Dynamics Services, Inc.,
was changed to Tru Dynamics, Inc. by filing a Certificate of
Amendment to the Articles of Incorporation with the Secretary of
State of the State of Nevada. After the name change of the
subsidiary, the Company started promoting its products and
services under the name "Tru Dynamics," as further described
under "Plan of Operation" below.
The following is a summary of selected financial data and
should be read in conjunction with the Company's Consolidated
Financial Statements for the period ending June 30, 2000 attached
hereto:
<TABLE>
<CAPTION>
Operating Net Income Net Income Total Assets Long term Cash Accumulated Stock-
Revenues (loss) from (loss) per obligations Dividends Losses holders
continuing common deficit
---------- ----------- -------- ----------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Fiscal $9,024,326 $(693,429) ($.15) $2,815,752 $715,831 N/A ($1,696,129) ($98,823)
Year Ending
June 30, 2000
</TABLE>
The following constitutes Management's summary of what it
believes to be certain significant financial data, but is limited
by and is subject to the more the Company's complete
Consolidated Financial Statements as attached. This section
should be reviewed in conjunction with the Consolidated Financial
Statements and notes.
Operations
Net revenue for the twelve month period ended June 30,
2000 was $9,024,326, an increase of $5,881,723 or 187% over the
comparable period during the prior fiscal year. This increase is
primarily attributable to the Company significantly increasing
its customer base over the prior fiscal year. Additionally, the
increase also relates to a change in the way the Company collects
the price of its seminars and other higher priced products from
its ISAs. Since January 1, 2000, the Company collects full retail
price of these products directly from the ISAs' customers and
then pays the ISA the difference between the retail price and the
wholesale price previously charged to the ISA. In contrast, for
periods prior to January 1, 2000, the Company simply collected
the wholesale price from the ISAs. For the twelve months ended
June 30, 1999 the Company was essentially a start-up company in
the early stages of its current operations and had a minimal base
from which to generate revenues.
Gross margin for the twelve months ended June 30, 2000 was
35% a decrease of 5% as compared to the comparable period during
the prior fiscal year. The decrease in the gross margin relates
to a change in the way the Company collects the price of its
seminars and other higher priced products from its ISAs. Since
January 1, 2000, the Company collects full retail price of these
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products directly from the ISAs' customers and then pays the ISA
the difference between the retail price and the wholesale price
previously charged to the ISA. In contrast, for periods prior to
January 1, 2000, the Company simply collected the wholesale price
from the ISAs. This change in payments results in a reduction in
gross margin but no change in gross profit dollars generated on
each sale.
Selling, general and administrative expenses for the twelve-
month period ended June 30, 2000 were $3,739,430, an increase of
$1,935,776 or 107% over the comparable period during the prior
fiscal year. The increase primarily relates to the Company adding
personnel and computer systems to its infrastructure in
conjunction with the Company's growth in revenue and new product
development as well as creating the required infrastructure to
support anticipated revenue growth in the fiscal period 2001. In
addition, the Company incurred additional expenses relating to
the promotion on its name as "Tru Dynamics" and additional
development and promotional expenses for the launch of the
Company's web-site and Internet products as further described in
"Plan of Operation" below.
The Company's interest expense for the twelve-month period
ended June 30, 2000 was $130,710, an increase of $21,170 or 19%
over the comparable period during the prior fiscal year. The
Company was required to recognize as interest expense the
difference between the $1.00 conversion price and the market
value of the Company's stock on the day the Convertible Debenture
was granted which was $1.27. Since the Convertible Debentures
were immediately convertible to common stock, the Company
recognized the interest expense on the day the Convertible
Debentures were issued. The Company recognized $63,250 and
$108,055 of interest expense due to the beneficial conversion
feature for the years ended June 30, 2000 and 1999, respectively.
This, in addition to a full year of interest expense recognition
for the current year is attributable for the increase in interest
expense. The Convertible Debentures were issued in connection
with a private placement conducted by the Company from April 1999
to June 30, 1999. This private placement was made in reliance
upon an exemption under Rule 506 under the Securities Act of
1933. The Convertible Debentures required a minimum investment
of $10,000 and are convertible to common stock of the Company at
$1.00 per share. The Company issued one partial Convertible
Debenture. The essential terms of the Convertible Debenture
provide that interest is payable at 10% simple annual interest on
the face value and payable quarterly, computation of interest
commencing from the issue date of June 30, 1999. Interest will
be with imputed on a daily basis in the event of call, conversion
or maturity of the Convertible Debenture. The Convertible
Debenture is redeemable for its face value at maturity on January
2, 2015. Any accrued interest will be paid through the date of
redemption, but no interest will be paid after the date of
redemption.
Net loss for the twelve-month period ended June 30, 2000 was
$693,429 compared with a net loss of $966,718 for the comparable
period during the prior fiscal year. This improvement is
primarily attributable to the increased revenue. The increased
revenue has afforded the Company the opportunity to invest in
infrastructure improvements (additional personnel, computer
systems and technology) that should position the Company to
support the revenue growth anticipated in fiscal 2001.
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Liquidity & Capital Resources
The Company generated positive cash flow from operations for
the twelve month period ended June 30, 2000 of $43,567. This
represents an increase over the comparable period during the
prior fiscal year of $119,265. The difference in cash flow
generated from operations is mainly attributable to changes in
operating assets and liabilities related to increases in
customers and customer transactions.
Cash flow generated from financing activities was $988,750.
The issuance of common stock and warrants provided $648,750 while
$240,000 came from the issuance of Convertible Debentures and
$100,000 came from an advance from Mr. James Piccolo, the
Company's President. See "Certain Relationships and Related
Transactions."
Expenditures for property and equipment and other assets
totaled $832,638 for the twelve-month period ended June 30, 2000.
Expenditures of $323,650 were for web-site development; $63,436
for leasehold improvements and $404,176 for office equipment
computers and other assets.
Until the Company achieves a sustained level of
profitability, it must be considered a start-up entity.
Management considers the growth of revenues and reduction of
losses to be positive and expects to achieve profitability in its
2001 fiscal year. However, the Company remains dependent on
continuing cash flows to meet certain operating expenses and no
assurance of financial success or the economic survival of the
enterprise can be provided during this start-up period.
Management's general discussion of operations is limited by
and should be considered within the context of the Company's
Consolidated Financial Statements and notes attached thereto and
incorporated by this referenced.
Plan of Operation
Management estimates that the cash flow from operations over
the next 12 months, as well as the proceeds from the private
placement offering opened August 21, 2000, will be sufficient to
continue the Company's operations and to cover its operational
expenses. Management believes that the revenues will be
sufficient to maintain Company operations. Nevertheless, the
Company reserves the right to raise additional proceeds or incur
debt or take such other actions to expand or sustain its
operations. However, as of the twelve months ended June 30,
2000, the Company did not specifically anticipate raising any
additional funds through debt or equity offerings of securities,
except in connection with the private placement opened August 21,
2000 and described below. The Company also anticipates
initiating a rescission offering for investors that purchased
units under its private offering beginning March 27, 2000 to May
31, 2000, which offering is described under "Market for Common
Equity and Related Stockholder Matters." The Company does not
anticipate that many investors will elect to rescind their
investment under the proposed rescission offering.
11
<PAGE>
The Company currently is engaged in another Rule 506 Private
Placement consisting of one warrant for one share of common stock
and a commitment fee. This private placement is for up to
3,000,000 units with a minimum subscription of 400,000 units. The
subscriber provides an irrevocable letter of credit as security
for a line of credit that the Company has secured with a local
bank (further described below). In exchange for this, the
subscriber has a warrant to purchase shares of Company stock at
$.50 per share anytime during the term that the letter of credit
is provided as security for the line of credit. This private
offering commenced August 21, 2000 and expires November 30, 2000,
unless extended.
On August 25, 2000, the Company executed a promissory note
with a local bank. This note evidences a revolving line of credit
with a principal amount of $1,000,000. The interest is variable
at 1 percentage point over bank prime. Payment terms call for
monthly interest payments plus payment in full of any outstanding
advances on August 15, 2001. This note is secured by various
irrevocable letters of credit as provided from the private
placement opened August 21, 2000, described above.
After changing the name of its operating subsidiary to Tru
Dynamics, Inc., the Company began and plans to continue marketing
its products and services under the name Tru Dynamics, and using
related names for its products and services. The Company
projects broadening its products and services through electronic
commerce and including more on-line products and services over
the Internet. This includes continued enhancement of travel and
travel-related products via Internet access and the use of
electronic commerce technology. In addition, the Company will
continue to market its e-business programs that allow ISAs an
opportunity to develop and customize their own web pages and
provide ISAs with business management and communication tools.
The Company also plans to continue the marketing and support of
products and services that assist ISAs in the development of a
home-based business. To support these plans, the Company may
continue to invest in product development, technology and web-
site development.
Other Information
In February 2000, the Company executed a letter of intent
with Columbus Companies of Bountiful, Utah. The letter of intent
indicates the Company's intent to pursue an acquisition of the
stock or assets of Columbus Companies in exchange for equity in
the Company. Certain provisions of the letter of intent are
binding but conditioned upon various contingencies, such as
approval of counsel, completion of due diligence, approval by the
parties' board of directors, execution of various employment
agreements and audited financials of Columbus Companies. Under
the terms of the letter of intent, the Company proposes to
exchange 400,000 shares of the Company's common stock for (i) all
of Columbus Companies' tangible and intangible assets, and (ii)
all of Columbus Companies' liabilities. Columbus Companies is a
travel and incentive marketing business with an Internet
presence. The Company, if it consummates the acquisition of
Columbus Companies, plans to use the acquisition to enhance the
Company's group of travel products and services offered.
12
<PAGE>
The Company entered into an Electronic Commerce License and
Hosting Agreement with APEX Interactive, Inc. dated March 1,
2000. APEX is engaged in the business of web-site development,
marketing and hosting. Under the terms of the agreement, APEX
primarily agreed to develop, license and host the proposed
general merchandise Internet shopping mall and back-end
functionality including business management and communication
tools. The specifications under the agreement contemplated
completion of a majority of the development within approximately
four months. The agreement also contemplated that APEX would
develop the functionality for ISAs to replicate individual
Internet shopping malls based on the Company's central Internet
shopping mall web-site. Subject to the terms of the agreement,
the Company proposed to pay APEX in stages and to issue warrants
to APEX. However, this agreement was terminated on or about May
24, 2000.
Until the Company achieves a sustained level of
profitability, it must be considered a start-up entity.
Management considers the growth of revenues and profitability to
be positive and expects to maintain profitability for the current
fiscal year, however no warranty of this projection can be made.
The Company remains dependent on continuing cash flows to meet
certain operating expenses and no assurance of financial success
or economic survival of the Company can be assured during this
period.
It should also be noted that as a start up entity, the
Company has and will necessarily continue to incur certain types
of start up costs, including costs related to the commencement of
business, legal and accounting fees, filing fees, and advertising
and marketing fees which may not constitute ongoing fees; or, if
ongoing, may not be incurred at the same level or percentage of
revenues as experienced in the initial start-up period.
Management's general discussion of operations is limited by
and should be considered within the context of the Company's
Consolidated Financial Statements and notes attached hereto and
incorporated as part of Item 1 above.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
--------------------------------------------------
See the Company's Consolidated Financial Statements attached
to this 10-KSB report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
-----------------------------------------------------------------
ACCOUNTING & FINANCIAL DISCLOSURE
---------------------------------
The Company is not aware, and has not been advised by its
auditors, of any disagreement on any matter of accounting
principles or practices, financial statement disclosures, or
auditing scope or procedures.
13
<PAGE>
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
-----------------------------------------------------------------
PERSONS
-------
As of June 30, 2000, the directors and executive officers of
the Company and their ages and positions held with the Company
are as follows:
Name Age Positions
---- --- ---------
James Piccolo 43 Director, Chairman of the
Board, Chief Executive Officer
and President
Thomas Dennis 53 Director
Thomas Vergith 40 Director
John P. Piccolo 36 Vice President
Richard A. Miller 44 Chief Financial Officer
Brian K. Service(1) 53 Director, Managing Director,
Secretary and Treasurer
(1) On July 10, 2000 Mr. Service resigned as a board member,
Managing Director, Secretary and Treasurer of the Company.
Each of the Company's directors is elected at the annual
meeting of stockholders and serves until the next annual meeting
and until his or her successor is elected and qualified, or until
his or her earlier death, resignation or removal. Directors
receive compensation for their service on the Board and are
reimbursed for travel and other direct expenses in attending
meetings of the Board.
Following is a general biographical description of all
directors and principal officers of the Company:
JAMES PICCOLO - DIRECTOR, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
Mr. Piccolo has served as a Director, President, Chief
Executive Officer and Chairman of the Board of the Company since
the 1998 Reorganization in September 1998. Mr. Piccolo founded
the Company's Subsidiary in March 1998. Prior to his involvement
with the Company, Mr. Piccolo was involved in numerous
entrepreneurial endeavors. These include founding and operating
many domestic companies as well as the creation of several large
manufacturing concerns in Mexico under the maquiladora program.
Mr. Piccolo was the co-founder of the International Sport Truck
Association and nationally recognized as an after-market sport
14
<PAGE>
truck accessory entrepreneur and designer. He has held top
positions with and has been a top income earner for, as well as
served on the advisory board of network marketing and direct
sales companies. He holds a Business Management degree from the
University of Nebraska.
THOMAS DENNIS - DIRECTOR
Mr. Dennis has served as a director of the Company since
September 1998. Mr. Dennis is a business consultant specializing
in start-up enterprises. Previously he served as Director of
Corporate Development for a company owning 88 restaurants. He was
also Vice President and a Director of Sybra, Inc. He received his
bachelor's degree in 1972 from Grand Valley State University.
THOMAS VERGITH - DIRECTOR
Mr. Vergith has served as a director of the Company since
September 1998. Mr. Vergith is an attorney and Associate Counsel
for Scottsdale Insurance Company. Previously he served as a Tax
Attorney for the Nebraska Department of Revenue. He also served
as a Clerk in the Maricopa County Superior Court. He received a
bachelor's degree in Economics from the University of Nebraska in
1982 and a J.D. from Creighton University in 1986.
JOHN P. PICCOLO - VICE PRESIDENT
Mr. John Piccolo currently resides in Phoenix, Arizona. Mr.
Piccolo attended Mid-Plains Community College and was a graduate
of the Emery School of Aviation in 1985 and the Sawyer School of
Aviation in 1985. Mr. Piccolo has served as the Vice President
of the Company since September 1998 and is the brother of James
Piccolo, the Company's President and CEO. Prior to joining the
Company, Mr. Piccolo was employed by Target Mail, a company
engaged in direct mail processing, Global Prosperity, and
Metropolitan Financial as a financial document administrator. Mr.
Piccolo has spent approximately the last ten years in the
aviation industry as a commercial pilot and instructor.
RICHARD A. MILLER - CHIEF FINANCIAL OFFICER
Mr. Miller has served as the Company Chief Financial Officer
since May 31, 2000 and as the Company's Secretary and Treasurer
since August 8, 2000. Prior to joining the Company, Mr. Miller
served as the Director of Operational Analysis with a $500
million provider of healthcare and emergency services throughout
the United States, Canada and South America. He also served as
the Chief Financial Officer of an EMS Partnership. Prior to his
affiliation with the Company, Mr. Miller held other financial
positions including the Controller of an interstate trucking
company as well as positions with a Big 5 accounting firm. Mr.
Miller is a Certified Public Accountant.
15
<PAGE>
BRIAN K. SERVICE - DIRECTOR, MANAGING DIRECTOR, SECRETARY AND
TREASURER
Mr. Service is a dual New Zealand and U.S. Citizen, and
currently resides in California. Mr. Service was a Chemical
Engineering graduate of the University of Canterbury in 1968.
Mr. Service currently spends a substantial amount of his
professional time in the United States acting as an international
business consultant. In this capacity, he has clients in North
and South America, the United Kingdom, Asia, Australia and New
Zealand. From October 1992 to October 1994, Mr. Service was CEO
and Managing Director of Salmond Smith BioLab, a New Zealand
publicly traded Company engaged in the production and sale of
consumer and industrial products. From 1982 to 1986, he was CEO
and Executive Chairman of Milk Products, Holding (North America),
Inc., a wholly owned subsidiary of the New Zealand Dairy Board
which was located in Santa Rosa, California. Mr. Service also
has been a member of the Board of Directors and Audit Committee
of Visual Data Corporation since July 1997 and is an Executive
Director of EDNet, Inc. On September 15, 1999, Mr. Service was
appointed CEO of 3D Systems, Inc., a publicly traded company.
Mr. Service has served as a director and Managing Director of the
Company since September 1998 until his resignation on July 10,
2000. Mr. Service served as the CFO, Treasurer and Secretary of
the Company since about September 1998 until he resigned as CFO
on May 25, 2000 and resigned as Secretary and Treasurer on July
10, 2000. Mr. Service also served and was compensated as a
business consultant to the Company through his company, BK
Business Consultant International Services. This consulting
agreement was terminated July 10, 2000.
ITEM 10. EXECUTIVE COMPENSATION
-------------------------------
Management compensation for the fiscal year ending June 30,
2000 aggregated $324,333 or 3.6% of revenues. Management and the
Board of Directors also received options to acquire 675,000
shares of common stock at an exercise price of $1.09/share and
125,000 shares at $1.25/share as detailed below.
Summary of Cash and Certain Other Compensation
The following table sets forth, for fiscal years ending June
30, 2000 and 1999, certain information regarding the compensation
earned by the Company's Chief Executive Officer and each of the
Company's most highly compensated executive officers whose
aggregate annual salary and bonus for fiscal year 1999 exceeded
$100,000 (the "Named Executive Officers") with respect to
services rendered by such persons to the Company and its
subsidiaries and the Company's directors. The following table
also includes individuals who have resigned or terminated
employment during the fiscal year 2000 who would otherwise have
been included in such table on the basis of salary and bonus for
the fiscal year:
16
<PAGE>
<TABLE>
<CAPTION>
Name Year Position at Fiscal Year End Salary Bonus Securities Underlying Options
-------------- ---- --------------------------- --------- ----- -----------------------------
<S> <C> <C> <C> <C> <C>
James Piccolo CEO/Chairman/
President/Director
2000 $250,000 0 900,000
1999 $250,000 0 600,000
Brian Service(1) Director/Managing Director/
Secretary/Treasurer
2000 Per Diem(2) 0 421,000
1999 Per Diem(2) 0 196,000
Thomas Dennis Director
Dennis
2000 Per Diem(2) 0 100,000
1999 Per Diem(2) 0 100,000
Thomas Vergith Director
2000 Per Diem(2) 0 100,000
1999 Per Diem(2) 0 100,000
John Piccolo Vice President
2000 $62,500 0 150,000
1999 $60,000 0 0
Richard Miller Chief Financial Officer
2000 $11,833 0 125,000
1999
</TABLE>
(1) On July 10, 2000 Mr. Service resigned as a board member,
Managing Director, Secretary and Treasurer of the Company
forfeiting his options for 270,000 shares of the Company's common
stock, which are not included in this table. The amounts for Mr.
Service do not reflect the $10,000 per month amounts paid to Mr.
Service and his company, BK Business Consultant International
Services, for consulting services, as further described below.
(2) Directors are not paid a salary, but receive a per diem
allowance ($1,000 per meeting during fiscal year 2000) for
attendance at Board meetings and are reimbursed for travel and
other expenses.
In addition to being a director and Managing Director of the
Company until he resigned on July 10, 2000, Mr. Brian Service and
his affiliated Company, BK Business Consultant International
Services, also acted as an independent business consultant to the
Company. Mr. Service and his company received $10,000 per month
for consulting services.
The consulting agreement was in effect from December 1, 1998
until it was terminated as of July 10, 2000. Mr. Service also
served as the CFO until he resigned on May 25, 2000 and as
Secretary and Treasurer of the Company until he resigned on July
10, 2000. During his term with the Company, the stock option
remuneration to Mr. Brian Service was slightly higher than the
stock options provided to other directors because of his added
responsibility as a managing director and outside consultant.
The Company also has issued options to key employees and
consultants. As of June 30, 2000, 1,104,000 options have been
issued; of this 117,000 have been exercised, 357,000 have been
forfeited leaving 630,000 as future exercisable options.
If fully exercised, management and directors' shares and
options would constitute approximately 31% of all issued and
outstanding stock when added to the issued and outstanding common
stock of the Company as of June 30, 2000.
17
<PAGE>
Option Grants in Last Fiscal Year
The following table contains information concerning the
stock option grants made to each Named Executive Officer for the
fiscal year ended June 30, 2000. No stock appreciation rights
were granted to these individuals during such year.
Number of % of Total
Securities Options
Underlying Granted to Exercise
Name Options Employees in Price/ Expiration
Granted Fiscal Year Share Date
2000
---------- ------------ -------- ----------
James Piccolo 300,000(2) 21.8% $1.09 11/2009
Brian Service(1) 225,000(2) 16.4% $1.09 11/2009
John Piccolo 150,000(2) 10.9% $1.09 11/2009
Richard Miller 125,000(2) 9.1% $1.25 5/2010
(1) On July 10, 2000 Mr. Service resigned as a board member,
Managing Director, Secretary and Treasurer of the Company
forfeiting these options for shares of the Company's common
stock.
(2) All options granted to Named Executive Officer may qualify
as incentive stock options under the federal tax laws. The
options for James Piccolo, Brian Service and John Piccolo were
granted in November 1999 and the options for Richard Miller were
granted in May 2000. Pursuant to the option agreement evidencing
these options, the options were to become exercisable and vest in
three successive equal annual installments to vest on the
anniversary date, except for 50,000 at Mr. Miller's options which
vest upon the Company meeting certain performance criteria. The
exercise price may be paid in cash or in shares of the Company's
Common Stock.
Options Exercised in Fiscal Year 2000 and Fiscal Year End Option
Values
The following table sets forth information regarding the
number and value of unexercised options held by each of the Named
Executive Officers as of June 30, 2000. No stock appreciation
rights were exercised during such year or were outstanding at the
end of that year.
<TABLE>
<CAPTION>
Shares Number of Unexercised Value of Unexercised in the
Acuqired on Value Securities Underlying Options at Money Options to Fiscal Year
Name Exercise Realized Fiscal Year End 2000 End 2000
--------------- ----------- -------- -------------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James Piccolo 200,000 $267,500 0 700,000 $0 $634,340
Brian Service(1) 110,000 $145,000 12,000 311,000 $10,874 $281,828
John Piccolo 0 0 0 150,000 $0 $0
Richard Miller 0 0 0 125,000 $0 $0
</TABLE>
(1) On July 10, 2000 Mr. Service resigned as a board member,
Managing Director, Secretary and Treasurer of the Company
forfeiting his options for 270,000 shares of the Company's common
stock, which are included in this table.
18
<PAGE>
Committees
The Bylaws of the Company authorize the establishment of
committees of the Board of Directors. The Board of Directors, by
resolutions, has authorized the formation of a Remuneration
Committee. As of June 30, 2000, the Company had not yet adopted
an Audit Committee Charter. The Board of Directors served any
audit committee functions.
Limitation of Liability and Indemnification Matters
The Company's Articles of Incorporation provide that no
director of the Company shall have personal liability to the
Company or any of its stockholders for monetary damages for
breach of any duty as a director or officers involving any act or
omission of any such director or officer. Such a provision,
however, under Nevada law, cannot eliminate or limit the
liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or, which involve intentional
misconduct or a knowing violation of the law, (iii) under
applicable Sections of the Nevada Revised Statutes, (iv) the
payment of dividends in violation of the Nevada Revised Statutes,
or (v) for any transactions from which the director derived an
improper personal benefit. The Company's Bylaws provide for
indemnification of officers and directors pursuant to Nevada law.
Employment Agreements
The Company has written employment agreements with Mr. James
Piccolo and Mr. Miller, who respectively act as CEO/President and
CFO of the Company.
The agreement with Mr. Piccolo is dated October 1, 1998 and
is in effect for a three (3) year period. His base salary is
$250,000 per year. Mr. Piccolo is also entitled to other
benefits within the general benefit programs provided to all
employees.
The agreement with Mr. Miller is dated May 30, 2000 and is
in effect for a two (2) year period. His base salary is $130,000
per year. Mr. Miller is also entitled to other benefits within
the general benefit programs provided to all employees.
Both Mr. Piccolo's and Mr. Miller's employment agreements
contain the following terms: (a) after the initial term, the
agreement renews automatically on a year-to-year basis unless
otherwise terminated by the parties as provided in the agreement;
(b) the employee can voluntarily terminate his employment or the
Company can terminate the employee for cause, in which case, the
employee would be paid for a period of 20 days after such
termination; (c) the Company can terminate the employee without
cause upon three months notice; (d) upon termination by the
Company without cause, upon constructive termination of the
employee's duties or other employment terms or upon a change in
control, at the employee's election either in the form of a lump
sum or monthly amounts, the Company would be required to pay an
amount or amounts equal to the employee's compensation and
benefits as determined by a formula for the term remaining under
the agreement; (e) the employee would be entitled to
reimbursement for comparable benefit coverage during the
remaining term of the agreement and the employee would further be
entitled to life, disability and health insurance benefits and
his base salary for a period of up to one year after termination;
(f) if the employee is terminated due to disability, he is
entitled to receive compensation in accordance with the Company's
practice for senior executives; (g) the Company will reimburse
the employee for business expenses; and (h) the Company will
indemnify the employee as provided in its articles and bylaws.
19
<PAGE>
Stock Option Plan
On November 29, 1999, the Company's stockholders adopted the
Travel Dynamics Incentive Stock Option Plan (the "Stock Option
Plan") under which 1,275,000 shares of Common Stock are reserved
for grants under the Stock Option Plan. The Stock Option Plan
took effect on October 1, 2000 and terminates on October 1, 2009.
Under the Stock Option Plan, options can be granted to select
officers and managerial employees. The exercise period for the
options is determined by the Board of Directors but cannot exceed
10 years (or 5 years in the case of persons holding more than 10
percent of the Company's voting power). Pursuant to the terms of
the approved Stock Option Plan, the Board of Directors is
authorized to alter, amend or modify the Stock Option Plan under
certain conditions. As of June 30, 2000, options to purchase
1,125,000 shares had been granted to executive officers and key
employees at varying exercise prices determined on the date of
the grant.
Options granted under the Stock Option Plan may qualify as
"incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, and become exercisable
in accordance with the terms approved at the time of grant.
Options may be granted to any employee of the Company or its
subsidiaries, including employees who are also officers, selected
by the Board of Directors in its discretion.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-----------------------------------------------------------------
MANAGEMENT
----------
The Company has the following additional shareholders who
hold, legally or beneficially, five percent (5%) or more of the
issued and outstanding shares of common stock; or which
shareholder has some affiliation with an officer or director.
Percent of
Name and Address of Shares Held Outstanding
Beneficial Owner(1) shares
----------------------- ----------- ------------
McKenzie Shea 532,000 10%
657 Third Street
San Francisco, CA 94107
Esteem Corporation(2) 304,807 5.3%
10105 East Via Linda
Building 103. Suite 290
Scottsdale, AZ 85258
Beverly Kasbeer(3) 725,146 12.5%
Mary Piccolo(4) 250,000 4.3%
Nancy Knoll, as Custodian(5) 56,000 .9%
15015 California Circle
Omaha, NE 68154
Piccolo Family as a Group(6) 1,935,953 33.4%
(1) For purposes of this table, a beneficial owner is one who,
directly or indirectly, has or shares with another (a) the power
to vote or direct the voting of the Company's common stock or (b)
investment power with respect to the Company's common stock which
includes the power to dispose or direct the disposition of the
common stock. This table does not include unexercised options.
20
<PAGE>
(2) Esteem Corporation is owned by Mrs. M. Patricia Piccolo, the
mother of James Piccolo, the President and John Piccolo, the Vice
President.
(3) Ms. Kasbeer is the mother in law of James Piccolo, the
President. Ms. Kasbeer can be reached through the Company's
address.
(4) Mary Piccolo is the wife of James Piccolo, the President.
Mrs. Piccolo can be reached through the Company's address.
(5) Nancy Knoll is a custodian under the Uniform Gifts to Minors
Act for the benefit of seven minors. Each minor is the
beneficiary of 8,000 shares of common stock. Of the seven
minors: (a) four are the children of Nancy Knoll, who is the
sister of James Piccolo, the Company's President and John
Piccolo, the Company's Vice President; (b) two are the children
of Michael Piccolo, the brother of James Piccolo, the Company's
President and John Piccolo, the Company's Vice President; and (c)
one is the child of John Piccolo, the Company's Vice President.
(6) The Piccolo Family as a Group, includes James Piccolo, the
President and CEO of the Company, John Piccolo, the Vice
President of the Company, Esteem Corporation, Beverly Kasbeer,
Mary Piccolo and Nancy Knoll, as custodian.
The following table sets forth as of June 30, 2000,
information with respect to the number and percentage of the
Company's common stock owned by (i) each of the directors and the
Named Executive Officers and (ii) all directors and executive
officers of the Company as a group.
Name of Director or Executive Officer Number of Percent of
and Position at Fiscal Year Shares Outstanding
Ending June 30, 2000 Owned Shares
------------------------------------ --------- -----------
James Piccolo(1) 600,000 10.4%
Director, Chairman of the Board,
Chief Executive Officer and
President
Brian Service(2) 135,000 2.3%
Director, Managing Director,
Secretary and Treasurer
Thomas Dennis 50,000 .9%
Director
Thomas Vergith 50,000 .9%
Director
John Piccolo(3) 0 0%
Vice President
Richard Miller 0 0%
Chief Financial Officer
Directors and Executive Officers as a 835,000 14.4%
Group(1)
(1) This amount does not reflect the additional shares owned by
other members of Piccolo Family as a Group, which include an
aggregate of 1,335,953 shares of common stock held by Esteem
Corporation, Beverly Kasbeer, Mary Piccolo and Nancy Knoll, as
custodian, as further described in the previous table.
21
<PAGE>
(2) On July 10, 2000, Mr. Service resigned as a Board member,
Managing Director, Secretary and Treasurer of the Company,
forfeiting his options for 270,000 shares of the Company's common
stock, which are not included in this table.
(3) This amount does not include the additional 1,935,953 shares
held by other members of the Piccolo Family as a Group as further
described in footnote 1 to this table or those shares held by
James Piccolo, the brother of John Piccolo.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
Related party transactions are generally defined as
transactions between the Company and a person who has substantial
interest or influence in the Company either through a significant
stock position (10% or greater), or by being an officer/director
or other member of management. Related party transactions could
also occur with individuals who do not formally meet any of the
foregoing criteria, but who nonetheless may be in a position to
exercise substantial influence or control over the Company. The
Company also is disclosing what it deems to be other significant
relationships.
In outline fashion, the Company believes that the following
constitute the most significant related party transactions or
significant relationships. Related party transactions do not
necessarily constitute a conflict of interest provided that their
approval by the Company has been undertaken and entered pursuant
to independent review and vote by disinterested members of the
Board of Directors, or other like safeguards have been observed.
The Company believes that it has met the foregoing criteria as to
each of these related party transactions so as to limit conflicts
or potential conflicts of interest:
1. Consulting Agreement with McKenzie Shea. As previously
described, the Company entered into a consulting agreement with
an outside consultant known as McKenzie Shea in San Francisco,
California. Under the terms of this Consulting Agreement,
McKenzie Shea was to provide general business consulting and
assistance, primarily for the execution of the reverse merger.
This Consulting Agreement was amended to eliminate the monthly
consulting fee on March 31, 1999. McKenzie Shea continues to
receive a 10% equity interest in the Company until the Company is
able to raise its first $5 million in direct capitalization.
2. Officer Advance. On June 30, 2000, Mr. Piccolo made a short-
term loan to the Company evidenced by a promissory note. The note
bears interest of 12%, payable annually, and is unsecured and
payable on demand.
3. Brian Service, Director. In addition to being a director
and Managing Director of the Company until he resigned on July
10, 2000, Mr. Brian Service and his affiliated Company, BK
Business Consultant International Services, also acted as an
independent business consultant to the Company. Mr. Service and
his company received $10,000 per month for consulting services.
The consulting agreement was in effect from December 1, 1998
until it was terminated as of July 10, 2000. Mr. Service also
served as the CFO until he resigned on May 25, 2000 and as
Secretary and Treasurer of the Company until he resigned on July
10, 2000. The stock option remuneration to Mr. Brian Service was
slightly higher than the stock options provided to other
directors because of his added responsibility as a managing
director and outside consultant.
22
<PAGE>
4. Piccolo Share Position. The Piccolo family directly, or
acting through controlled entities, is the single largest
shareholder in the Company, holding approximately 1,935,953
shares of the Company's common stock or 33% of issued shares of
common stock - exclusive of options - and may be in a position to
substantially influence corporate decisions. Stockholders of the
Company who are members included in the Piccolo family are: (a)
Esteem Corporation, owned by Mrs. M. Patricia Piccolo, the mother
of James Piccolo, the Company's President, and John Piccolo, the
Company's Vice President; (b) Mary Piccolo, wife of James
Piccolo, the Company's President; (c) Ms. Beverly Kasbeer, the
mother-in-law of James Piccolo, the Company's President; and (d)
Nancy Knoll, the sister of James Piccolo, the Company's
President, and John Piccolo, the Company's Vice President, serves
the custodian under Uniform Gifts to Minors Act for an aggregate
56,000 shares of the Company's common stock, which she holds for
the benefit of seven minors who are children of John Piccolo,
Nancy Knoll and Michael Piccolo, the brother of James Piccolo and
John Piccolo. See "Security Ownership of Certain Beneficial
Owners and Management."
5. Stock Options. Various stock options have been given to the
Board of Directors. See "Executive Compensation." Since there
were no independent directors to approve the reasonableness of
the stock options, the options have been conditionally granted to
the interested parties subject to subsequent shareholder
ratification.
6. Hold Off Agreement. The Company has requested, and certain
material shareholders have voluntarily agreed, not to sell their
shares in the Company for a period of six months from April 29,
1999. Thereafter, certain volume limitations would apply to
sales. The Hold Off Agreement is applicable to approximately
526,743 shares. The Company requested the "hold off" to enhance
its ability to complete subsequent financing. A copy of the Hold-
off Agreement was filed as an Exhibit to an earlier 10-QSB by the
Company.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND
-----------------------------------------------------------------
REPORTS ON FORM 8-K
-------------------
I. Consolidated Financial Statements:
The Company's audited Consolidated Financial Statements for
period ending June 30, 2000 as attached and incorporated.
II.List of Exhibits:
Exhibit Number Description
Exhibit 3(a) Restated Articles of Incorporation of the
Company.
Exhibit 3(b) Certificate of Amendment to the Company's
Articles of Incorporation incorporated by
reference to the Company's Form 10-KSB/A
for the fiscal year ended June 30, 1998
and filed October 23, 1998.
Exhibit 3(c) Bylaws of the Company, incorporated by
reference to the Company's Form 10-KSB for
the fiscal year ended June 30, 1998.
Exhibit 21 Subsidiary
Reports on Form 8-K
23
<PAGE>
The Company has not filed any 8-K report forms during the three
months ended June 30, 2000.
SIGNATURES
In accordance with the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
TRAVEL DYNAMICS, INC.
(Registrant)
/s/ James Piccolo September 28, 2000
--------------------------- ------------------
James Piccolo Date
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ James Piccolo September 28, 2000
--------------------------- ------------------
James Piccolo Date
Chief Executive Officer, President and
Director (Principal Executive Officer)
/s/ Richard Miller September 28, 2000
--------------------------- -------------------
Richard Miller Date
Chief Financial Officer (Principal Financial
and Accounting Officer)
/s/ Thomas Dennis September 28, 2000
--------------------------- ------------------
Thomas Dennis Date
Director
/s/ Thomas Vergith September 28, 2000
--------------------------- ------------------
Thomas Vergith Date
Director
--------------------------- ------------------
James E. Solomon Date
Director and Managing Director
/s/ Thomas Murphy September 28, 2000
--------------------------- ------------------
Thomas Murphy Date
Director
/s/ Michael B. Nelson September 28, 2000
--------------------------- ------------------
Michael B. Nelson Date
Director
<PAGE>
TRAVEL DYNAMICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets - June 30, 2000 and 1999 F-2
Consolidated Statements of Operations for the Years Ended
June 30, 2000 and 1999 F-3
Consolidated Statements of Stockholders' Deficit for the Years
Ended June 30, 1999 and 2000 F-4
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2000 and 1999 F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Travel Dynamics, Inc.
We have audited the accompanying consolidated balance sheets of Travel
Dynamics, Inc. and Subsidiary as of June 30, 2000 and 1999 and the
related consolidated statements of operations, stockholders' deficit,
and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Travel Dynamics, Inc. and Subsidiary as of June 30, 2000 and 1999
and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted
in the United States.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
September 8, 2000
F-1
<PAGE>
TRAVEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
June 30,
----------------------
2000 1999
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 373,697 $ 174,018
Other receivables 26,589 153,056
Inventory 284,584 57,631
Prepaid seminar costs 753,624 18,032
Other current assets 61,822 17,471
---------- ----------
Total Current Assets 1,500,316 420,208
---------- ----------
Property and Equipment
Leasehold improvements 265,704 --
Office equipment 387,883 116,160
Software for internal use 159,296 107,620
Website development 323,650 --
Less accumulated depreciation (137,296) (19,463)
---------- ----------
Net Property and Equipment 999,237 204,317
---------- ----------
Other Assets
Trademarks, net of $1,578 and $526
accumulated amortization, respectively 3,681 4,733
Marketing master database, net of $43,132
and $19,601 accumulated amortization,
respectively 74,516 98,047
Video production, net of $9,330 accumulated
amortization 69,014 --
Investments in certificates of deposit 80,000 80,000
Other long-term assets 88,988 45,373
---------- ----------
Total Other Assets 316,199 228,153
---------- ----------
Total Assets $2,815,752 $ 852,678
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable $ 755,794 $ 216,364
Accrued liabilities 343,381 93,524
Deferred sales revenue 959,115 433,460
Notes payable - related party 100,000 --
Deferred lease incentive - current portion 40,454 --
---------- ----------
Total Current Liabilities 2,198,744 743,348
---------- ----------
Long-Term Liabilities
Convertible notes payable 587,728 427,727
Deferred lease incentive - long-term portion 128,103 --
---------- ----------
Total Long-Term Liabilities 715,831 427,727
---------- ----------
Stockholders' Deficit
Common stock -$0.001 par value; 50,000,000
shares authorized; 5,790,080 and 4,340,080
shares issued and outstanding, respectively 5,790 4,340
Additional paid-in capital 1,601,285 758,960
Unearned compensation (9,769) (78,997)
Accumulated deficit (1,696,129) (1,002,700)
---------- ----------
Total Stockholders' Deficit (98,823) (318,397)
---------- ----------
Total Liabilities and Stockholders' Deficit $2,815,752 $ 852,678
========== ==========
See the accompanying notes to consolidated financial statements.
F-2
<PAGE>
TRAVEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30,
--------------------------
2000 1999
------------ ------------
Sales $ 9,024,326 $ 3,142,603
Cost of Sales 5,847,615 1,888,144
------------ ------------
Gross Profit 3,176,711 1,254,459
------------ ------------
Expenses
Selling, general and administrative expense 3,739,430 1,803,654
Merger and reorganization expense -- 307,983
Interest expense 130,710 109,540
------------ ------------
Total Expenses 3,870,140 2,221,177
------------ ------------
Net Loss $ (693,429) $ (966,718)
============ ============
Basic and Diluted Loss Per Common Share $ (0.15) $ (0.27)
============ ============
Weighted Average Number of Common
Shares Used in Per Share Calculation 4,697,487 3,608,143
============ ============
See the accompanying notes to consolidated financial statements.
F-3
<PAGE>
TRAVEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional Total Total
----------------------- Paid-in Unearned Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Deficit
------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance-June 30, 1998 1,532,164 $ 1,532 $ (877) $ - $ (35,982) $ (35,327)
Conversion of debt into
common stock 467,836 468 343,892 - - 344,360
Issuance of common stock for
assets of Greenway 1,236,072 1,236 (1,226) - - 10
Issuance of common stock as
compensation to employees
and for consulting services 1,079,008 1,079 160,772 - - 161,851
Exercise of stock options 25,000 25 2,475 - - 2,500
Beneficial debt conversion feature - - 108,055 - - 108,055
Deferred compensation from grant
of employee and non-employee
stock options - - 145,869 (145,869) - -
Amortization of deferred compensation - - - 66,872 - 66,872
Net loss - - - - (966,718) (966,718)
------------ ---------- ------------ ---------- ------------ ----------
Balance-June 30, 1999 4,340,080 4,340 758,960 (78,997) (1,002,700) (318,397)
Issuances of common stock for cash,
net of $89,050 of offering costs 685,000 685 595,265 - - 595,950
Conversion of debt into common stock 80,000 80 79,920 - - 80,000
Issuance of common stock as
compensation to individuals 55,000 55 60,390 - - 60,445
Exercise of stock options 502,000 502 52,298 - - 52,800
Shares issued under anti-dilution
agreement 128,000 128 (128) - - -
Beneficial debt conversion feature - - 63,250 - - 63,250
Amortization of deferred compensation - - - 60,558 - 60,558
Forfeiture of unvested stock options - - (8,670) 8,670 - -
Net loss - - - - (693,429) (693,429)
------------ ---------- ------------ ---------- ------------ ----------
Balance - June 30, 2000 5,790,080 $ 5,790 $ 1,601,285 $ (9,769) $ (1,696,129) $ (98,823)
============ ========== ============ ========== ============ ==========
</TABLE>
See the accompanying notes to consolidated financial statements.
F-4
<PAGE>
TRAVEL DYNAMICS, INC.,
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years
Ended June 30,
----------------------
2000 1999
---------- ----------
Cash Flows From Operating Activities
Net loss $ (693,429) $ (966,718)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 118,229 39,590
Compensation relating to common stock,
options and debentures granted 121,003 238,723
Write-off of (expenditures for) start up costs - 60,000
Interest expense relating to beneficial
debt conversion feature 63,250 108,055
Changes in operating assets and liabilities:
Other receivables 126,468 (141,179)
Prepaid expenses (735,592) (18,032)
Inventory (226,953) (56,931)
Other assets (44,351) (52,092)
Accounts payable 539,430 185,902
Accrued liabilities 249,857 93,524
Deferred sales revenue 525,655 433,460
---------- ----------
Net Cash and Cash Equivalents Provided
By (Used In) Operating Activities 43,567 (75,698)
---------- ----------
Cash Flows From Investing Activities
Payments to purchase property and equipment
and intangible assets (791,262) (229,029)
Purchase of certificates of deposits - (80,000)
Increase in other assets (43,615) -
Cash received as part of disposal of assets 2,239 -
---------- ----------
Net Cash and Cash Equivalents Used
In Investing Activities (832,638) (309,029)
---------- ----------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 648,750 2,500
Proceeds from issuance of notes payable 240,000 529,360
Proceeds from related party note payable 100,000 -
---------- ----------
Net Cash and Cash Equivalents Provided
By Financing Activities 988,750 531,860
---------- ----------
Net Increase in Cash and Cash Equivalents 199,679 147,133
Cash and Cash Equivalents at Beginning of Period 174,018 26,885
---------- ----------
Cash and Cash Equivalents at End of Period $ 373,697 $ 174,018
========== ==========
Supplemental Cash Flow Information
Interest paid $ 52,807 $ 1,485
Non-Cash Investing and Financing Activities
Conversion of notes payable into common stock $ 80,000 $ 344,360
Accounts payable converted into notes payable - 37,727
Leasehold improvements paid as part of deferred
lease incentive 202,268 -
See the accompanying notes to consolidated financial statements.
F-5
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization -Travel Dynamics, L.L.C. was organized in March 1998 as
an Arizona limited liability company. From the date of inception
through June 1998, capital contributions of $655 were made in cash.
The assets and liabilities of Travel Dynamics, L.L.C. were transferred
to Travel Dynamics, Inc. a Nevada corporation, on July 31, 1998. The
accompanying financial statements have been restated to reflect the
shares of common stock issued upon the reorganization into the
corporation as though they had been issued on the dates the capital
contributions were made. The assets and liabilities transferred to the
corporation were recorded at their historical cost.
On September 29, 1998, Travel Dynamics, Inc. entered into a
reorganization agreement with Greenway Environmental Systems, Inc.
("Greenway") whereby the shareholders of Travel Dynamics, Inc.
exchanged all of the outstanding Travel Dynamics, Inc. common shares
for 2,000,000 common shares of Greenway and Travel Dynamics, Inc.
became a wholly-owned subsidiary of Greenway. In addition, Greenway
changed its name to Travel Dynamics, Inc. and in March 2000, the
subsidiary changed its name to Tru Dynamics, Inc.
The agreement was accounted for as the reorganization of Travel
Dynamics, Inc. The accompanying financial statements have been
restated for all of the year ended June 30, 1999 for the effects of
the 2,000,000 common shares issued in the reorganization to the Travel
Dynamics, Inc. shareholders. The historical operations presented in
the accompanying financial statements prior to the reorganization are
those of Travel Dynamic, Inc. The reorganization was further accounted
for as the issuance of 1,236,072 shares of common stock to the
Greenway shareholders for $10 in cash. Greenway did not have any
operations at the date of the reorganization.
Principles of Consolidation -The accompanying consolidated financial
statements include the accounts of Travel Dynamics, Inc. (the parent
corporation) from the date of the reorganization, and the accounts of
its wholly-owned subsidiary, Tru Dynamics, Inc. including the
accounts of Travel Dynamics, L.L.C. from June 30, 1998 through July
31, 1998. These entities are collectively referred to as the Company.
All significant intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Nature of Operations - The Company is a marketing firm that wholesales
and distributes educational and lifestyle products and materials
through independent sales agents and through the internet. The
products and materials are designed to educate and support individuals
in their development of income sources for home-based businesses. The
products include discount entertainment and travel packages and tax
planning and organization packages. The Company also conducts
motivational and training seminars for its sales agents.
Business Condition - The Company has negative working capital of
$698,428 and a stockholders' deficit of $98,823 as of June 30, 2000.
The Company also experienced net losses of $693,429 and $966,718 for
the years ended June 30, 2000 and 1999, respectively. As a result of
these conditions, the Company may be unable to sustain operations or
meet its obligations. The Company needs to obtain additional
financing to fund payment of its obligations and to provide working
capital. Management is attempting to raise additional financing
through a line of credit loan from a bank to the extent that
collateral is deposited by potential investors as explained further in
Note 10. Subsequent to June 30, 2000, the Company received collateral
deposits from investors of $250,000 and additional subscriptions from
F-6
<PAGE>
investors for $150,000. In addition, Management plans to obtain
subscriptions for an additional $600,000 from investors. As a result
of collateral deposits already received, the Company has been able to
borrow $250,000 under the line of credit loan facility. Management's
plans also include improving the profitability of its operations. The
improvement of the Company's financial condition is ultimately based
upon obtaining profitable operations. There is no assurance
additional financing or profitable operations will be realized.
Cash Equivalents and Fair Value of Financial Instruments - Cash
equivalents include highly liquid investments with original maturities
of three months or less, readily convertible to known amounts of cash.
At June 30, 2000 the Company had cash in excess of federally insured
limits of $211,575.
The amounts reported as cash and cash equivalents, other receivables,
investments in certificates of deposits, trade accounts payable and
accrued liabilities are considered to be reasonable approximations of
their fair values. The fair value estimates were based on market
information available to management at the time of the preparation of
the financial statements. The reported fair values do not take into
consideration potential expenses that would be incurred in an actual
settlement.
Inventory - Inventory includes vacation travel discount packages and
cruise certificates. All inventory items are stated at the lower of
cost (computed by the first-in, first-out basis) or market value.
Investments in Certificates of Deposit - The Company is required to
maintain certificates of deposits at federally insured institutions in
order to do business in the states of Arizona and Florida. The
maturity dates of the investments are January 2001 and March 2001;
however, management intends to renew the investments and maintain the
deposits on a long-term basis in order to do business in the above
mentioned states. At June 30, 2000 and 1999, the balance of the
investments in certificates of deposit was $80,000.
Video Production - During the year ended June 30, 2000, the Company
produced a video presentation for use in motivation and training of
sales personnel. The video presentation is sold as a product to
customers. The production of the video presentation has been accounted
for in accordance with accounting standards for the development and
marketing of entertainment and educational software products to be
sold, leased, or otherwise marketed as a separate product or as part
of a product or process. Accordingly, costs incurred to produce the
software product were charged to expense when incurred until
technological feasibility was established for the product.
Technological feasibility was established very early in the production
of the video presentation. Thereafter, all production costs were
capitalized and are subsequently reported at the lower of unamortized
cost or net realizable value. Capitalized costs are amortized based on
current and estimated future revenue for the product. Annual minimum
amortization is recognized equal to the straight-line amortization
over the remaining estimated economic life of the product, which is
estimated to be two years. As of June 30, 2000, the gross amount of
capitalized costs was $78,344 and amortization of $9,330 was charged
against cost of sales during the year ended June 30, 2000.
Marketing Master Data Base and Advertising Costs - Direct-response
advertising costs, including the cost of a purchased marketing master
database, are capitalized and amortized over the period of the related
sales effort. These capitalized advertising costs are included on the
balance sheet under the caption "Marketing Master Database." At June
30, 2000 and 1999, the gross amount of capitalized advertising costs
was $117,648. Management estimates that the sales effort will occur
over a five-year period. All other advertising costs are expensed as
incurred. Advertising expense, was $86,651 and $37,421 for the years
ended June 30, 2000 and June 30, 1999, respectively, which includes
$23,531 and $19,601 for the amortization of the Marketing Master
Database, respectively.
F-7
<PAGE>
Office Equipment and Leasehold Improvements - Office equipment and
leasehold improvements are recorded at cost and depreciated over their
estimated useful lives ranging from five to seven years, using the
straight-line method. Depreciation expense for the years ended June
30, 2000 and 1999 was $90,358 and $12,678, respectively. Expenditures
for repairs and maintenance are charged directly to expense. Renewals
and betterments are capitalized.
Software for Internal Use and Website Development - The Company
charges software evaluation and maintenance costs to expense.
Material software development costs subsequent to the establishment of
technological feasibility are capitalized, including the costs to
purchase, develop and install software for internal use. Capitalized
software costs include management information systems and the
development of an on-line store to advertise and sell travel packages
through the Company's Internet web site. Costs to complete the on-line
store are capitalized as incurred. Software acquisition and
installation costs are depreciated over periods from one to five years
using the straight-line method, beginning when the systems are
operational. Depreciation expense for the years ended June 30, 2000
and 1999 was $27,669 and $6,785.
Trademarks - The cost of a trademark has been capitalized and is
being amortized over a five-year period using the straight-line
method. Amortization expense for the years ended June 30, 2000 and
1999 was $1,052 and $526, respectively.
Long-Lived Assets - The realizability of long-lived assets which
includes software and web site development is evaluated periodically
when events or circumstances indicate a possible inability to recover
the carrying amounts. An impairment loss is recognized for the excess
of the carrying amount over the fair value of the assets. Fair value
is determined based on estimated discounted net future cash flows or
other valuation techniques available in the circumstances. This
analyses involves significant management judgement to evaluate the
capacity of an asset to perform within projections. Based upon these
analyses, no impairment losses were recognized in the accompanying
financial statements.
Deferred Lease Incentive - In connection with a lease of office space,
the lessor provided $253,868 of lease-hold improvements and granted
the Company an allowance of $202,268 against the cost of the
improvements. Under generally accepted accounting principles, the
allowance has been capitalized as leasehold improvements and
recognized as a deferred lease incentive liability. The deferred
lease incentive is being amortized as a reduction in rental expense
over the term of the lease. As of June 30, 2000, $33,711 of the
deferred lease incentive had been amortized.
Sales Recognition - Sales include the cash sale of travel discount
packages and marketing seminars. The Company recognizes sales for
training seminars and related costs at the date the customer
participates in a seminar. Deferred sales revenue represent amounts
collected in advance of such participation. Prepaid seminar costs
represents costs incurred for training seminars prior to the seminars
being held.
Stock-Based Compensation -- Stock-based compensation relating to stock
options granted to employees is measured by the intrinsic value
method. This method recognizes compensation based on the difference
between the fair value of the underlying common stock and the exercise
price of the stock options on the date granted. Compensation relating
to options granted to non-employees is measured by the fair value of
the options, computed by the Black-Scholes option pricing model.
Basic and Diluted Loss Per Share -Basic loss per common share is
computed by dividing net loss by the weighted-average number of common
shares outstanding during the period. Diluted loss per share is
calculated to give effect to potentially issuable common shares which
includes convertible notes payable, stock options and stock warrants
F-8
<PAGE>
except during loss periods when those potentially issuable common
shares would decrease the loss per share. There were a total of
3,137,227 and 1,927,727 potentially issuable common shares which were
excluded from the calculation of diluted loss per common share at June
30, 2000 and 1999, respectively, because the effects would be
anti-dilutive.
Income Taxes - The Company recognizes an asset or liability for the
deferred tax consequences of all temporary differences between the tax
bases of assets or liabilities and their reported amounts in the
financial statements that will result in taxable or deductible amounts
in future years when the reported amounts of the asset or liabilities
are recovered or settled. These deferred tax assets or liabilities
are measured using the enacted tax rates that will be in effect when
the differences are expected to reverse. Deferred tax assets are
reviewed periodically for recoverability and valuation allowances are
provided as necessary.
Segment Information - Generally accepted accounting principles
establishes disclosures related to components of a company for which
separate financial information is available and evaluated regularly by
a company's chief operating decision makers in deciding how to
allocate resources and in assessing performance. It also requires
segment disclosures about products and services as well as geographic
areas. The Company has determined that it did not have any separately
reportable operating segments as of June 30, 2000 and 1999. Beginning
on July 1, 2000, the Company will evaluate resources based on the
following revenue classifications: 1) travel package sales, 2)
seminars and 3) eCommerce sales, new associate enrollment and other.
Recent Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board issued Statements on Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"). SFAS 133 establishes new accounting
and reporting standards for companies to report information about
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives),
and for hedging activities. This statement is effective for financial
statements issued for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company does not expect this statement to
have a material impact on the Company's results of operations
financial position or liquidity.
NOTE 2 - REORGANIZATION OF TRAVEL DYNAMICS L.L.C.
The assets and liabilities of Travel Dynamics, L.L.C. were
transferred to Travel Dynamics, Inc., a Nevada corporation, on July
31, 1998. The assets and liabilities transferred from Travel Dynamics
L.L.C. were accounted for by the purchase method of accounting and
were recorded at historical cost in a manner similar to pooling of
interests as follows:
Historical cost of assets $ 177,544
---------
Short-term notes payable (195,000)
Deferred sales (83,115)
---------
Total liabilities assumed (278,115)
---------
Net Liabilities Assumed Over Assets Transferred $(100,571)
=========
F-9
<PAGE>
NOTE 3 - RELATED PARTY TRANSACTIONS
On June 30, 2000, an officer of the Company made a $100,000 short-term
loan to the Company evidenced by a promissory note. The note bears
interest of 12%, payable annually, and is unsecured and due on demand.
As of June 30, 1999, included in other receivables is a receivable
from a corporation with common ownership and a receivable from the
officer mentioned above. The balances of these receivables at June 30,
1999 were $31,452 and $13,240, respectively. Included in accrued
liabilities at June 30, 1999 was a payable to the same officer of
$19,160. These receivables and payable were settled during the year
ended June 30, 2000.
NOTE 4 -CONVERTIBLE NOTES PAYABLE
From June through September 1999, the Company issued 10% convertible
debentures totaling $667,727, consisting of $620,000 in cash, a
conversion of $37,727 of accounts payable and $10,000 to a consultant
for services rendered. Interest is payable at the end of each quarter.
The convertible debentures mature and are redeemable at their face
value on January 2, 2015. At any time after the convertible
debentures were issued, the debentures may be converted into common
stock of the Company at the rate of $1.00 per share. Through June 30,
2000, $80,000 of the convertible notes were converted into 80,000 shares
of common stock. Each debenture can be called at 110% of its face
value at any time after the first anniversary date of the execution of
the note. The holders of the debentures may upon notice of the call,
convert the debenture into common stock within thirty days of
receiving written notice of such call. As of June 30, 2000 and 1999,
the convertible debentures outstanding totaled $587,728 and $427,727,
respectively.
The Company is required to recognize as interest expense the
difference between the $1.00 conversion price and the market value of
the Company's stock on the day the debenture was issued which was
$1.27 per share. Since the debentures were immediately convertible
into common stock, the Company recognized the interest expense on the
dates the debentures were issued. The Company recognized $63,250 and
$108,055 of interest expense due to the beneficial conversion feature
for the years ended June 30, 2000 and 1999, respectively.
NOTE 5 - COMMON STOCK ISSUANCES
Private Placement Offering -- In June 2000, the Company completed a
private placement offering receiving a total of $595,950, net of
offering costs of $89,050. The Company issued 685,000 units for the
cash received. Each unit sold for $1.00 and consisted of one share of
common stock and one warrant. The warrants can be exercised for $3.00
per share. In connection with this private placement, the Company
issued as a finder's fee warrants to purchase 68,500 shares of common
stock exercisable at $1.20 per share.
The warrants mentioned above will expire on May 31, 2003. In addition,
the warrants will expire prior to May 31, 2003 if, at any time, (i)
the average closing bid price for the common stock (or the closing
price if then traded on a national securities exchange) has equaled or
exceeded $3.00 per share for a period of 60 consecutive days, (ii) the
Company gives written notice to the warrant holders within three
trading days following such 60 day period, and (iii) the warrant
holder fails to exercise the warrant within 30 days thereafter.
In connection with the private placement offering, an additional
50,000 units were issued as compensation for consulting services. Each
unit consisted of one share of common stock and one warrant. These
units were valued at $1.00 each, the value of the private placement
offering units sold for cash and resulted in the recognition of
$50,000 compensation expense.
F-10
<PAGE>
Common Stock Issued for Services -- During the year ended June 30,
2000, the Company issued 5,000 shares of stock as compensation for
services valued at prices ranging from $1.19 to $2.69 per share, and
resulted in the recognition of $10,445 of compensation expense. During
the year ended June 30, 1999, and in connection with three-year
employment agreements with the Company's president and vice-president,
the Company issued 400,000 and 250,000 shares of common stock,
respectively, valued at $0.15 per share, or $60,000 and $37,500,
respectively. During the year ended June 30, 1999, an additional
429,008 shares of common stock were issued for services rendered by a
consulting firm at $0.15 per share or $64,351.
Common Stock Issued for the Conversion of Notes Payable -- During the
year ended June 30, 2000, $80,000 of convertible notes payable were
converted into 80,000 shares of common stock. During the year ended
June 30, 1999, 467,836 shares of common stock were issued for the
conversion of notes payable in the amount of $344,360, or $0.74 per
share.
Common Stock Issued Upon Exercise of Stock Options -- During the year
ended June 30, 2000, 502,000 shares of common stock were issued from
the exercise of stock options at exercise prices ranging from $0.10 to
$0.15 per share. Total proceeds received was $52,800. During the year
ended June 30, 1999, 25,000 shares of common stock were issued from the
exercise of stock options at $0.10 per share. Total proceeds received
was $2,500.
NOTE 6 - INCOME TAXES
There was no provision for or benefit from income tax for any period.
The components of the net deferred tax asset at June 30, 2000 and 1999
are shown below:
2000 1999
--------- ---------
Benefit of operating loss carry forwards $ 475,199 $ 245,009
Start up costs 46,932 69,677
Depreciation (13,740) 3,740
Less: valuation allowance (508,391) (318,426)
--------- ---------
Net Deferred Tax Asset $ - $ -
========= =========
For tax reporting purposes, the Company has net operating loss carry
forwards in the amount of $1,234,728 which will expire between 2018
and 2020.
The following is a reconciliation of the amount of tax benefit that
would result from applying the federal statutory rate to pretax loss
with the benefit from income taxes:
For the Years Ended
June 30,
----------------------
2000 1999
---------- ----------
Benefit at statutory rate (34%) $ (235,766) $ (328,684)
Stock-based compensation 13,246 24,943
Beneficial debt conversion feature expense 21,505 40,305
Non-deductible expenses 47,663 10,186
Change in valuation allowance 189,965 304,292
State tax benefit, net of federal tax effect (36,613) (51,042)
---------- ----------
Net Benefit From Income Taxes $ - $ -
========== ==========
F-11
<PAGE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Agreements With Consulting Firms --Under the terms of a 1998
consulting agreement with a business consulting firm, the Company was
obligated to pay $10,000 per month through December 1, 2000. The
agreement for the payment of $10,000 per month was rescinded during
April 1999. In addition, the Company has agreed to issue common stock
of the Company equal to 10% of all outstanding equity securities,
computed on a fully-diluted basis, until the Company has raised up to
$5,000,000 of investment capital or has entered into equivalent
business combinations. Through June 30, 1999, 429,008 shares of common
stock were issued in relation to this commitment and were valued at
$64,351 or $0.15 per share. Since the consulting firm no longer
provides services for the Company and because the 128,000 shares of
common stock issued during the year ended June 30, 2000 were issued
under the anti-dilution provisions of the consulting agreement, the
shares issued were accounted for as a cost of the capital received
during the year ended June 30, 2000 and offset against the related
proceeds. At June 30, 2000, there were 3,137,227 potentially issuable
common shares which, if issued, would require the Company to issue up
to an additional 348,581 shares of common stock to this consulting
firm.
The consulting firm has been granted registration rights regarding
their common stock and piggyback registration rights to register their
stock as part of any other registration of the Company's equity
securities. If the Company merges with, acquires assets or property or
obtains financing from any entity the consulting firm introduces to
the Company, the Company is obligated to pay the consulting firm a
finder's fee of 5% of the first $3,000,000, 4% of the next $2,000,000
and 3% of the amount above $5,000,000 of gross proceeds from the
transaction. The consulting firm is entitled to appoint one member of
the Board of Directors.
On January 1, 1999, the Company entered into an agreement for services
with a second consulting firm. This agreement was for a one year
period. This agreement required the Company to pay the firm $3,000 per
month through December 1999. The firm also received 40,000 options to
purchase common shares of the Company at $0.10 per share.
Lease Agreements - During July 1999, the Company entered into a lease
for new office space. The lease began on September 1, 1999 and extends
through August 31, 2004. The monthly rental payments are $20,686. As
described further in Note 1, Deferred Lease Incentive, the future
lease payments under the lease partially relate to a deferred lease
incentive for leasehold improvements provided by the lessor.
The following is a schedule of future minimum rental payments required
under the lease:
Years Ending June 30:
2001 $ 248,227
2002 248,227
2003 248,227
2004 248,227
2005 41,371
-----------
Total Minimum Payments Required 1,034,279
Less: Future rental expense (865,722)
-----------
Deferred lease incentive obligation 168,557
Deferred lease incentive - current portion (40,454)
-----------
Deferred Lease Incentive - Long-Term Portion $ 128,103
===========
F-12
<PAGE>
The Company also has entered into other short-term operating leases.
Rental expense for the years ending June 30, 2000 and 1999 was
$209,274 and $36,946, respectively.
Litigation - The Company is subject to various legal proceedings,
which have been initiated by the Company. These proceedings have been
initiated in order to protect the interests of the Company and arise
in the ordinary course of business. Management cannot predict the
outcome of these proceedings but believes they will not have a
material effect on the financial condition or results of operations
of the Company.
NOTE 8 - STOCK OPTIONS
Compensation relating to options granted to non-employees is measured
by the fair value of the options, computed using the Black-Scholes
option pricing model. Stock-based compensation to employees is
measured by the intrinsic value method. For fixed options, this method
recognizes compensation based on the difference between the fair value
of the underlying common stock and the exercise price of the stock
option on the date granted. For variable options, the Company
recognizes compensation based on the fair value of the underlying
common stock and the exercise price of the stock over the period the
employee performs the related services. Estimates of compensation are
recorded before the measurement date based on the fair value of the
underlying common stock and the exercise price of the stock on
intervening dates. When options are forfeited, the compensation
expense previously recognized relating to the unvested options is
reversed in the period the options are forfeited.
Non-Employee Grants:
-------------------
The Company granted 40,000 options to purchase common shares at $0.10
per share to a firm in conjunction with an agreement for services
dated January 1, 1999. The options vested at the rate of 10,000 shares
per quarter during 1999. Compensation relating to these options was
based upon a $0.08 fair value per share and were recognized over the
period the options vested.
The Company granted stock options to various consulting companies.
Options to purchase 96,000 shares of common stock at $0.10 per share
were granted in December 1998. These options vest from February 1999
through November 2000. Options to purchase an additional 100,000
shares at $0.10 per share were granted in December 1998. These options
vest from December 1998 through December 2000. Compensation relating
to these options was based upon a $0.11 fair value per share and are
recognized over the period the options vest. During the year ended
June 30, 2000, 125,000 and 20,000 of these options were exercised and
forfeited, respectively.
During May 1999, options to purchase 189,000 shares of common stock at
$2.36 per share were granted. These options vest from May 1999
through May 2000. Compensation relating to these options was based
upon a $0.31 fair value per share and are recognized over the period
the options vest. During the year ended June 30, 2000, 12,000 of
these options were forfeited.
The Company granted options to purchase 400,000 shares of common stock
at $0.10 per share to members of the Board of Directors. The options
vest from October 1998 through October 2001. Compensation relating to
these options was $0.11 per share, based upon their fair value, and
are being recognized over the period the options vest. As of June 30,
2000 and 1999, these directors had exercised 125,000 and 25,000 of
these options, respectively. Based on the resignation of certain
Board Members, 25,000 and 75,000 options were forfeited during the
years ended June 30, 2000 and 1999, respectively.
F-13
<PAGE>
Prior to July 1, 2000, members of the Board of Directors were not
considered "employees" as defined by APB 25, Accounting for Stock
Issued to Employees. Based on Interpretation 44, Accounting for
Certain Transactions Involving Stock Compensation, all stock option
issuances to Board Members subsequent to July 1, 2000 will be
considered issued to employees and accounted for under the intrinsic
value method.
A summary of the status of the Company's non-employee stock options as
of June 30, 1999 and changes during the year then ended is presented
below:
Weighted
Average
Options Exercise Price Exercise Price
------- -------------- --------------
Outstanding at June 30, 1998 - $ - $ -
Granted 825,000 0.10 - 2.36 0.62
Forfeited (75,000) 0.10 0.10
Exercised (25,000) 0.10 0.10
-------
Outstanding at June 30, 1999 725,000 0.10 - 2.36 0.69
Granted - - -
Forfeited (57,000) 0.10 - 2.36 0.58
Exercised (250,000) 0.10 0.10
--------
Outstanding at June 30, 2000 418,000 0.10 - 2.36 1.06
========
Options exercisable at
June 30, 2000 254,000 1.67
========
The weighted-average fair value of options granted during the year
ended June 30, 1999 was $0.11 per share.
The following table summarizes information about non-employee stock
options outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ---------------------------
Weighted-
Range of Number Average Weighted- Number Weighted-
Exercise Outstanding Remaining Average Exercisable Average
Prices At 06/30/00 Contractual Life Exercise Price At 06/30/00 Exercise Price
--------- ------------ ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.10 241,000 2.83 years $0.10 77,000 $0.10
$2.36 177,000 1.08 years $2.36 177,000 $2.36
</TABLE>
The fair value of each option granted during the year ended June 30,
1999 was estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions:
underlying common stock value - $0.40, expected life of the options -
3.54 years, expected volatility - 74.54% and risk-free interest rate -
4.81%.
Stock-based compensation charged to operations for non-employees was
$49,726 and $53,123 for the years ended June 30, 2000 and 1999,
respectively.
The above non-vested options to non-employees will be forfeited upon
termination of the respective agreements.
F-14
<PAGE>
Employee Grants:
----------------
Fixed Options:
-------------
During the year ended June 30, 2000, the Company granted options to
purchase 1,325,000 shares of common stock to various employees. These
options had exercise prices ranging from $1.09 to $1.32 per share
which was equal to the fair value of the Company's common stock on the
date of issuance. These options vest through May 2002. Subsequent to
their issuance, 550,000 of these options were forfeited.
The Company granted options to purchase 600,000 shares of common stock
at $0.10 per share to its president in October 1998 in connection with
a three-year employment agreement. These shares vest through October
2001. The Company's common stock had a fair value of $0.15 per share
at the time these options were granted. Compensation relating to these
options, based upon the intrinsic value of the options of $0.05 per
option, is being recognized over the period the options vest. During
the year ended June 30, 2000, 200,000 of these options were exercised.
In January 1999, the Company granted options to purchase 175,000
shares of common stock at $0.15 per share to three employees in
connection with employment agreements. The Company's common stock had
a fair value of $0.15 per share at the time these options were
granted. These options vest through January 2001. There was no
intrinsic value relating to these options. During the year ended June
30, 2000, 52,000 and 20,000 of these options were exercised and
forfeited, respectively.
Variable Options:
----------------
During the year ended June 30, 2000, the Company issued 50,000
variable stock options to a director of the Company with an exercise
price of $1.25, which was equal to the fair value of the common stock
on the date of issuance. These options vest as follows: 20,000 and
30,000 options vest when the Company's audited earnings per share for
one fiscal year reach $0.20 and $0.30 per share, respectively.
Compensation expense for these options is measured as the difference
between the quoted market price of the common stock at June 30, 2000
and the exercise price of the options. As of June 30, 2000, the fair
value of the common stock was less than the exercise price, thus no
compensation was recorded.
A summary of the status of the Company's employee stock options as of
June 30, 2000 and 1999 and changes during the years then ended are
presented below:
Weighted
Average
Options Exercise Price Exercise Price
--------- -------------- --------------
Outstanding at July 1, 1998 - $ - $ -
Granted 775,000 0.10 - 0.15 0.11
Outstanding at June 30, 1999 775,000 0.10 - 0.15 0.11
---------
Granted 1,375,000 1.09 - 1.32 1.14
Forfeited (570,000) 0.15 - 1.09 1.06
Exercised (252,000) 0.10 - 0.15 0.11
---------
Outstanding at June 30, 2000 1,328,000 0.10 - 1.09 0.77
=========
Options exercisable at
June 30, 2000 63,000 0.15
=========
The weighted-average fair value of options granted during the years
ended June 30, 2000 and 1999 was $0.63 per share and $0.11 per share,
respectively.
F-15
<PAGE>
The following table summarizes information about employee stock
options outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ---------------------------
Weighted-
Range of Number Average Weighted- Number Weighted-
Exercise Outstanding Remaining Average Exercisable Average
Prices At 06/30/00 Contractual Life Exercise Price At 06/30/00 Exercise Price
--------- ------------ ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.10 400,000 3.25 years $0.10 - -
$0.15 103,000 3.51 years $0.15 63,000 $0.15
$1.09 450,000 9.39 years $1.09 - -
$1.25 360,000 9.85 years $1.25 - -
$1.32 15,000 9.84 years $1.32 - -
</TABLE>
Stock-based compensation charged to operations for employees was
$10,832 and $13,743 for the years ended June 30, 2000 and 1999,
respectively.
The fair value of the stock options was estimated at the grant date by
the Company using the Black-Scholes option pricing model. The
following weighted-average assumptions were used in the Black-Scholes
option pricing model for the years ended June 30, 2000 and 1999,
respectively: underlying common stock value of $1.14 and $0.15
weighted-average risk-free interest rate of 6.00% and 4.48%, a
weighted-average dividend yield of 0 percent, volatility of 80.21% and
75.00%, and a weighted-average expected lives of 3.00 and 4.31 years,
respectively. Had compensation cost for the Company's stock options
been determined based on their fair value at the grant dates, net loss
and loss per share would have been increased to the pro forma amounts
that follow for the years ended June 30, 2000 and 1999:
June 30,
-----------------------
2000 1999
----------- ----------
Net loss as reported $ (693,429) $ (966,718)
Net loss pro forma (1,003,937) (994,468)
Basic and diluted loss per common
share as reported (0.15) (0.27)
Basic and diluted loss per common
share pro forma (0.21) (0.28)
NOTE 9-WARRANTS TO PURCHASE COMMON STOCK
The Company issued warrants to purchase common stock in connection
with the private placement offering. The following table summarizes
the warrants to purchase common stock issued and outstanding, together
with their respective exercise prices for the year ended June 30,
2000:
Warrants to purchase common shares, beginning of the year -
Warrants issued for cash at an exercise price of $3.00 per share 685,000
Warrants issued as a finder's fee in the private placement
offering at an exercise price of $1.20 per share (Note 5) 68,500
Warrants issued for services at an exercise price of $3.00
per share (Note 5) 50,000
--------
Warrants to purchase common shares, end of the year, at
exercise prices ranging from $1.20 to $3.00 per share 803,500
========
F-16
<PAGE>
NOTE 10 - SUBSEQUENT EVENTS (UNAUDITED)
Line of Credit Loan -- In August 2000, the Company entered into a
$1,000,000 line of credit loan from a bank. Under the terms of the
line of credit facility, the Company may borrow amounts equal to the
amount of collateral provided through either letters of credit or
deposits made by third party investors with the bank. The collateral
is being provided through a private placement offering of warrants as
explained below. The line of credit bears interest at the bank's prime
interest rate plus 1%. The outstanding balance under the line of
credit loan is due on August 15, 2001. Upon exercise of the warrants
by the investors, the line of credit loan is reduced by the amount
received from the exercise of the warrants. Upon exercise of the
warrants, the letter of credit will be released as collateral on the
loan. The outstanding balance of the line of credit loan may not
exceed the aggregate amount of the collateral held by the bank. In
the event of default by the Company, the bank has the right to apply
the amount of the collateral against the loan. As of September 26,
2000, $250,000 had been borrowed under the line of credit facility.
Private Placement Offering -- In August 2000, the Company started a
private placement offering of warrants to purchase common stock to
investors. Under the terms of the offering, the Company will issue up
to 3,000,000 warrants in units of 100,000 warrants to purchase 100,000
shares of common stock at $0.50 per share for a period through August
15, 2001, in exchange for the investor providing either a letter of
credit or a deposit for $50,000 to a bank under the line of credit
facility explained above. In the event of default by the Company, the
bank has the right to apply the collateral against the loan as
explained above. In the event of default, the investor's only
recourse against the Company will be to exercise the warrants in the
amount of the letter of credit according to the terms of the warrants.
The investor may exercise its warrants by either a cash payment to the
Company for the exercise price or in exchange for the amounts drawn on
and paid by the investor under its letter of credit. The offering
expires November 30, 2000. As of September 26, 2000, $250,000 had
been received from the offering as security on the line of credit.
Stock Options Issued -- Three directors joining the Company after July
1, 2000 were each granted 100,000 stock options. These options vest
as follows: 25,000 vest immediately and 25,000 vest each year on the
anniversary date of the director joining the Company. The exercise
price of these options was the average closing price of the stock for
the five days immediately prior to the grant date, or $0.875 per
share.
There were also 45,000 options granted to an employee under the
employee stock option plan pursuant to the employee beginning
employment with the Company. The options are exercisable at $0.813 per
share, the fair market value of the Company's common stock on the date
of grant.
F-17
<PAGE>
