FORM 10-KSB/A
(AMENDMENT NO.1)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE OF 1934
FOR THE FISCAL YEAR ENDED: June 30, 1999
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
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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 Civic Center Boulevard, Penthouse Suite
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 June 30, 1999, 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 $5,962,546.
As of June 30, 1999, and as of October 13, 1999, the Registrant had outstanding
approximately 4,360,080 shares of common stock ($.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 18.
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TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-KSB
YEAR ENDED JUNE 30, 1999
PART I
Page
Item 1. Description of Business...............................................3
Item 2. Description of Properties.............................................5
Item 3. Legal Proceedings.....................................................5
Item 4. Submission of matters to a Vote of Security Holders...................5
PART II
Item 5. Market for Registrant's Common Equity & Related Stockholder Matters...6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion & Analysis of Financial Condition &
Results of Operations........................................7
Item 8. Financial Statements and Supplementary Data..........................11
Item 9. Changes in and Disagreements with Accountants on Accounting &
Financial Disclosure........................................11
PART III
Item 10. Directors & Executive Officers, Promoters & Control Persons,
Compliance with Section 16 (a) of the Exchange Act..........12
Item 11. Executive Compensation...............................................14
Item 12. Security Ownership of Certain Beneficial Owners & Management.........16
Item 13. Certain Relationships & Related Transactions.........................17
PART IV
Item 14. Exhibits, Financial Statements & Schedules and Reports on Form 8-K...18
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PART I.
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ITEM 1. DESCRIPTION OF BUSINESS
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A. GENERAL DESCRIPTION
Travel Dynamics, Inc. ("TDI"), as the parent company, and Travel
Dynamics Services, Inc. ("TDSI"), as the sole operating subsidiary, are
collectively referred to herein as "the Company." TDI and TDSI are both Nevada
corporations.
The Company is a marketing firm which wholesales and distributes
educational and lifestyle products and materials through independent sales
agents and through the Internet. The products and materials are designed to
support individuals in their development of income sources for home-based
businesses.
The Company's primary product, discount entertainment and travel
packages are comprised of travel premium certificates and vouchers that include
airline discounts, hotel accommodations, cruises, golf and dining discounts.
These components are purchased at a discount from various independent suppliers
and vendors, assembled into complete packages by the Company, and sold at a
profit to independent agents who purchase the packages from the Company at
wholesale and resale them at a retail price.
The Company also conducts training and motivational seminars as sold by
its independent sales agents. The seminars educate the participants in a variety
of topics that teach the fundamental aspects of running a successful home-based
business. The Company charges a fee for attending such seminars, which
constitutes a secondary source of revenue for the Company.
The Company is engaged, to an increasing extent, in direct marketing of
travel packages and hotel bookings via the Internet through its web site. In
addition, the Company has developed several new educational and lifestyle
products related to the home-based business industry, which it intends to launch
in the first half of the 2000 fiscal year. The Company believes these "new
products" will contribute significantly to revenue in the 2000 fiscal year.
For the fiscal year ending June 30, 1999 the general revenues for each
market sector is set out in the following table:
========================== ========================== ==========================
Market Sector Revenues for Fical Year Percent of Total Revenues
Ending June 30, 1999 for Reporting Period
- -------------------------- -------------------------- --------------------------
Travel Package Sales $ 1,445,597 46%
- -------------------------- -------------------------- --------------------------
Seminars 1,068,485 34%
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Direct Marketing 628,521 20%
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1Direct marketing includes Online and other direct product sales.
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As noted above, the resale of the travel packages remains the most
significant revenue sector of the Company's business. Although, it is
anticipated that through the fiscal year ending June 30, 2000 this sector will
remain the most significant line of the Company's business, management believes
the new products will contribute significantly to revenues during the current
fiscal year.
As of June 30, 1999, the Company has eighteen full-time employees, no
part-time employees and has a contract relationship with approximately ten
thousand independent agents engaged in the sale of its travel and other
products.
B. HISTORICAL BACKGROUND
Travel Dynamics , L.L.C. was organized in March 1998 as an Arizona
limited liability company. Travel Dynamics, L.L.C. was reorganized into Travel
Dynamics, Inc., a newly-formed Nevada corporation, on July 31, 1998.
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
and changed its name to Travel Dynamics Services, Inc. (referred to herein as
"TDSI"). The agreement was accounted for as the reorganization of Travel
Dynamics, Inc. and the acquisition of Greenway's assets in exchange for
1,236,072 shares of common stock. In addition, Greenway changed its name to
Travel Dynamics, Inc. (referred to hererin as "TDI").
In general terms a reverse acquisition is a transaction in which the
inactive public entity acquires the operating company and then changes its name
as the surviving parent corporation to the name of the subsidiary and allows the
subsidiary to appoint management in the surviving public entity. Thereafter, the
subsidiary may formally merge with the parent or may continue to operate as a
separate operating subsidiary as is the case with TDI. The acquired subsidiary
in 1998 changed its name to Travel Dynamic Services Inc. and continues to
operate under such name as the sole subsidiary of TDI.
In outline fashion, the reorganization implemented the following terms
and provisions:
1. The Company reverse split its stock at a 19.5 to 1 reverse split
ratio. Accordingly, approximately 24,159,895 shares of Greenway were reduced to
4,040,080 reverse split shares of TDI. Of these shares approximately 20%
continue to be held by prior public shareholding of Greenway, approximately .37%
were issued to management of Greenway or assigns; approximately 9.9% are held by
a Mr. Andrew Limpert; Mr. James Piccolo, the president of the Company, holds
approximately 9.9%: McKenzie/Shea, a consulting firm, holds approximately 10%
and the balance of approximately 44.5% are held by prior TDI shareholders.
2. The Company changed its name of record in Nevada from Greenway
Environmental Systems, Inc. to Travel Dynamics, Inc. and the operating
subsidiary Travel Dynamics, Inc. changed its name to Travel Dynamics Services,
Inc..
3. A new board of directors and management group was elected and
appointed as more particularly described under the following Section on
Management. All known current debts and obligations of the prior Greenway were
paid as of the date of closing on September 29, 1998
4. The place of business was changed to Scottsdale Arizona where the
Company presently conducts its management of the previously described business
segments.
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ITEM 2. DESCRIPTION OF PROPERTIES
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TDI maintains a single administrative office and meeting center at 4150
North Civic Center Blvd., Penthouse Suite, Scottsdale, AZ. This facility is
comprised of approximately 9,600 square feet of which approximately 8,600 are
used as administrative space and 1,000 square feet as a meeting/training area.
The foregoing premises are retained on a 5 year lease with monthly
rentals of $20,685.60 and a remaining term under the lease of 58 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, primarily used in the normal course of daily business. In addition
the Company has developed an in-house operating system that is based on an
Oracle database and runs on the Company's computer network, both owned by the
Company. The Company also owns audio and visual equipment related to the
conducting the seminars.
ITEM 3. LEGAL PROCEEDINGS
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The Company is not engaged in any present 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.
The Company is pursuing injunctive relief against parties infringing on
its trade name and/or practices in three separate actions and has been named as
a counterclaim defendant in one of those actions. The Company does not regard
any of the these actions as material to its ongoing operations and anticipates
that each will be settled.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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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 common stock and certain options to acquire
common stock to Board members and others, as further described in Item 11
entitled "Executive Compensation." The Company anticipates scheduling its
first post reorganizational shareholder annual meeting for November 29, 1999. At
this shareholder meeting no extraordinary matters are anticipated to be
presented and the shareholder meeting is anticipated to be devoted primarily
to election of directors; ratification of the appointment of the Company's
independent auditors; ratification of the proposed employee stock option plan;
and other routine businesses as may come before the meeting.
It should be noted that subsequent to the reorganization in September
1998, the Reverse Acquisition was approved by majority shareholder consent in
accordance with Nevada law and notice supplied to all shareholders of record. A
copy of which Majority Shareholder Consent and Notice have previously been filed
as Exhibit to an 8-K filing of the Company dated October 14, 1998.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY & 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
Electronic Bulletin Board. The Company also has a class of Convertible
Debentures which can be converted to the common stock of the Company on a
one-to-one dollar ratio, but there is no publicly traded market for such
Debentures, nor is any anticipated to develop. The Debentures were sold in a
rule 506 Private Placement between April and June 1999 at $10,000 per Debenture
and are, thereby, convertible into 10,000 shares of restricted common stock per
each debenture. These Debentures are more fully described under Management's
Discussion and Analysis of Financial Conditions and Results of Operation below.
As of the fiscal year end June 30, 1999 there were 64.7 Debentures issued. As of
the closing of the offering, there were 67.8. Debentures issued and outstanding,
As of October 1, 1999, two Debentures were converted to 20,000 shares of common
stock to date. The Company has not engaged in the sale of any other
restricted securities of any type or nature, other than issuance described in
this 10-KSB/A Report.
The common stock of the Company is not actively traded with limited
transactions occurring over the Electronic Bulletin Board. The Electronic
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.
Set out below is a table describing the general price and trading range
of the Company's shares by quarter from the inception of trading in
approximately January, 1999 to the present:
========================== ========================== ==========================
1st Quarter 1999 2nd Quarter 1999
- -------------------------- -------------------------- --------------------------
Bid/Ask Range $ 1.50 - $ 6.00 $ 1.50 - $ 3.00
- -------------------------- -------------------------- --------------------------
Average Price $ 4.25 $ 2.25
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ITEM 6. SELECTED FINANCIAL DATA
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<TABLE>
<CAPTION>
============ ============ ============ ============ ============ ============ ============ ============ ============
Operating Net Income Net Income Total Assets Long Term Cash Accumulated Stock-
Revenues (loss) from (loss) from obligations Dividends Losses holders
continuing common deficit
operations share
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the $ 3,142,603 ($ 966,718) ($ 0.27) $ 852,678 $ 427,727 N/A ($ 1,002,700) ($ 318,897)
Fiscal Year
Ening June
30, 1999
============ ============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
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The Company does not pay any dividends and does not anticipate the
payment of dividends for the foreseeable future.
The long term obligations of the Company as of June 30, 1999, consisted
primarily of the current 64.7 Convertible Debentures. From the sale of these
instruments, the Company raised, at the end of the audit period (6/30/99) total
gross proceeds of $427,727, with total gross proceeds at the close of the
offering of $667,728 when a total of 67.8 Debentures were issued. These
Debentures are convertible to common stock with one Debenture being convertible
to 10,000 shares of common stock. The Company can not anticipate, and has no
basis to determine, how many of the Debentures, in addition to the two
conversions to date, will be converted to common stock and has accordingly
carried all remaining Convertible Debentures as debt obligations. The terms of
the Debenture and conversion rights are more particularly set out in the
following section on Management's Discussion & Analysis.
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
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OPERATIONS
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Management's discussion and analysis may contain forward-looking
statements that involve risks and uncertainties. The statements contained in
this 10-KSB/A Report that are not purely historical are forward-looking
statements within the meaning of Section 21E of the Exchange 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,"
"predicts," "forecasts," or variations of such words and similar expressions are
intended to identify such forward-looking statements, but their absence does not
mean the statement is not forward-looking. These statements are not guarantees
of future performance and are subject to certain risks, uncertainties, and
assumptions that are difficult to predict; therefore, actual results may differ
materially from those expressed or forecast. Any such forward-looking statements
are subject to certain unforeseen factors, which may cause a discrepancy with
actual results.
As previously discussed, the Company came in to existence pursuant to a
Reverse Acquisition in September, 1998. No new capital was created or raised
pursuant to this Reverse Acquisition and the Company received, as additional
capital, only the existing business and assets of Travel Dynamics, Inc. for a
percentage of shares as generally discussed and described above under the
Business Section. Since the contributed assets were primarily intangible, the
Company did not receive a significant augmentation of working capital from this
Reorganization.
As of the fiscal year ended June 30, 1999, the Company had cash flows
that should sustain operations. However, in order to fund the growth the Company
desires,the Company completed the private placement of the Convertible Debenture
Offering during April through June 1999. The Company sold the Debentures, at
$10,000 per Debenture with a minimum subscription of one full debenture in most
cases. From the private placement, the Company has raised a total of $667,728
through the closing and $427,727 as of the audit date.
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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 complete Audited Financial Statements as attached. This section should be
reviewed in conjunction with the Financial Statements and notes.
A sector analysis of these revenue changes for the entire fiscal year
is included under the description of General Business in Item I.
From April, 1999 to June 30, 1999 the Company engaged in a private
placement under SEC Rule 506 of convertible debentures. Debentures required an
investment of $10,000 and are convertible to common stock of the Company at
$1.00 per share. The Company issued one partial debenture. The essential terms
of the 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
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.
The holders of the Debenture may convert the Debenture at its face
value to one common share for each dollar value of the Debenture. No partial
conversions will be allowed. Upon conversion and physical surrender of the
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 Debenture being June
30, 2001.
The Company also has the right to call (redeem) the Debenture at its
face value plus 10% ($11,000 per Debenture) at any time after the first
anniversary date of the instrument on June 30, 2000. In the event of and 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 Debentures. Provided further that
upon notice of call the legal holder may convert the Debenture to common stock,
as described above, within 30 days after being given written notice of any call.
The Company regards the Debentures and any conversion stock issued
pursuant to conversion of the Debentures as restricted securities. The Company
has no obligation or intent to engage in registration rights for the Debenture
holders and is anticipating that in the event of conversion the shares would
subsequently be sold by shareholders pursuant to SEC Rule 144, or such other
exemption as may then be made available to subscribers. The Company believes the
holding period of the Debenture does count as a holding period for stock issued
upon Conversion under current Rule 144.
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From the sale of the Convertible Debentures, the Company will employ
the net proceeds for working capital purposes primarily related to expansion of
facilities and purchase of new equipment and to pay for other costs of
operations not covered by operating revenues. The Company believes that the sale
of the Debentures gave it reasonable working capital reserve for the foreseeable
future.
Other than the interest on the Debentures, the Company does not have
any other financial loans or commitments and does not intend to pay dividends on
the common stock for the foreseeable future.
The Company can not anticipate when or if the Debentures will be
converted.
As noted previously, the Company has not realized profitable operations
to this date, but has experienced continuing growth in revenues, and a decrease
in operating losses. Revenue growth has been sufficient to pay for most
operational expenses of the Company to date including salaries and other routine
operating expenses. It is projected that the Company will obtain profitable
operations during the 2000 fiscal year, though no warranty of this projection
can be made. Management reasonably believes that revenues together with a
portion of the working capital reserves, described above, will be sufficient to
maintain Company operations until profitability is achieved.
The increase in revenues are believed attributable by management to
simply an increase volume of sales of the travel packages through an increase in
selling agents; and, to a lesser extent, increase in revenues in direct on-line
sales and from the seminars. The Company's pricing structure has not
significantly changed since inception for these services or products.
The Company estimates its average aggregate profit margin on the travel
packages to be approximately $140 or 47%per package. The estimated average
profit margin on the sale of seminars will be 15% per event.
There is, as of June 30, 1999, combined total assets of $852,678;
current liabilities of $743,348 and a shareholders' deficit of ($318,397) in
the Company.
Costs of sales in the fiscal year ending June 30, 1999 were $1,888,144
or approximately 60% of sales. The resulting gross profit was $1,254,459 or a
gross profit margin of approximately 40%. General and administrative expenses
of $1,803,654 for this period resulted in a net loss of ($966,718) or
approximately $0.27 per share. Management notes that the Company incurred
various one time costs during this start-up period such as $307,983 in
reorganization costs; stock compensation fees of $161,851 and interest costs of
$108,055.
Management compensation for the fiscal year ending June 30, 1999,
aggregated $359,252 or approximately 11% of revenues. Management also received
650,000 shares of stock in this period,and has options to acquire 600,000 shares
at an exercise price of $0.10/share.
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 the
2000 fiscal year. However, the Company remains dependent on continuing cash
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flows to meet certain operating expenses and no assurance of financial success
or the economic survival of the enterprise can be assured during this start-up
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,
initial filing fees, and advertising and marketing fees which may not constitute
ongoing fees; or, if ongoing, are not anticipated to 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 actual Financial Statements and Notes
attached thereto and incorporated by this referenced.
(b) Year 2000 Disclosure - As many of our shareholders and other
interested parties may be aware, there is significant concern that certain
computer programs and computers are not presently configured to recognize the
year 2000 or succeeding years. This defect in computer functions could have a
serious adverse impact upon your Company and other industries if various
computer programs and applications cease to function or function erroneously as
we approach the year 2000.
By way of practical illustration, software programs dealing with
accounting and banking functions within the Company could miss function or cease
to function if not year 2000 compliant. The Company views the year 2000, or Y2K,
compliance problems it may face to fall within three general categories:
(1) The potential impact on the Company=s own information technology
(IT Systems) consisting of locally networked computers, stand alone computers,
and their integral software.
(2) The potential impact of the possibility of collateral failure or
miss function in non-IT systems due to their computer components such as
telephone systems, security systems, Company vehicles, etc.
(3) The potential adverse effect upon the Company from year 2000
failure among third party service and product suppliers upon which the Company
depends for its core travel products and services. The third parties would
include, though are not limited to, cruise lines, travel companies, airlines,
and government owned or managed travel facilities such as airports, terminals,
and docks.
The Company believes it is addressing its year 2000 problems related to
its owned or leased IT systems. The Company has hired an in-house IT specialist
who will complete reviews and updates prior to December 31, 1999, of all
Company operating systems and program applications to insure they are Y2K
compliant or they will be upgraded to be compliant, or alternative compliant
systems or software acquired. Preliminarily, it appears that most of the
Company's current operating systems were acquired recently enough to be fully
Y2K compliant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
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See attached audited financial statements incorporated as exhibit I.
to this 10-KSB report.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING & FINANCIAL
- --------------------------------------------------------------------------------
DISCLOSURE
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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.
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS, PROMOTERS & CONTROL PERSONS, COMPLIANCE
- --------------------------------------------------------------------------------
WITH SECTION 16 (A) OF THE EXCHANGE ACT
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Following is a general biographical description of all directors and
principal officers of the Company, followed by a compensation chart showing
their compensation and sharehold interest together with the offices held:
JAMES PICCOLO - DIRECTOR - (President and CEO)
Age: 41
Mr. Piccolo currently resides with his family in Scottsdale, Arizona.
Mr. Piccolo obtained a BS Degree in Business Management from the University of
Nebraska in 1984. Mr. Piccolo has primarily been engaged in mail order
businesses and consulting for mail order businesses and products for most of his
professional business life. He served as the president for several large mail
order companies from approximately May, 1987 to July, 1994; including Hot Tops,
Inc, Special Effects, Inc., American Innovative Manufacturing and International
Sport Truck Association. Hot Tops, Inc. was the first national mass distributor
of convertible conversions for sport trucks. Mr. Piccolo was co-founder of
International Sports Truck Association and has long been regarded as an
innovator and visionary in the mass marketing area.
BRIAN K. SERVICE - DIRECTOR (CFO, SECRETARY & CONSULTANT) -
Age: 51
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
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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 is also 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. In addition to being a Director,
Mr. Service will continue as the CFO, Secretary and as a business consultant to
the Company.
THOMAS (TOM) DENNIS - DIRECTOR
Age: 51
Mr. Dennis currently resides with his family in Atlanta, Georgia. Mr.
Dennis graduated from Grand Valley State University in 1972 with a Bachelor of
Arts Degree. Mr. Dennis has been involved in the past 25 years as a business
consultant with a particular emphasis on start up enterprises in the development
stage. Prior to his affiliation with Travel Dynamics, Mr. Dennis has served as
Director of Corporate Development for an original licensee of Arbys, Inc. that
operated 88 restaurants and as a Vice President and Board Member of Sybra, Inc.,
which is engaged in the construction of Arbys Restaurants.
THOMAS VERGITH - DIRECTOR
Age: 38
Mr. Vergith resides in Scottsdale, Arizona. Mr. Vergith received a
BS/BA in Economics from the University of Nebraska in 1982 and a JD Degree from
Creighton University in 1986. Mr. Vergith is currently assistant counsel for
Scottsdale Insurance Company and a practicing member of the Arizona Bar.
JOHN P. PICCOLO - VICE PRESIDENT
Age: 34
Mr. 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 serves as the
Vice President of Travel Dynamics. Prior to his affiliation with Travel
Dynamics, 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.
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MELINDA FEHRINGER - TREASURER
Age: 22
Ms. Fehringer currently resides in Chandler, Arizona. Ms. Fehringer is
a graduate of Devry University with a 1995 Bachelor of Science Degree in
Accounting. Ms. Fehringer was retained as the Treasurer for Travel Dynamics
since its inception. Prior to her affiliation with Travel Dynamics, Ms.
Fehringer was employed by Electronic Visions as an accountant, a Company engaged
in the manufacturing of semi-conductor equipment, with SynerNet as its
Accounting Manager, a Company involved in computer consulting and prior to that
by Sheritan Crescent.
MARY PICCOLO - VICE PRESIDENT OF MARKETING & TRAINING
Age: 32
Mrs. Piccolo currently resides in Scottsdale, Arizona. Mrs. Piccolo is
married to the Company's President. Mrs. Piccolo graduated from Amphitheater
High School in Tucson, Arizona in 1984 and attended the University of Arizona,
Tucson. She has primarily been engaged in the travel industry and direct
marketing industries for her professional business life. She worked in direct
marketing of educational products from 1996 to 1997 and Excel Telecommunications
from 1995 to 1996. Prior to this she worked for four years as a sales
representative for Club Med Resorts. From 1988 to 1991 she worked for Southwest
Travel Arrangers, Inc. in the destination services. Mrs. Piccolo also spent
three years with Continental Airlines as an in-flight service agent.
ITEM 11. EXECUTIVE COMPENSATION
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Management compensation for the fiscal year ending June 30,1999,
including signing bonuses, aggregated $359,352 or 11% of revenues. Management
and the Board of Directors also received 650,000 shares of stock, and options to
acquire 996,000 shares at an exercise price of $0.10/share. If fully exercised,
management and directors= shares and options would constitute approximately 32%
of all presently issued and outstanding stock when added to the currently issued
and outstanding stock of the Company.
13
<PAGE>
The following chart attempts to summarize the current share/option
holdings of management, as well as compensations as of June 30, 1999:
MANAGEMENT STOCK/COMPENSATION TABLE
=============== ================== ============ =============== ================
NAME POSITION NO. OF STOCK SUBJUCT TOTAL ANNUAL
SHARES TO VESTED OF MONETARY
FUTURE OPTION COMPENSATION
RIGHTS1
- --------------- ------------------ ------------ --------------- ---------------
James Piccolo President/Director 400,000 600,000 $ 250,000
- --------------- ------------------ ------------ --------------- ---------------
Brian Service Director/CFO/
Secretary 0 196,000 2 Per diem 3
- --------------- ------------------ ------------ --------------- ---------------
Thomas Dennis Director 0 100,000 Per diem
- --------------- ------------------ ------------ --------------- ---------------
Thomas Vergith Director 0 100,000 Per diem
- --------------- ------------------ ------------ --------------- ---------------
John Piccolo Vice President 0 0 $ 60,000
- --------------- ------------------ ------------ --------------- ---------------
Melinda Treasurer 0 0 $ 42,500
Fehringer
- --------------- ------------------ ------------ --------------- ---------------
Mary Piccolo Vice President 250,000 0 $150,000
Marketing/Training
=============== ================== ============ =============== ===============
1 The options granted versus options vested for offices and directors are more
fully set-out in the following option chart.
2 The options counted for Mr. Service include options for 96,000 shares granted
to a related consulting Company, B.K. Service International Business
Consultancy. The foregoing management chart does not describe options to third
party consultants, or options to acquire up to 175,000 shares granted to
non-management employees since December 31, 1998, see following employees option
table.
3 Directors are not paid a salary, but receive a per diem allowance (currently
$1,000 per meeting) for attendance at Board Meetings.
14
<PAGE>
The following chart shows the stock options granted to the current
executive officers of the Company:
EXECUTIVE OPTIONS
- --------------------------- -------------------------- -------------------------
Name and Principal Position Total Options Granted Total Options Vested 2
- --------------------------- -------------------------- -------------------------
James Piccolo 600,000 0
- --------------------------- -------------------------- -------------------------
Brian Service 196,000 49,000
- --------------------------- -------------------------- -------------------------
Thomas Dennis 100,000 25,000 3
- --------------------------- -------------------------- -------------------------
Thomas Vergith 100,000 25,000
- --------------------------- -------------------------- -------------------------
1 Options listed for Brian Service include options for 96,000 shared held by an
affiliated Company, BK Service International Business Consultancy .
2 ALL EXECUTIVE OPTIONS WILL NOT BE DEEMED FINALLY VESTED UNTIL RATIFIED BY A
SUBSEQUENT SHAREHOLDER VOTE.
3 Mr. Dennis has actually exercised these options.
Mr. Davies resigned from the Board and retained options for 25,000 shares which
vested prior to his resignation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
OTHER PRINCIPAL SHAREHOLDERS
In addition to the sharehold position of officers and directors listed
earlier, the Company has the following additional shareholders who hold, legally
or beneficially, ten percent (10%) or more of the currently issued and
outstanding shares; or which shareholder has some affiliation with an officer or
director:
========================== ========================== ==========================
NAME OF SHAREHOLDER SHARES HELD PERCENT OF OUTSTANDING
SHARES
- -------------------------- -------------------------- --------------------------
McKenzie/Shea 404,000 10%
- -------------------------- -------------------------- --------------------------
Esteem Corporation 304,807 7%
========================== ========================== ==========================
1 Esteem Corporation is owned by Mrs. M. Patricia Piccolo, the mother of the
president.
15
<PAGE>
The following chart shows stock options granted to those other than
directors or executive officers, but who are affiliated with the Company as key
employees or consultants:
EMPLOYEE/CONSULTANT OPTIONS
================================= ===================== =====================
Name Total Options Granted Total Options Vested
- --------------------------------- --------------------- ---------------------
Success Enterprises-Consultant 1 100,000 30,000
- --------------------------------- --------------------- ---------------------
Golden Mastermint - Consultant 2 40,000 20,000
- --------------------------------- --------------------- ---------------------
Round II, Inc. 3 12,000 4,000
- --------------------------------- --------------------- ---------------------
Michael Selsmen 4 75,000 6,250
- --------------------------------- --------------------- ---------------------
Chuck Hanson 5 102,000 8,500
- --------------------------------- --------------------- ---------------------
Dean Robinson - Employee 55,000 25,000
- --------------------------------- --------------------- ---------------------
John Knoll - Employee 55,000 25,000
- --------------------------------- --------------------- ---------------------
Chuck Brown - Employee 65,000 35,000
- --------------------------------- --------------------- ---------------------
TOTALS 504,000 153,000
================================= ===================== =====================
1. Success Enterprises provides independent marketing services to the Company.
2. Golden Mastermind primarily provides speakers and other talent to the
Company.
3. Is a Financial Communications Consultant.
4. Provides press release and public relations services.
5. Provides Company with discounted advertising placements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY 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 is also
disclosing what it deems to be other significant relationships.
In outline fashion, the Company believes that the following constitutes
the most significant related party transactions or significant relationships.
Related party transactions do no 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 avoid any conflicts or potential conflicts of interest:
16
<PAGE>
1. Consulting Agreement with McKenzie/Shea. As previously described,
the Company has 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 is to provide general business consulting
and assistance. In this capacity, they received and will retain a 10% equity
interest in the Company until the Company is able to raise its first $5 million
in direct capitalization.
2. Brian Service, Director and CFO. In addition to being a director of
the Company, Mr. Brian Service and his affiliated Company, BK Business
Consultant International Services, also acts as an independent business
consultant to the Company. Mr. Service is also the CFO and corporate secretary.
The stock option remuneration to Mr. Brian Service is slightly higher than the
stock options provided to other directors because of his added responsibility as
a managing director and outside consultant.
3. Piccolo Share Position. The Piccolo family directly, or acting
through controlled entities, is the single largest shareholder in the Company,
holding approximately 22% of issued shares - exclusive of options - and may be
in a position to substantially influence corporate decisions.
4. Stock Options. Various stock options have been given to the Board of
Directors. 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.
5. Convertible Debentures. The Company issued between April and June
1999 64.7 convertible Debentures which may be converted for up to 647,727 common
shares. As of the closing of the offering, the Company issued 67.8 convertible
Debentures. The Company cannot predict how many, if any, Debentures will
be converted to common stock. Any such conversion may result in dilution
to existing shareholders or may adversely affect any market price of the
Company's shares.
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
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.
17
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
- ---------------------------------------------------------------------------
I. Financial Statements:
Audited Financial Statements for period ending June 30, 1999 as
attached and incorporated.
II. Other Exhibits:
Exhibit A - Articles of Incorporation with Amendments - previously filed
Exhibit B - By-Laws - Previously filed
Exhibit C - Specimen Debenture Certificate
Exhibit D - Specimen Stock Certificate - previously filed
Exhibit E - Hold-Off Agreement - previously filed
Exhibit F - Reorganization Agreement - previously filed
Exhibit G - Majority Shareholder Consent - previously filed
Exhibit H - Shareholder Notice - previously filed
Reports on Form 8-K
The Company filed an 8-K Report pertaining to the current majority
share acquisition in the Company as of October, 1998.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the registrant has duly caused this report to be signed by the undersigned,
hereunto duly authorized.
Travel Dynamics, Inc.
(Registrant)
/s/ James Piccolo December 31, 1999
- --------------------------------- ------------------
James Piccolo
President, Chief Executive Officer and Director
/s/ Brian K. Service December 31, 1999
- --------------------------------- ------------------
Brian K. Service Date
Chief Financial Officer,
Principal Accounting Officer and Director
19
<PAGE>
<TABLE>
<CAPTION>
TRAVEL DYNAMICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
------
<S> <C>
Report of Independent Certified Public Accountants................................................. F-1
Consolidated Balance Sheet - June 30, 1999......................................................... F-2
Consolidated Statements of Operations for the Year Ended June 30, 1999 and
for the Period from March 1, 1998 (Date of Inception) through June 30, 1998 .................... F-3
Consolidated Statements of Stockholders' Deficit for the Period from March 1,
1998 (Date of Inception) through June 30, 1998 and for the Year Ended
June 30, 1999................................................................................... F-4
Consolidated Statements of Cash Flows for the Year Ended June 30, 1999 and for
the Period from March 1, 1998 (Date of Inception) through June 30, 1998.......................... F-5
Notes to Consolidated Financial Statements......................................................... F-6
</TABLE>
<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 sheet of Travel Dynamics,
Inc. and Subsidiary as of June 30, 1999 and the related consolidated statements
of operations, stockholders' deficit, and cash flows for the year ended June 30,
1999 and for the period from March 1, 1998 (date of inception) through June 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1999 and the results of their operations and
their cash flows for the year ended June 30, 1999 and for the period from March
1, 1998 (date of inception) through June 30, 1998 in conformity with generally
accepted accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
September 24, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
TRAVEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEET
June 30, 1999
ASSETS
Current Assets
<S> <C>
Cash and cash equivalents...................................................................$ 174,018
Other receivables........................................................................... 153,056
Inventory................................................................................... 57,631
Prepaid assets.............................................................................. 18,032
Other current assets........................................................................ 17,471
--------------
Total Current Assets.................................................................... 420,208
--------------
Property and Equipment
Office equipment............................................................................ 116,160
Software for internal use................................................................... 107,620
Less accumulated depreciation............................................................... (19,463)
--------------
Net Property and Equipment.............................................................. 204,317
--------------
Other Assets
Trademarks, net of $526 accumulated amortization............................................ 4,733
Marketing master database, net of $19,601 accumulated amortization.......................... 98,047
Investments in certificates of deposit...................................................... 80,000
Other assets................................................................................ 45,373
--------------
Total Other Assets...................................................................... 228,153
--------------
Total Assets.....................................................................................$ 852,678
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable............................................................................$ 216,364
Accrued liabilities......................................................................... 93,524
Deferred sales.............................................................................. 433,460
--------------
Total Current Liabilities............................................................... 743,348
--------------
Convertible Notes Payable........................................................................ 427,727
--------------
Stockholders' Deficit
Common stock -$0.001 par value; 50,000,000 shares
authorized; 4,340,080 shares issued and outstanding ..................................... 4,340
Additional paid-in capital.................................................................. 758,960
Unearned compensation....................................................................... (78,997)
Accumulated deficit......................................................................... (1,002,700)
--------------
Total Stockholders' Deficit............................................................. (318,397)
--------------
Total Liabilities and Stockholders' Deficit......................................................$ 852,678
==============
</TABLE>
See the accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
TRAVEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Period from
March 1, 1998
For the Year (Date of Inception)
Ended Through
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Sales........................................................................$ 3,142,603 $ 208,523
Cost of Sales................................................................ 1,888,144 131,072
------------- ------------
Gross Profit................................................................. 1,254,459 77,451
------------- ------------
Expenses
Selling, general and administrative expense............................. 1,803,654 113,433
Merger and reorganization expense....................................... 307,983 --
Interest expense........................................................ 109,540 --
------------- ------------
Total Expenses.......................................................... 2,221,177 113,433
------------- ------------
Net Loss.....................................................................$ (966,718) $ (35,982)
============= ============
Basic and Diluted Loss Per Common Share .....................................$ (0.27) $ (0.02)
============= ============
Weighted Average Number of Common
Shares Used in Per Share Calculation........................................ 3,608,143 1,532,164
============= ============
</TABLE>
See the accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
TRAVEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<CAPTION>
Common Stock Additional Total
--------------------- Paid-in Unearned Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Deficit
------ ------ ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1998 (Date
of Inception) -- $ -- $ -- $ -- $ -- $ --
Issuance for cash 1,532,164 1,532 (877) -- -- 655
Net loss -- -- -- -- (35,982) (35,982)
----------- ----------- ----------- ----------- ----------- -----------
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)
=========== =========== =========== =========== =========== ===========
</TABLE>
See the accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
TRAVEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Period from
March 1, 1998
For the Year (Date of Inception)
Ended Through
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss...................................................................$ (966,718) $ (35,982)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization ............................................ 39,590 --
Compensation relating to common stock, options and
debentures granted ..................................................... 238,723 --
Write-off of (expenditures for) start up costs ........................... 60,000 (60,000)
Interest expense relating to beneficial conversion feature ............... 108,055 --
Changes in operating assets and liabilities:
Other receivables ...................................................... (141,179) (11,877)
Prepaid expenses ....................................................... (18,032) --
Inventory .............................................................. (56,931) (700)
Other assets ........................................................... (52,092) (8,400)
Accounts payable ....................................................... 185,902 68,189
Accrued liabilities .................................................... 93,524 --
Deferred sales ......................................................... 433,460 --
--------- ---------
Net Cash and Cash Equivalents Used
in Operating Activities .............................................. (75,698) (48,770)
--------- ---------
Cash Flows From Investing Activities
Payments to purchase property and equipment and
intangible assets ........................................................ (229,029) (120,000)
Purchase of certificates of deposits ....................................... (80,000) --
--------- ---------
Net Cash and Cash Equivalents Used
in Investing Activities .............................................. (309,029) (120,000)
--------- ---------
Cash Flows From Financing Activities
Proceeds from issuance of common stock ..................................... 2,500 655
Proceeds from issuance of notes payable .................................... 529,360 195,000
--------- ---------
Net Cash and Cash Equivalents Provided
by Financing Activities .............................................. 531,860 195,655
--------- ---------
Net Increase in Cash and Cash Equivalents ..................................... 147,133 26,885
Cash and Cash Equivalents at Beginning of Period .............................. 26,885 --
--------- ---------
Cash and Cash Equivalents at End of Period....................................$ 174,018 $ 26,885
========= =========
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities-See Note 8
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. The assets and liabilities of Travel Dynamics, L.L.C.
were transferred to Travel Dynamics, Inc., a Nevada corporation, on July 31,
1998. From the date of inception through June 1998, there were 1,532,164 shares
of common stock of Travel Dynamics, Inc. which were issued for cash and during
August 1998, 467,856 shares of Travel Dynamics, Inc.'s common stock were issued
upon the conversion of notes payable for which money was contributed during June
through August 1998. The financial statements have been restated to reflect the
dates of the contribution of capital to Travel Dynamics, L.L.C. The assets and
liabilities 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 became a wholly-owned subsidiary of Greenway. The agreement was
accounted for as the reorganization of Travel Dynamics, Inc. and the acquisition
of Greenway's assets in exchange for 1,236,072 shares of common stock. The
common stock issued was recorded at the fair value of the assets received which
consisted of $10 in cash. Greenway did not have any operations and had only
nominal assets at the date of the agreement. In addition, Greenway changed its
name to Travel Dynamics, Inc.
Principles of Consolidation -The accompanying consolidated financial statements
include the accounts of Travel Dynamics, L.L.C. from March 1, 1998 (date of
inception) through July 31, 1998 and the accounts of Travel Dynamics, Inc. from
July 31, 1998. The consolidated financial statements include the accounts of
Greenway Environmental Systems, Inc. from the date of its acquisition for
accounting purposes on September 29, 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 which 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 accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. Although the Company has
suffered a net loss of $966,718 for the year ended June 30, 1999, the Company's
cash loss from operations for the same period was only $75,698. Management
believes that profitability and cash flows from operations will improve and will
provide the necessary capital to fund operations due to the continued success of
existing products and the introduction of new products. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
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, 1999 the Company
had cash in excess of federally insured limits of $73,808.
F-6
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts reported as cash, other receivables, 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 use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair value amounts.
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.
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 December 1999
and March 2000; 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, 1999, the balance of the investments in
certificates of deposit was $80,000.
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, 1999, the gross amount of capitalized advertising costs was $117,648.
Management estimates that it will take five years for the amortization of the
Marketing Master Database. All other advertising costs are expensed as incurred.
Advertising expense, was $37,421 for the year ended June 30, 1999, which
includes $19,601 for the amortization of the Marketing Master Database. The
Company incurred no advertising expense during the period ended June 30, 1998.
Office Equipment - Office equipment is recorded at cost and depreciated over its
estimated useful live of seven years, using the straight-line method.
Depreciation expense for the year ended June 30, 1999 was $12,678. The Company
incurred no depreciation expense for the period ended June 30, 1998.
Software for Internal Use - In accordance with Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1), 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 to
date of an online store to advertise and sell travel packages accessible through
the Company's Internet web site. Costs to complete the online store will be
capitalized as incurred. Software acquisition and installation costs are
depreciated over periods from one to three years by the straight-line method
beginning when the systems are operational. Depreciation expense for the year
ended June 30, 1999 was $6,785. The Company incurred no depreciation expense for
the period ended June 30, 1998.
Trademarks - The cost of a trademark has been capitalized and is being amortized
over a three-year period by the straight-line method. Amortization expense for
the year ended June 30, 1999 was $526. The trademark was placed in service
subsequent to June 30, 1998, therefore the Company incurred no amortization
expense for the period March 1, 1998 through June 30, 1998. The cost of a
marketing master database used for direct-response advertising has been
capitalized and is being amortized over a five-year period by the straight-line
method. Amortization expense for the year ended June 30, 1999 was $19,601. The
master database was placed in service in June 1998 and the amount of
amortization was insignificant for period March 1, 1998 through June 30, 1998.
F-7
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-Lived Assets - The realizability of long-lived assets 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.
Sales Recognition - Sales include the cash sale of travel discount packages and
marketing seminars. The Company recognizes sales for training seminars at the
date the customer participates in a seminar. Deferred sales (prepaid marketing
seminar deposits) represent amounts collected in advance of such participation.
Organization Costs - Costs paid to organize the Company as well as costs paid in
connection with the reorganization were capitalized during the period ended June
30, 1998. On July 1, 1998, the Company adopted Statement of Position 98-5
Reporting on the Costs of Start-Up Activities, which requires costs of start-up
activities and organization costs be expensed as incurred. Accordingly, $60,000
of organization costs previously capitalized were expensed during the year ended
June 30, 1998.
Stock-Based Compensation -- Stock-based compensation to employees is measured by
the intrinsic value method. This method recognizes compensation based on the
difference between the fair value of the underlying common stock and the
exercise price of the stock options on the date granted. Compensation relating
to options granted to non-employees is measured by the fair value of the
options, computed by an option pricing model.
Basic and Diluted Loss Per Share -Basic loss per common share is computed by
dividing net loss by the weighted-average number of common shares outstanding
during the period. Diluted loss per share is calculated to give effect to
potentially issuable common shares except during loss periods when those
potentially issuable common shares would decrease the loss per share. There were
1,927,727 potentially issuable common shares which were excluded from the
calculation of diluted loss per common share at June 30, 1999. There were no
potentially issuable shares at June 30, 1998.
NOTE 2 - REORGANIZATION OF TRAVEL DYNAMICS L.L.C.
The assets and liabilities of Travel Dynamics, L.L.C. were transferred to Travel
Dynamics, Inc., a Nevada corporation, on July 31, 1998. The assets and
liabilities transferred from Travel Dynamics L.L.C. were accounted for by the
purchase method of accounting and were recorded at historical cost in a manner
similar to pooling of interests as follows:
<TABLE>
<CAPTION>
<S> <C>
Historical cost of assets................................................$ 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)
===============
</TABLE>
F-8
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS
Included in other receivables is a receivable from a corporation that is owned
in part by an officer of the Company and a receivable from a different officer.
The balances of these respective receivables at June 30, 1999 are $31,452 and
$13,240, respectively. The corporation noted above has performed services for
the Company and has lent the Company money. The receivable owed to the officer
is for expenses paid by the officer on behalf of the Company. Included in
accrued liabilities is a payable to the same officer of $19,160. This liability
is for the reimbursement of expenses incurred by the officer for Company
business.
NOTE 4 -CONVERTIBLE NOTES PAYABLE
In June 1999, the Company issued 10% convertible debentures totaling $427,727,
consisting of $380,000 in cash, a conversion of $37,727 of accounts payable and
$10,000 to a consultant for services rendered. Interest accrues on the
debentures beginning June 30, 1999 and 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. Each debenture is callable 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.
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 granted which was $1.27. Since the debentures were
immediately convertible to common stock, the Company recognized the interest
expense on the day the debentures were issued. The Company recognized $108,055
of interest expense due to the beneficial conversion feature for the year ended
June 30, 1999.
NOTE 5 --INCOME TAXES
There was no provision for or benefit from income tax for any period. The
components of the net deferred tax asset at June 30, 1999 are shown below:
Benefit of operating loss carryforwards..........$ 245,009
Start up costs .................................... 69,677
Depreciation ...................................... 3,740
--------
Total Deferred Tax Asset.........................$ 318,426
Valuation allowance ............................... (318,426)
--------
Net Deferred Tax Asset...........................$ --
========
For tax reporting purposes, the Company has net operating loss carry forwards in
the amount of $635,855 which will expire beginning in the year 2018.
The following is a reconciliation of the amount of tax benefit that would result
from applying the federal statutory rate to pretax loss with the benefit from
income taxes.
F-9
<PAGE>
<TABLE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
For the Years Ended
June 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Benefit at statutory rate (34%).....................................$ (328,684) $(12,234)
Non-deductible expenses .............................................. 75,434 --
Change in valuation allowance ........................................ 304,292 14,134
State tax benefit, net of federal tax effect ......................... (51,042) (1,900)
-------- --------
Net Benefit From Income Taxes.......................................$ -- $ --
======== ========
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Agreements With Consulting Firms -- The Company entered into an agreement on
June 26, 1998 with a business consulting firm which was mutually rescinded on
October 17, 1998 and a new agreement was entered into on October 19, 1998. Under
the terms of the new agreement, the consulting firm has provided services and
benefits relating to the reorganization of Travel Dynamics, Inc. and finding
Greenway and will provide services relating to the Company's ongoing business
activities. The Company paid the consulting firm $5,000 as a non refundable
retainer, $40,000 for assisting the Company in the reorganization with Greenway
and will 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. As of June 30, 1999, 429,008 shares of common
stock have been issued in relation to this commitment and were valued at $64,351
or $0.15 per share. At June 30, 1999, there were 1,927,727 potentially issuable
common shares which, if exercised, would require the Company to issue up to an
additional 214,191 shares of common stock to this consulting firm. At the time
of issuance of these common shares, the Company would have to record an expense
for the fair value of the common stock issued on the date the shares were issued
to the consulting firm.
The consulting firm has been granted registration rights regarding their common
stock commencing nine months from the date of the agreement 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 is for a one year period. This agreement
requires 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. Options for 10,000 shares vested upon being granted and the
remaining options vest evenly at the beginning of each quarter. These options
had a fair value of $3,200 at the time of issuance, $2,934 of this expense has
been recognized as of June 30, 1999.
Employment Agreements -- In connection with a three-year employment agreement
with the Company's president, the Company issued 400,000 shares of common stock
on September 30, 1998 valued at $0.15 per share, or $60,000. In addition, the
employment agreement requires the payment of cash compensation of
F-10
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$250,000 per year. The Company also granted the President options to purchase
600,000 shares of common stock at $0.10 per share.
In connection with a three-year employment agreement with the Vice President,
the Company issued 250,000 shares of common stock on December 1, 1998 valued at
$0.15 per share or $37,500. In addition, cash compensation of $150,000 per year
will be paid to the Vice President.
On January 1, 1999, the Company entered into employment agreements with three
non-executive employees. Each of these employment agreements is for three years
and may be automatically renewed for an additional year. In connection with
these employment agreements, the Company granted options to purchase 175,000
shares of common stock at $0.15 per share. Cash compensation to be paid to these
individuals totals $354,000 annually.
Lease agreements - During the year ended June 30, 1999, the Company leased
office space under a lease agreement. The lease is month to month. Rental
expense for the year ending June 30, 1999 was $36,946. For the period ending
March 1, 1998 through June 30, 1998 the Company incurred no lease expense.
Litigation - At June 30, 1999, the Company was a defendant in various lawsuits
of which the outcome was unknown. The Company was involved in a lawsuit which
has been settled since June 30, 1999. The Company settled the lawsuit for $8,950
which has been accrued in the financial statements.
The Company is subject to other 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 consolidated financial
statements. One such instance of litigation whereby an third party had initiated
a counter claim against the Company has been settled by the Company's acceptance
of an offer.
NOTE 7 - 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. 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. When options are forfeited, the compensation expense
previously recognized relating to the unvested options are reversed in the
period the options are forfeited.
Non-Employee Grants: During the fiscal year ended June 30, 1999, the Company
granted options to purchase a total of 825,000 shares of common stock to various
individuals and entities.
As disclosed in Note 6, 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 vest 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 will be recognized over the period the options
vest.
F-11
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 began vesting on February 28, 1999, with 12,000
options vesting each of the following seven quarters. Options to purchase an
additional 100,000 shares were also granted in December 1998. A total of 30,000
options vested upon grant, with 35,000 options vesting each of the following two
anniversary dates. Compensation relating to these options was based upon a $0.11
fair value per share and will be recognized over the period the options vest.
During May 1999, options to purchase 189,000 shares of common stock at $2.36 per
share were granted. 12,000 options vest at the rate of 4,000 per month beginning
June 26, 1999. 177,000 options vest at the rate of 14,750 per month beginning
one month after the execution of the agreement. Compensation relating to these
options was based upon a $0.31 fair value per share and will be recognized over
the period the options vest.
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 at the rate of
25% upon being granted and 25% per year over the following three years.
Compensation relating to these options was $0.11 per share based upon the fair
value and will be recognized over the period the options vest. As of June 30,
1999, one of the directors had exercised 25,000 of these vested options. Also,
as of June 30, 1999, one of the members of the Board of Directors resigned and
forfeited 75,000 options.
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:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price Exercise Price
------ -------------- --------------
<S> <C> <C> <C>
Outstanding at July 1, 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
=============
Options exercisable at June 30, 1999 167,750 0.35
=============
Weighted-average fair value of
options granted during the year ..........$ 0.15
=============
</TABLE>
The following table summarizes information about non-employee stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Range of Number Average Weighted- Number Weighted-
Exercise Outstanding Remaining Average Exercisable Average
Prices At 06/30/99 Contractual Life Exercise Price At 06/30/99 Exercise Price
--------------- ---------------- ----------------- --------------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$0.10 536,000 4.11 years $0.10 149,000 $0.10
$2.36 189,000 1.91 years $2.36 18,750 $2.36
</TABLE>
The fair value of each option granted 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%.
F-12
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation charged to operations for non-employees was $53,122 for
the year ended June 30, 1999. No options were granted to non-employees for the
period March 1, 1998 through June 30, 1998.
The above non-vested options to non-employees will be forfeited upon termination
of the respective agreements.
Employee Grants: During February 1999, the Board of Directors approved the
establishment of an Employee Stock Option Plan. The Plan will authorize the
issuance of 1,275,000 options to purchase shares of the Company's common stock.
The Plan has not been formally drafted and is subject to shareholder approval.
As discussed in Note 6, 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. Options to purchase 200,000
shares will vest on the anniversary date of the agreement and an additional
200,000 options vest each year of employment. 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.
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 discussed
in Note 6. The Company's common stock had a fair value of $0.15 per share at the
time these options were granted. Options to purchase 85,000 shares vested upon
being granted with the remainder vesting through 2001. There was no intrinsic
value relating to these options, thus there is no compensation relating to these
options.
A summary of the status of the Company's employee stock options as of June 30,
1999 and changes during the year then ended is presented below:
<TABLE>
<CAPTION>
Average
Shares Exercise Price Exercise Price
------ -------------- --------------
<S> <C> <C> <C>
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
=============
Options exercisable at June 30, 1999 85,000 0.15
============
Weighted-average fair value of
options granted during the period.........$ 0.11
=============
</TABLE>
The following table summarizes information about employee stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Range of Number Average Weighted- Number Weighted-
Exercise Outstanding Remaining Average Exercisable Average
Prices At 06/30/99 Contractual Life Exercise Price At 06/30/99 Exercise Price
--------------- ---------------- ----------------- --------------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$0.10 600,000 4.26 years $0.10 -- --
$0.15 175,000 4.51 years $0.15 85,000 $0.15
</TABLE>
F-13
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation charged to operations for employees was $13,750 for the
year ended June 30, 1999. No options were granted to employees for the period
March 1, 1998 through June 30, 1998. Had compensation cost for the Company's
options granted to employees been determined based on the fair value at the
grant dates consistent with the alternative method set forth under Statement of
Financial Accounting Standards No. 123, net loss and loss per share would have
increased for the year ended June 30, 1999 to the following pro forma amounts
for the year ended June 30, 1999:
Net loss:
As reported............................$ (966,718)
Pro forma.............................. (994,468)
Basic and diluted loss per share:
As reported............................$ (0.27)
Pro forma.............................. (0.28)
The fair value of each option granted was estimated on the date of grant using
the Black-Scholes option- pricing model with the following weighted-average
assumptions: underlying common stock value - $0.15, expected life of the options
- - - 4.31 years, expected volatility - 75% and risk-free interest rate - 4.48%.
NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES
Supplemental Cash Flow Information -
For the Years Ended
June 30,
1999 1998
------------- -------------
Cash paid for interest................. $ 1,485 $ --
The Company issued 467,836 shares of common stock upon conversion of notes
payable in the amount of $344,360 during the year ended June 30, 1999. During
the year ended June 30, 1999, $37,727 of accounts payable were converted into
convertible notes payable.
In September 1998 the Company issued 1,236,072 common shares to the shareholders
of Greenway Environmental Systems, Inc. in exchange for $10 of assets which was
cash.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to June 30, 1999, the Company received $130,000 for the issuance of
the Convertible Debentures with terms similar to those described in Note 4.
During July 1999, the Company entered into two separate lease agreements. One of
the leases is for new office space for the Company. The lease begins on
September 1, 1999 and extends through August 31, 2004. The monthly rental
payments are $20,686. As additional compensation to an officer, the Company has
entered into a second lease agreement relating to an officer's residence The
lease begins July 1, 1999 and extends through June 30, 2000. The monthly rental
payments are $1,075.
The following is a schedule of future minimum rental payments required under the
new leases:
F-14
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ending June 30:
2000.......................$ 219,756
2001....................... 248,227
2002....................... 248,227
2003....................... 248,227
2004....................... 248,227
Thereafter................. 41,371
-------------
Total......................$ 1,254,035
=============
Travel Dynamics, Inc.
Convertible Debenture: ($10,000 per Debenture)
10% Interest
Number: Number of Debentures: One
--------------------
Face Value: $10,000
--------------------
This Certificate evidences that is the registered holder
of one Convertible Debenture(s) standing in the holder's name on the books of
the Company and entitling the holder of record to the following interest
payments and rights of conversion; but subject to the following terms set-out
below and on the back side of this instrument:
1.0 Interest. Interest will begin to accrue on this instrument
commencing on the issue date , being the date of the offering
close. Interest is payable at ten per cent (10%) simple annual interest
computed on the face value and paid quarterly from the interest
commencement date and continuing for each quarter until this instrument
matures, is called or converted. Interest will be pro rated on a daily
basis in the event of a call or conversion, or maturity.
2.0 Maturity Date. This instrument matures and is redeemable for its
face value 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.
3.0 Conversion Right. At anytime after the issue date of this
instrument, this instrument may be converted at its face value by the
holder to common shares of the Company at the rate of one dollar per
share ($1.00/share). No partial conversion will be allowed. Upon
conversion and physical surrender of this instrument, properly
endorsed, the holder will be issued the appropriate number of
restricted common stock of the Company, (10,000 per Debenture). THE
CONVERSION RIGHT EXPIRES ON THE SECOND ANNIVERSARY DATE OF THIS
INSTRUMENT.
DATED this day of , 1999.
-------- --------
(Seal)
By
------------------------------------
James Piccolo
President
Terms continued on back.
<PAGE>
4.0 Calls. The Company may call this Debenture and require its
surrender for the face value plus ten per cent (10%) of such face value
at anytime after the first anniversary date of this instrument. At the
time of any call any accrued interest will be pro rated and paid.
Provided further, upon notice of call, the legal holder may convert to
common stock, as described above, within thirty (30) days of being
given written notice of any such call.
5.0 Restricted Security. This Debenture and any Conversion Common
Shares is a restricted security which has been issued without
registration. As a result:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER STATE OR FEDERAL LAW.
CONSEQUENTLY, NO SALE, TRANSFER, EXCHANGE, PLEDGE OR OTHER ASSIGNMENT OF THIS
CONVERTIBLE DEBENTURE OR RESULTING STOCK, OR ANY INTEREST THEREIN, MAY OCCUR
WITHOUT REGISTRATION OR A QUALIFIED EXEMPTION FROM REGISTRATION AS APPROVED IN
ADVANCE BY LEGAL COUNSEL FOR THE ISSUER.
For value received, the undersigned does hereby sell, assign and
transfer (or surrender for conversion to cash or shares) unto:
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Convertible Debenture(s) represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said Convertible Debenture(s) on the books of the
within-named Corporation with full power of substitution in the premises. Dated,
- ------------------------------------
-------------------------------------
Signature of Holder
---------------------------------- -------------------------------------
Signature Guarantee Initial Here if Conversion or Call
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 254018
<SECURITIES> 0
<RECEIVABLES> 124246
<ALLOWANCES> 0
<INVENTORY> 57631
<CURRENT-ASSETS> 420208
<PP&E> 223780
<DEPRECIATION> 19463
<TOTAL-ASSETS> 852678
<CURRENT-LIABILITIES> 743348
<BONDS> 427727
0
0
<COMMON> 4340
<OTHER-SE> (322737)
<TOTAL-LIABILITY-AND-EQUITY> 852678
<SALES> 3142603
<TOTAL-REVENUES> 3142603
<CGS> 1888144
<TOTAL-COSTS> 1888144
<OTHER-EXPENSES> 2221177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (966718)
<INCOME-TAX> 0
<INCOME-CONTINUING> (966718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (966718)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
