<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported): January 3, 2000
GREYSTONE DIGITAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-28909 84-1107140
(Commission File No.) (IRS Employer Identification No.)
4950 MURPHY CANYON ROAD
SAN DIEGO, CA 92123
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (858)874-7000
EXPRESS CAPITAL CONCEPTS, INC.
26 WEST DRY CREEK CIRCLE, SUITE 600
LITTLETON, CO 80120
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 1: CHANGES IN CONTROL OF REGISTRANT
On January 3, 2000 Registrant announced that it had completed the reverse
merger between Express Capital Concepts, Inc. and GreyStone Technology, Inc.
pursuant to an Agreement and Plan of Merger and Reorganization, which was
included as an Annex to a Registration Statement on Form S-4 which was declared
effective on November 12, 1999 (SEC file 333-65963)(hereinafter the
"Registration Statement"). The Registration Statement more completely describes
the merger and is incorporated herein in its entirety, inclusive of all
amendments and exhibits, by reference. As a result of the merger, Express
Capital Concepts, Inc., a company formerly without significant operations nor
assets acquired all of the issued and outstanding stock of GreyStone Technology,
Inc. In connection with this transaction, Registrant changed its name to
GreyStone Digital Technology, Inc. Shareholders of GreyStone Technology, Inc.
own approximately 97% of the resulting post-merger company. Registrant's
management and directors resigned and were replaced by GreyStone Technology's
management and directors as indicated in the Registration Statement.
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
As indicated in Item 1 above, the Registrant has acquired GreyStone
Technology, Inc. in accordance with the Agreement and Plan of Merger and
Reorganization discussed above. Please see the Registration Statement.
ITEM 5: OTHER EVENTS
On January 3, 2000, the Registrant announced the completion of the
reverse acquisition of GreyStone Technology, Inc., and the engagement of
Houlihan, Lokey, Howard & Zukin as business and strategic advisor with a focus
on evaluating potential acquisitions. A copy of the press release is attached to
this report in its entirety as an exhibit.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED, PURSUANT TO RULE 3-05
OF REGULATIONS S-X
The audited balance sheets of GreyStone Technology, Inc. for the
years ended March 31, 1999 and 1998, and the related statements of
operations, stockholders' deficiency and cash flows for each of
the three years in the period ended March 31, 1999 are
incorporated as an exhibit to this report herein by reference to
the Registration Statement.
The unaudited financial statements of GreyStone Technology, Inc.
for the three months ended June 30, 1999 are incorporated herein
as an exhibit to this report by reference to the Registration
Statement.
The unaudited financial statements of GreyStone Technology, Inc.
for the six months ended September 30, 1999 are provided as an
exhibit to this report.
<PAGE> 3
(c) EXHIBITS
1 Form S-4 Registration Statement (File 333-65963), together
with all exhibits filed in connection therewith, as
declared effective on November 12, 1999, incorporated
herein by reference.
2 Unaudited financial statements of GreyStone Technology,
Inc. for the six months ended September 30, 1999
99.1 Press Release issued by GREYSTONE DIGITAL TECHNOLOGY, INC.
on January 3, 2000 announcing GreyStone Completes Reverse
Merger, Engages Strategic Acquisition Advisor.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GREYSTONE DIGITAL TECHNOLOGY, INC.
Dated: January 17, 2000 By: /s/ RICHARD A. SMITH
------------------------------
Richard A. Smith
Chief Executive Officer
<PAGE> 1
EXHIBIT 2: UNAUDITED FINANCIAL STATEMENTS OF GREYSTONE TECHNOLOGY, INC. FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 1999.
<PAGE> 2
Page 1
ITEM 1. FINANCIAL STATEMENTS AND NOTES
GreyStone Digital Technology, Inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
(Unaudited) (Audited)
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,396,483 $ 795,480
Related party notes receivable 30,000
Accounts receivable, net of allowance for doubtful
accounts of $40,000 147,927 200,477
------------ ------------
Total current assets 1,574,410 995,957
Equipment and furniture, net of accumulated depreciation
and amortization of $2,212,516 and $2,112,335 314,822 176,827
Other assets 137,621 104,138
------------ ------------
Totals $ 2,026,853 $ 1,276,922
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses $ 803,351 $ 1,130,553
Short-term notes payable 402,000
Loans payable to officers 140,810
Notes payable to principal stockholder 28,000 128,000
------------ ------------
Total liabilities 831,351 1,801,363
------------ ------------
Commitments and contingencies
Stockholders' equity (deficiency):
Common stock, no par value; 50,000,000 shares
authorized; 15,212,627 and 14,621,937 shares
issued and outstanding 33,916,562 30,596,760
Additional paid-in capital 2,497,584 2,383,584
Receivable from sale of common stock (327,500) (327,500)
Accumulated deficit (34,891,144) (33,177,285)
------------ ------------
Total stockholders' equity (deficiency) 1,195,502 (524,441)
============ ============
Totals $ 2,026,853 $ 1,276,922
============ ============
</TABLE>
See Notes to Unaudited Financial Statements
<PAGE> 3
Page 2
GreyStone Digital Technology, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30 Six months ended September 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 490,785 $ 528,893 $ 950,355 $ 1,038,608
------------ ------------ ------------ ------------
Expenses:
Cost of revenues 292,945 369,782 519,789 651,957
Marketing and sales 191,529 223,236 358,040 424,162
Research and development 292,917 380,688 530,219 684,586
General and administrative 732,924 290,106 1,248,892 904,315
------------ ------------ ------------ ------------
Totals 1,510,315 1,263,812 2,656,940 2,665,020
------------ ------------ ------------ ------------
Loss from operations (1,019,530) (734,919) (1,706,585) (1,626,412)
Interest expense, including $92,
$6,767, $7,274 and $12,828 on
loans from principal stockholder 92 31,394 7,274 44,164
------------ ------------ ------------ ------------
Net loss $ (1,019,622) $ (766,313) $ (1,713,859) $ (1,670,576)
============ ============ ============ ============
Basic net loss per share $ (0.07) $ (0.05) $ (0.11) $ (0.12)
============ ============ ============ ============
Basic weighted average number of
shares outstanding 15,190,348 14,102,454 15,035,026 14,088,739
============ ============ ============ ============
</TABLE>
See Notes to Unaudited Financial Statements
<PAGE> 4
Page 3
GreyStone Digital Technology, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
Six months ended September 30,1999
<TABLE>
<CAPTION>
Receivable
Common Stock Additional from sale
-------------------------- Paid-in of Common Accumulated
Shares Amount Capital Stock Deficit Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1999 14,621,937 $30,596,760 $2,383,584 $(327,500) $(33,177,285) $ (524,441)
Common Stock sold for cash,
net of selling expenses
of $201,207 575,283 3,250,470 3,250,470
Common Stock issued upon
conversion of notes payable
to principal stockholder 11,111 50,000 50,000
Common Stock issued to pay
for accrued interest 4,296 19,332 19,332
Warrants issued to purchase
common stock 88,800 88,800
Stock options to purchase
common stock granted to
non-employee 25,200 25,200
Net loss (1,713,859) (1,713,859)
----------------------------------------------------------------------------------------------
Balance, September 30, 1999 15,212,627 $33,916,562 $2,497,584 $(327,500) $(34,891,144) $ 1,195,502
==============================================================================================
</TABLE>
See Notes to Unaudited Financial Statements
<PAGE> 5
Page 4
GreyStone Digital Technology, Inc.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended September 30,
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(1,713,859) $(1,670,576)
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss on disposal of fixed assets 653
Depreciation and amortization 100,181 139,278
Compensation expense recorded upon issuance of warrants
and compensatory stock options 114,000 173,500
Changes in operating assets and liabilities:
Accounts receivable 52,550 208,153
Other assets (33,483) (47,510)
Accounts payable and accrued expenses (307,870) 439,013
----------- -----------
Net cash used in operating activities (1,788,481) (757,489)
Investing activities:
Purchases of equipment and furniture (238,176)
Issuances of related party notes receivable (30,000)
-----------
Net cash used in investing activities (268,176)
Financing activities:
Repayments of notes payable to principal stockholder (50,000) (2,607)
Repayments of loans payable to officers (140,810)
Proceeds from (repayments of) short-term notes payable (402,000) 731,000
Sales of common stock-net 3,250,470 91,528
----------- -----------
Net cash provided by financing activities 2,657,660 819,921
----------- -----------
Net increase in cash and cash equivalents 601,003 62,432
Cash and cash equivalents, beginning of year 795,480 5,083
----------- -----------
Cash and cash equivalents, end of period $ 1,396,483 $ 67,515
=========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ 93,425 $ 7,607
=========== ===========
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued as payment for:
Notes payable to principal stockholder $ 50,000
===========
Accrued interest $ 19,332
===========
Services $ 25,000
===========
Convertible notes payable $ 728,229
===========
</TABLE>
See Notes to Unaudited Financial Statements
<PAGE> 6
Page 5
GreyStone Digital Technology, Inc.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position of
GreyStone Technology, Incorporated (the "Company") as of September
30, 1999 and its results of operations and cash flows for the
three and six month periods ended September 30, 1999 and 1998, and
changes in stockholders' equity for the six months ended September
30, 1999. These unaudited financial statements should be read in
conjunction with the audited financial statements and the other
information included in Express Capital Concepts, Inc.'s
Registration Statement on Form S-4 (file no. 333-65963).
The results of operations for the three and six month periods
ended September 30, 1999 are not necessarily indicative of the
results of operations for the year ending March 31, 2000.
Note 2 - Earnings (loss) per share:
Effective March 31, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per
Share ("SFAS 128"), which requires the presentation of "basic" and
"fully-diluted" earnings (loss) per common share, as further
explained in Note 1 of the notes to the audited financial
statements of the Company, included in Express Capital Concepts,
Inc.'s Registration Statement on Form S-4 (file no. 333-65963).
Since the Company had losses applicable to common stock in the
three and six month periods ended September 30, 1999 and 1998, the
assumed effects of the exercise of outstanding stock options and
warrants were anti-dilutive and, accordingly, dilutive per share
amounts have not been presented in the accompanying unaudited
statements of operations.
Note 3 - Segment reporting:
Effective March 31, 1999, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 establishes standards for the way that public
enterprises report financial and descriptive information about
reportable operating segments in annual financial statements and
interim financial statements issued to stockholders. SFAS 131
supersedes SFAS 14, Financial Reporting for Segments of a Business
Enterprise, but retains the requirement to report information about
major customers.
<PAGE> 7
Page 6
Note 3 - Segment reporting (concluded):
Information on industry segments are scheduled below:
<TABLE>
<CAPTION>
Common/
Government Commercial Corporate Total
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Six months ended
September 30, 1999:
Revenue $ 865,332 $ 54,699 $ 30,324 $ 950,355
========== ========= =========== ===========
Net loss $ (272,928) $(215,089) $(1,225,842) $(1,713,859)
========== ========= =========== ===========
Six months ended
September 30, 1998:
Revenue $1,018,978 $ 14,615 $ 5,015 $ 1,038,608
========== ========= =========== ===========
Net loss $ (126,216) $(600,896) $ (943,464) $(1,670,576)
========== ========= =========== ===========
</TABLE>
Note 4 - Warrants:
The Company issued warrants in conjunction with the sale of
convertible notes payable, assisting the Company in acquiring
capital, the extending of loans, as an incentive to equity
investors and as part of the consideration paid to various
consultants. Based on the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") using the Black-Scholes option pricing
model and assuming a risk-free interest rate of 6%, expected
warrant lives of one to four years, expected volatility of 5% and
dividends of 0%, the compensation expense relating to the warrants
issued was $88,800 and $165,100 for the six months ended September
30, 1999 and 1998, respectively. Each warrant entitles the holder
to purchase one share of common stock upon exercise. The warrants
expire at various dates from 2002 through 2008. Additional
information regarding warrants outstanding at September 30, 1999
and changes in outstanding warrants during the six months then
ended follows:
<TABLE>
<CAPTION>
Number of Exercise
Warrants Price
-----------------------------
<S> <C> <C>
Outstanding at April 1, 1999 4,489,948 $4.95 to $12.00
Granted 2,963,200 $4.95 to $10.00
---------
Outstanding at September 30, 1999 7,453,148 $4.95 to $12.00
=========
Exercisable at September 30, 1999 5,499,949 $4.95 to $12.00
=========
Weighted average fair value of warrants
granted during the period $.50
=========
</TABLE>
<PAGE> 8
Page 7
Note 5 - Income taxes:
The Company had net operating loss carry forwards at September 30,
1999 of approximately $30,240,000 available to reduce future
Federal taxable income and approximately $11,220,000 available to
reduce state taxable income, if any. The net operating loss carry
forwards expire between 2006 and 2019 for Federal tax purposes and
2000 and 2004 for state tax purposes. The related deferred tax
assets were fully reserved through valuation allowances at
September 30, 1999 and 1998 and, accordingly, there was no
provision or credit for income taxes.
The expected Federal income tax benefit, computed based on the
Company's pre-tax loss and the statutory Federal income tax rate,
was approximately $583,000 for the six months ended September 30,
1999. The potential benefits were eliminated through equivalent
increases in the Company's valuation allowance primarily for
deferred tax assets arising from net operating loss carry forwards
(see Note 10 of the notes to the audited financial statements of
the Company which are included in the Company's approved S-4
registration statement).
Note 6 - Stock option plans:
As further explained in Note 12 of the notes to the audited
financial statements, which are included in the Company's approved
S-4 registration statement, the Company has two incentive stock
option ("ISO") plans - the "1991 Plan" and the "1994 Plan". In July
1997, the Company modified the 1994 grant to its then Vice
President, Corporate Development and General Counsel of incentive
stock options to purchase 800,000 shares of the Company stock to
provide that in the event his employment was terminated for any
reason, then he would have a period of thirty-six months from the
date of termination to exercise his vested options. Accordingly,
the 800,000 ISO options were cancelled and 800,000 of NSO options
were issued. In July 1998, the executive left the Company and
160,000 non-vested options were cancelled. In addition, the Company
issued nonqualified stock options ("NSOs") in 1994, 1995 and 1998.
Information related to the plans and other options granted follows:
<TABLE>
<CAPTION>
Options
Options Outstanding at
Year Type Authorized September 30,1999
- ---- --------------------------------------------------
<S> <C> <C> <C>
1991 ISO 1,000,000 0
1994 NSO 200,000 200,000
1994 ISO 2,000,000 1,810,012
1995 NSO 200,000 200,000
1997 NSO 640,000 640,000
1998 NSO 750,000 750,000
---------
3,600,012
=========
</TABLE>
<PAGE> 9
Page 8
Note 6 - Stock option plans (continued):
The amount of compensation expense recognized for the six months
ended September 30, 1999 and 1998 relating to the granting of NSO
stock options under the provisions of SFAS No. 123 was $25,200 and
$8,400 for the six months ended September 30, 1999 and 1998,
respectively.
In the opinion of management, if compensation cost for the stock
options granted to employees had been determined based on the fair
value of the options at the grant date under the provisions of
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123") using the Black-Scholes
option pricing model and assuming a risk-free interest rate of 6%,
expected option lives of one to four years, expected volatility of
5% and dividends of 0%, the Company's pro forma net loss and pro
forma basic net loss per share arising from such computations would
have been increased by approximately $627,000 and $280,000 for the
six months ended September 30, 1999 and 1998, respectively.
Additional information regarding options outstanding under the
Company's stock option plans at September 30, 1999 and changes in
outstanding options during the six months then ended follows:
<TABLE>
<CAPTION>
Weighted
Shares Average
Or Price Exercise
Per Share Price
--------- ---------
<S> <C> <C>
Outstanding at April 1, 1999 2,581,050 $ 3.81
Granted 1,065,250 5.10
Cancelled (46,288) 3.80
---------
Outstanding at September 30, 1999 3,600,012 4.19
=========
Price range at September 30, 1999 $.275 to $6.80
=========
Exercisable at September 30, 1999 2,963,600 4.01
=========
Available for grant at September 30, 1999 1,189,988
=========
Weighted average fair value of options
granted during the period $ 1.05
</TABLE>
Note 6 - Stock option plans (concluded):
The following table summarizes information about stock options
outstanding at September 30, 1999, all of which are at fixed
prices:
<PAGE> 10
Page 9
<TABLE>
<CAPTION>
Weighted Average
Remaining
Number Contractual Number
Exercise of Options Life of Options of Options
Price Outstanding Outstanding Exercisable
----- ----------- ----------- -----------
<S> <C> <C> <C>
$ .275 200,000 1.9 Years 200,000
1.000 200,000 4.8 Years 200,000
3.800 1,059,762 3.9 Years 1,024,262
4.950 1,050,000 4.9 Years 966,666
5.100 1,065,250 9.7 Years 562,672
6.800 25,000 8.7 Years 10,000
--------- ---------
3,600,012 2,963,600
========= =========
</TABLE>
Note 7 - Related party transactions and balances:
The Company had outstanding notes payable to its Principal
Stockholder of $28,000 at September 30, 1999, which were unsecured,
nonconvertible and bore interest at 9%. Accrued interest of
approximately $7,274 is included in accounts payable and accrued
expenses in the accompanying unaudited September 30, 1999 balance
sheet. See Note 13 of the notes to the audited financial statements
of the Company which are included in the Company's approved S-4
registration statement. On September 30, 1999, the Principal
Stockholder agreed to extend the maturity date from September 30,
1999 to December 31, 1999.
In July 1999, a professional services agreement was entered into
between the Company and the Pointe Force Company, Inc., an entity
owned by a director of the Company. Point Force supports the
Company in the areas of mergers and acquisitions, strategic
planning, corporate financing and relations with the investment
community. Under this one year advisory services agreement, the
director is compensated in the amount of $11,000 per month,
exclusive of expenses. Additionally, the Company loaned $20,000 on
August 6, 1999, $10,000 on September 22, 1999 and $20,000 on
November 17, 1999 to the Pointe Force Company, Inc. and its
principal. All loans are for a one year term and bear interest at a
rate of 8.75% per year. Accrued interest receivable and interest
income included in the unaudited financial statements relating to
the notes receivable were immaterial.
Note 8 - Subsequent events:
On November 2, 1999, the Commonwealth of Massachusetts Securities
Division initiated an administrative proceeding against several
individuals and companies (including the Company) alleging, among
other things, that due to the Company's payment to one of the named
individuals for the purpose of making introductions to prospective
Massachusetts investors, the Company was not exempt from certain
notice filing requirements in Massachusetts. The complaint alleges
that the Company should have registered its private placement of
shares to residents of Massachusetts during the period from October
1996 to March 1998. Management of the Company believes that if any
violation occurred it was inadvertent. Twenty-
<PAGE> 11
Page 10
five stockholders who purchased stock for an aggregate of
approximately $1,312,200, were affected. The Company offered
recision plus interest at 6% to these investors who had 30 days to
respond. As of November 11, 1999, stockholders who purchased
securities at an aggregate of approximately $1,307,700 have
rejected this offer. One shareholder who purchased stock for $4,500
accepted the Company's offer. The Company has forwarded that amount
plus interest computed at 6% per year as payment. Furthermore,
based on discussions with the Massachusetts Securities Division,
management anticipates that this proceeding, as it concerns the
Company, will be resolved expeditiously. Accordingly, the Company
has not recorded any liability related to the recision offer in
the accompanying financial statements.
<PAGE> 12
Page 11
ITEM 2. MANAGEMENT REVIEW OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Revenues for the three months ended September 30, 1999 were $490,785 as compared
to $528,893 for the same three months ended September 30, 1998. During both of
these periods, the Government Strategic Business Unit (SBU) generated
essentially all revenues, with $416,791 of revenue in the current three month
reporting period and $513,770 in the three months ending September 30, 1998,
while Commercial SBU revenue was $54,551 in the current period and $13,546 in
the previous period. The sales decline in the Government SBU between periods was
primarily the result of redirecting a portion of the Government SBU engineering
staff to product development efforts in support of the RAGE 2.0 product release,
scheduled for late November 1999. Commercial revenues of $54,551 in the current
reporting period were the result of work done by GreyStone on a special project
for Legoland Windsor Park Ltd.. Although revenues are expected from the sale of
commercial entertainment products, GreyStone expects to incur additional losses
as it continues to market and develop its entertainment products.
Costs of revenues declined 21% to $292,945 for the three months ended September
30, 1999, compared to the $369,782 for the same three month period in 1998. As a
percentage of revenues, costs of revenues were 60 % in 1999 compared to 70 % the
same three month period in 1998. During the current reporting period, GreyStone
generated sales from its RAGE(tm) software product for which there were no costs
of revenues since the development of RAGE had been expensed in prior periods.
Additionally, the fringe rate applied to cost of revenues declined in the
current three month period compared to the previous reporting period, due to
lower medical claims.
The components that made up the cost of revenues include burdened labor, direct
travel, other direct costs, direct material, subcontracts and applicable SBU
burden. These cost components can vary in amount and type from period to period
and are highly dependent on such factors as the nature of the work performed,
location and duration of the work (i.e., company versus customer site), who
performed the work (i.e., company personnel versus subcontractors) and who
provided any required equipment (i.e., company versus customer).
Marketing and sales expenses were $191,529 or 39% of revenues for the three
months ended September 30, 1999 compared to $223,236 or 42% of revenues for the
same three month period in 1998. The decline was in the Commercial SBU. In
general, marketing and sales expenses result from bid and proposal activity as
well as attendance at trade shows, company product demonstrations and in-house
marketing-related activities. These types of expenses vary from period to period
and are highly dependent upon the extent and manner in which the company focuses
its efforts regarding potential future opportunities during the reporting
period. Additionally, a lower fringe rate contributed to a decline in marketing
and sales expenses in the current reporting period.
Research and development expenses declined by 23% to $292,917 for the three
months ended September 30, 1999, as compared to $380,688 for the same three
month period in 1998. The decline of research and development expenses was in
the commercial SBU and reflects the completion of development of the XS-G game.
Additionally, a lower fringe rate contributed to the decline in research and
development expenses in the current reporting period.
<PAGE> 13
Page 12
General and administrative expenses increased to $732,924 for the three months
ended September 30, 1999, compared to $290,106 for the same three month period
in 1998, resulting in an increase of $442,818. General and administrative
increases were the result of additional legal, accounting and registration
statement printing costs associated with the pending proposed business
combination with Express Capital Concepts, Inc.
Interest expense was $92 for the three months ended September 30, 1999, compared
to $31,394 for the same three month period ended in 1998, a decline of $31,302
and reflects the paying down and/or conversion of certain company indebtedness
to equity.
The net loss of $1,019,622 increased by $253,309 or 33% from the $766,313 net
loss reported in the previous period in 1998. In summary, during the current
period, revenues were down by $38,108 or 7%, while total expenses, including
interest, increased by $215,201 or 17%.
ITEM 3. MANAGEMENT REVIEW OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Revenues for the six months ended September 30, 1999 were $950,355, as compared
to $1,038,608 for the same six months ended September 30, 1998. During both of
these periods, the Government Strategic Business Unit (SBU) generated
essentially all revenues, with $865,332 of revenue in the current six month
reporting period and $1,018,978 in the six months ending September 30, 1998,
while Commercial revenue was $54,699 in the current period and $14,615 in the
previous period. The sales decline in the Government SBU between periods was
primarily the result of redirecting a portion of the Government SBU engineering
staff to product development efforts in support of the RAGE 2.0 product release,
scheduled for late November 1999. Commercial revenues of $54,699 in the current
reporting period were the result of work done by GreyStone on a special project
for Legoland Windsor Park Ltd.. Although revenues are expected from the sale of
commercial entertainment products, GreyStone expects to incur additional losses
as it continues to market and develop its entertainment products.
Marketing and sales expenses were $358,040 or 38% of revenues for the six months
ended September 30, 1999 compared to $424,162 or 41% of revenues for the same
six month period in 1998. The decline was in the Commercial SBU. In general,
marketing and sales expenses result from bid and proposal activity as well as
attendance at trade shows, company product demonstrations and in-house
marketing-related activities. These types of expenses vary from period to period
and are highly dependent upon the extent and manner in which the company focuses
its efforts regarding potential future opportunities during the reporting
period. Additionally, a lower fringe rate contributed to a decline in marketing
and sales expenses in the current reporting period.
The components that made up the cost of revenues include burdened labor, direct
travel, other direct costs, direct material, subcontracts and applicable SBU
burden. These cost components can vary in amount and type from period to period
and are highly dependent on such factors as the nature of the work performed,
location and duration of the work (i.e., company versus customer site), who
performed the work (i.e., company personnel versus subcontractors) and who
provided any required equipment (i.e., company versus customer).
Research and development expenses declined by 23% to $530,219 for the six months
ended September 30, 1999, as compared to $684,586 for the same six month period
in 1998. The
<PAGE> 14
Page 13
decline of research and development expenses was in the commercial SBU and
reflects the completion of development of the XS-G game. Additionally, a lower
fringe rate contributed to the decline in research and development expenses in
the current reporting period.
General and administrative expenses increased to $1,248,892 for the six months
ended September 30, 1999, compared to $904,315 for the same six month period in
1998, resulting in an increase of $344,577 General and administrative increases
were primarily the result of additional legal, accounting and printing costs
associated with the pending proposed business combination with Express Capital
Concepts, Inc.
Interest expense was $7,274 for the six months ended September 30, 1999,
compared to $44,164 for the same six month period ended in 1998, a decline of
$36,890 and reflects the paying down and/or conversion of certain company
indebtedness to equity.
The net loss of $1,713,859 increased by $43,283 or 3% from the $1,670,576 net
loss reported in the previous period in 1998. In summary, during the current
period, revenues were down by $ 88,253 or 8%, while total expenses, including
interest, increased by $43,283 or 3%.
<PAGE> 1
EXHIBIT 99.1: PRESS RELEASE ISSUED BY GREYSTONE DIGITAL TECHNOLOGY, INC. ON
JANUARY 3, 2000 ANNOUNCING GREYSTONE COMPLETES REVERSE MERGER,
ENGAGES STRATEGIC ACQUISITION ADVISOR.
GREYSTONE COMPLETES REVERSE MERGER, ENGAGES STRATEGIC ACQUISITION ADVISOR
January 3, 2000 08:30 AM
SAN DIEGO, Jan. 3 /PRNewswire/ -- GreyStone Digital Technology Inc. GSTN , today
announced it has completed its merger with GreyStone Technology, Inc., the San
Diego based developer of networked 3-D multisensory software for defense and
entertainment applications. Company Chairman, President and Chief Executive
Officer Richard A. Smith noted that a majority of shareholders of privately held
GreyStone Technology Inc. voted on Dec. 24 to approve the business combination
with Express Capital Concepts Inc., a public company which, in anticipation of
the merger, had effected a reverse stock split effective on the close of
business on Dec. 22, 1999 and changed its corporate name to GreyStone Digital
Technology Inc.
"This begins a whole new era for GreyStone," said Smith. "With new access to the
public markets, we can now look forward to greater flexibility with which to
grow our company and enhance its value for our shareholders."
The company also announced that it has retained the investment banking firm of
Houlihan, Lokey, Howard & Zukin to act as a business and strategic advisor with
a focus on evaluating potential acquisitions.
"Houlihan Lokey is recognized as one of North America's leading providers of
valuations and financial opinions," said Smith. "As we continue to explore new
ways to grow GreyStone, we feel the firm's banking capabilities, asset valuation
expertise, and global base will be a perfect strategic fit for us."
Based in San Diego, Calif., GreyStone Digital Technology, Inc. creates powerful,
interactive and networked 3-D software that enables users to interact in
real-time within a simulated digital environment. The company also provides
sophisticated engineering services enabling customers to realize more value from
applications of advanced digital technology on dedicated local-area or wide-area
networks or on the Internet. The company's products and services address a
growing demand from military, entertainment, and other major markets such as
multisensory communications and e-based transactions.
More information is available on the company's website at http://www.gstone.com.
The statements made in this news release concerning predictions of economic
performance and management's plans and objectives constitute forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation
<PAGE> 2
Reform Act of 1995. Such forward-looking information involve important risks and
uncertainties that could significantly affect anticipated results in the future
and such results may differ from those expressed in any forward-looking
statement made by or on behalf of the company. These risks and uncertainties
include, but are not limited to, continued acceptance of the company's products
and services, additional financing requirements, the impact of competitive
products or pricing, technological changes, the effect of economic conditions,
and other uncertainties detailed in the company's filings with the Securities
and Exchange Commission.
SOURCE GreyStone Digital Technology Inc.
