<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant
To Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
June 8, 2000
CODESTREAM HOLDINGS, INC.
--------------------------
(Exact name of Company as specified in its charter)
33-25779 84-1100609
------------------------------- ----------
(Commission File Number) (I.R.S. Employer
Identification No.)
1771 International Parkway, Suite 121
Richardson, Texas 75081
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(972) 479-0534
----------------------------------------------------
(Company's telephone number, including area code)
Bud Financial Group, Inc.
----------------------------------------------------
Former name, if changed since last report)
* * * * * *
<PAGE>
The Registrant has previously filed its Current Report on Form 8-K, dated
June 23, 2000, without certain financial information required by Item 7 of
such Form 8-K. The Registrant hereby amends the Current Report on Form 8-K to
file such financial information. Item 7, subparagraph (a) of the Report dated
June 23, 2000, is hereby amended to read as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED:
(1) Audited Financial Statements for the periods ended
December 31, 1998 and 1999.
(c) EXHIBIT
(27) Financial Data Schedule
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CODESTREAM HOLDINGS, INC.
(Company)
Date: August 22, 2000 /s/ D. Gordon Werner
---------------------------
D. Gordon Werner
President, Chief Executive Officer and
Chief Financial Officer
(Principal Financial Officer)
2
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JANUARY 17, 1996 (INCEPTION) TO
DECEMBER 31, 1999
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2 - 3
Statements of Operations 4
Statements of Shareholders' Equity (Deficit) 5 - 6
Statements of Cash Flows 7 - 8
Notes to Financial Statements 9 - 23
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
CodeStream Technologies Corporation
(a development stage company)
We have audited the accompanying balance sheet of CodeStream Technologies
Corporation (a development stage company) as of December 31, 1999, and the
related statements of operations, shareholders' equity (deficit), and cash
flows for each of the two years in the period ended December 31, 1999, and for
the period from January 17, 1996 (inception) to December 31, 1999. 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CodeStream Technologies
Corporation as of December 31, 1999, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1999,
and for the period from January 17, 1996 (inception) to December 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company incurred a net loss of $5,274,250 during the
year ended December 31, 1999, it had negative cash flows from operations of
$4,113,711 and it has incurred net losses of $14,439,869 since inception.
Further, the Company is in the development stage at December 31, 1999. These
factors, among others, as discussed in Note 2 to the financial statements,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
August 17, 2000
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 188,729
--------------
Total current assets 188,729
PROPERTY AND EQUIPMENT, net 650,522
OTHER ASSETS
Deposits 13,066
--------------
TOTAL ASSETS $ 852,317
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
<S> <C>
CURRENT LIABILITIES
Current portion of capital lease obligations $ 133,088
Notes payable 1,091,121
Accounts payable 918,453
Accrued expenses 75,140
------------
Total current liabilities 2,217,802
CAPITAL LEASE OBLIGATIONS, net of current portion 25,380
------------
Total liabilities 2,243,182
------------
COMMITMENTS
SHAREHOLDERS' DEFICIT
Preferred stock, Series A, $0.001 par value 23,156 shares authorized 23,156
shares issued and outstanding $133.33 per share liquidation preference
dividends of $238,333 in arrears 23
Preferred stock, Series B, $0.001 par value
11,536 shares authorized 11,536 shares issued and outstanding $294.74
per share liquidation preference
dividends of $254,012 in arrears 12
Preferred stock, Series C, $0.001 par value
7,514 shares authorized 7,514 shares issued and outstanding $745.30 per
share liquidation preference
dividends of $336,000 in arrears 8
Common stock, $0.001 par value
15,730,656 shares authorized
7,424,266 shares issued and outstanding 7,424
Paid-in capital 13,041,537
Accumulated deficit (14,439,869)
------------
Total shareholders' deficit (1,390,865)
------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 852,317
============
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JANUARY 17, 1996 (INCEPTION) TO DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period from
January 17,
1996
For the Years Ended (Inception) to
December 31, December 31,
----------------------------
1999 1998 1999
------------ ------------ --------------
<S> <C> <C> <C>
RESEARCH AND DEVELOPMENT EXPENSES $ 676,588 $ 2,627,448 $ 3,413,136
GENERAL AND ADMINISTRATIVE EXPENSES 4,591,580 3,277,978 11,279,570
------------ ------------ -------------
LOSS FROM OPERATIONS (5,268,168) (5,905,426) (14,692,706)
------------ ------------ -------------
OTHER INCOME (EXPENSE)
Interest income 48,094 128,679 334,036
Interest expense (54,176) (26,360) (81,199)
------------ ------------ -------------
Total other income (expense) (6,082) 102,319 252,837
------------ ------------ -------------
NET LOSS $ (5,274,250) $ (5,803,107) $ (14,439,869)
============ ============ =============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.09) $ (1.15) $ (3.87)
============ ============ =============
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING 4,847,848 5,057,600 3,732,979
============ ============ =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period from January 17, 1996 (Inception) to December 31, 1999
-------------------------------------------------------------------------------------------------------------------------
Series A Series B Series C Common Stock
--------------------------------------------------------------------------- Paid-In
Shares Amount Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 17,
1996 (INCEPTION) - $ - - $ - - $ - - $ - $ -
INITIAL CAPITALIZATION 2,194,532 2,194 (2,167)
ISSUANCE OF SERIES A
PREFERRED STOCK FOR
CASH 20,625 20 2,749,980
NET LOSS
------ ------ ------ ------ ------ ------ --------- ------- ----------
BALANCE, DECEMBER 31,
1996 20,625 20 - - - - 2,194,532 2,194 2,747,813
NET LOSS
------ ------ ------ ------ ------ ------ --------- ------- ----------
BALANCE, DECEMBER 31,
1997 20,625 20 - - - - 2,194,532 2,194 2,747,813
ISSUANCE OF SERIES A
PREFERRED STOCK
Upon conversion of
intercompany
payable 656 1 87,499
Upon conversion of
note payable 1,875 2 249,998
ISSUANCE OF SERIES B
PREFERRED STOCK FOR
CASH 11,536 12 3,400,146
ISSUANCE OF SERIES C
PREFERRED STOCK FOR
CASH 7,514 8 5,599,992
OFFERING COSTS (377,070)
ISSUANCE OF COMMON
STOCK UPON
CONVERSION OF
INTERCOMPANY
PAYABLE 3,404,012 3,404 259,096
NET LOSS
------ ------ ------ ------ ------ ------ --------- ------- ----------
Accumulated
Deficit Total
----------- -----------
<S> <C> <C>
BALANCE, JANUARY 17,
1996 (INCEPTION) $ - $ -
INITIAL CAPITALIZATION 27
ISSUANCE OF SERIES A
PREFERRED STOCK FOR
CASH 2,750,000
NET LOSS (54,929) (54,929)
----------- -----------
BALANCE, DECEMBER 31,
1996 (54,929) 2,695,098
NET LOSS (3,307,583) (3,307,583)
----------- -----------
BALANCE, DECEMBER 31,
1997 (3,362,512) (612,485)
ISSUANCE OF SERIES A
PREFERRED STOCK
Upon conversion of
intercompany
payable 87,500
Upon conversion of
note payable 250,000
ISSUANCE OF SERIES B
PREFERRED STOCK FOR
CASH 3,400,158
ISSUANCE OF SERIES C
PREFERRED STOCK FOR
CASH 5,600,000
OFFERING COSTS (377,070)
ISSUANCE OF COMMON
STOCK UPON
CONVERSION OF
INTERCOMPANY
PAYABLE 262,500
NET LOSS (5,803,107) (5,803,107)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period from January 17, 1996 (Inception) to December 31, 1999
-------------------------------------------------------------------------------------------------------------------------
Series A Series B Series C Common Stock
--------------------------------------------------------------------------- Paid-In
Shares Amount Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1998 23,156 $ 23 11,536 $ 12 7,514 $ 8 5,598,544 $ 5,598 $11,967,474
ISSUANCE OF COMMON
STOCK
Upon conversion of
note payable 250,000 250 249,750
Acquisition of RDL
Photonic Integrated
Chip Corporation 1,575,722 1,576 679,471
------ ------ ------ ------ ------ ------ --------- ------- ------------
RE-PRICING OF STOCK OPTIONS
NET LOSS
------ ------ ------ ------ ------ ------ --------- ------- ------------
BALANCE, DECEMBER 31,
1999 23,156 $ 23 11,536 $ 12 7,514 $ 8 7,424,266 7,424 $ 13,041,537
====== ====== ====== ====== ====== ====== ========= ======= ============
-----------------------------------------------------------------
Accumulated
Deficit Total
----------- -----------
<S> <C> <C>
BALANCE, DECEMBER 31,
1998 $ (9,165,619) $ 2,807,496
ISSUANCE OF COMMON
STOCK
Upon conversion of
note payable 250,000
Acquisition of RDL
Photonic Integrated
Chip Corporation
------------ -----------
RE-PRICING OF STOCK OPTIONS 144,842
NET LOSS (5,274,250) (5,274,250)
------------ -----------
BALANCE, DECEMBER 31,
1999 $(14,439,869) $(1,390,865)
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JANUARY 17, 1996 (INCEPTION) TO DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period from
January 17,
For the Years Ended 1996
December 31, (Inception) to
--------------------------------- December 31,
1999 1998 1999
---------------- --------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,274,250) $ (5,803,107) $ (14,439,869)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization of property
and equipment 291,127 109,522 400,649
Compensation for re-pricing of stock options 144,842 - 144,842
(Increase) decrease in
Other receivables 97,148 (97,148) -
Increase (decrease) in
Accounts payable 650,179 239,781 918,453
Accrued expenses (22,757) 118,499 61,972
---------------- --------------- ----------------
Net cash used in operating activities (4,113,711) (5,432,453) (12,913,953)
---------------- --------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (135,932) (579,868) (715,800)
Acquisition of RDL Photonic Integrated Chip
Corporation 642,856 - 642,856
Other assets (975) (12,091) (13,066)
---------------- --------------- ----------------
Net cash provided by (used in) investing activities 505,949 (591,959) (86,010)
---------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 1,307,351 - 4,191,121
Repayment of notes payable - (2,600,000) (2,600,000)
Repayment of advances from affiliate - (192,144) (192,144)
Advances from affiliate - - 542,144
Offering costs - (377,070) (377,070)
Proceeds from preferred stock - 9,000,158 11,750,158
Payments on capital leases (112,546) (12,998) (125,544)
Proceeds from common stock - - 27
---------------- --------------- ----------------
Net cash provided by financing activities 1,194,805 5,817,946 13,188,692
---------------- --------------- ----------------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JANUARY 17, 1996 (INCEPTION) TO DECEMBER 31, 1999
--------------------------------------------------------------------------------
For the
Period from
January 17,
For the Years Ended 1996
December 31, (Inception) to
--------------------------------- December 31,
1999 1998 1999
---------------- --------------- ----------------
Net increase (decrease) in cash $ (2,412,957) $ (206,466) $ 188,729
CASH, BEGINNING OF PERIOD 2,601,686 2,808,152 -
---------------- --------------- ----------------
CASH, END OF PERIOD $ 188,729 $ 2,601,686 $ 188,729
================ =============== ================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1999, the Company entered into capital
lease agreements for computer and lab equipment valued at $284,012.
During the years ended December 31, 1999 and 1998, the Company issued 250,000
shares of common stock and 1,875 shares of Series A convertible preferred
stock valued at $250,000 and $250,000, respectively, as settlement of notes
payable.
During the year ended December 31, 1998, the Company issued 656 shares of
Series A convertible preferred stock valued at $87,500 to reimburse the holder
of the Company's Series A convertible preferred stock for the holder's payment
of an intercompany payable for $87,500 to the Company's parent.
During the year ended December 31, 1998, the Company issued 3,404,012
shares of common stock valued at $262,500 as settlement of an intercompany
payable.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF BUSINESS
BUSINESS ACTIVITY
CodeStream Technologies Corporation (the "Company") (a development
stage company) was incorporated on January 17, 1996 in the State of
Delaware to develop certain technologies acquired from a government
defense and aerospace contractor. The Company is developing technology
intended to increase the fiber optic network capacity of
telecommunications traffic carriers.
NOTE 2 - GOING CONCERN MATTERS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. However, the Company
incurred a net loss of $5,274,250 during the year ended December 31,
1999, it had negative cash flows from operations of $4,113,711 and it
has incurred net losses of $14,439,869 since inception. Further, the
Company is in the development stage at December 31, 1999. These
factors raise substantial doubt about the Company's ability to
continue as a going concern.
Recovery of the Company's assets is dependent upon future events, the
outcome of which is indeterminable. Successful completion of the
Company's development program and its transition to the attainment of
profitable operations is dependent upon the Company obtaining
adequate debt and equity financing to fulfill its development
activities and achieving a level of sales adequate to support the
Company's cost structure. In addition, realization of a major portion
of the assets in the accompanying balance sheet is dependent upon the
Company's ability to meet its financing requirements and the success
of its plans to develop and sell its products. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
Management plans to raise additional equity capital, continue to
develop its products, and look for merger or acquisition candidates.
NOTE 3 - ACQUISITION
During August 1999, pursuant to an Agreement and Plan of Merger, the
Company acquired the 975,000 issued and outstanding shares of common
stock of an affiliated company, RDL Photonic Integrated Chip
Corporation ("PIC"), a Delaware corporation. The Company is now the
sole owner of PIC. The Company acquired the shares from its parent,
Research & Development Laboratories ("RDL").
9
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
NOTE 3 - ACQUISITION (CONTINUED)
The Company purchased the net assets of PIC through the issuance of
975,000 shares of its common stock. In addition, as part of the
Company's sale of its Series A, B, and C convertible preferred stock,
PIC issued warrants to the purchasers of the Company's preferred stock
to purchase shares of preferred stock of PIC. As part of the
acquisition of PIC, the Company exchanged an aggregate of 600,722
shares of its common stock for the warrants. The acquisition was
accounted for in a manner similar to a pooling of interests since PIC
was acquired from a related party. The assets acquired and the
liabilities assumed were as follows:
Cash $ 642,856
Property and equipment, at net book value 51,359
Accrued expenses (13,168)
----------
TOTAL NET ASSETS $ 681,047
==========
The information provided in the above table is based on PIC's audited
financial statements as of August 18, 1999.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STOCK SPLIT
On November 13, 1998, the Company effected a 80.59122334-for-one stock
split of its common stock. All share and per share data have been
retroactively restated to reflect this stock split.
ESTIMATES
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation and amortization. For financial reporting purposes,
depreciation and amortization are provided using the straight-line
method over the estimated useful lives as follows:
Machinery and equipment 3 years
Furniture and office equipment 3 years
Computer software 3 years
Leasehold improvements life of the asset or the lease
term, whichever is shorter
10
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (Continued)
Betterments, renewals, and extraordinary repairs that extend the life
of the asset are capitalized; other repairs and maintenance charges
are expensed as incurred. The cost and related accumulated
depreciation applicable to assets retired are removed from the
accounts, and the gain or loss on disposition is recognized in the
statement of operations.
LOSS PER SHARE
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." Basic loss per share is
computed by dividing the loss available to common shareholders by the
weighted-average number of common shares outstanding. Diluted loss
per share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common
shares had been issued and if the additional common shares were
dilutive. Because the Company has incurred net losses, basic and
diluted loss per share are the same.
INCOME TAXES
The Company uses the asset and liability method of accounting for
income taxes. The asset and liability method accounts for deferred
income taxes by applying enacted statutory rates in effect for
periods in which the difference between the book value and the tax
bases of assets and liabilities are scheduled to reverse. The
resulting deferred tax asset or liability is adjusted to reflect
changes in tax laws or rates. Because the Company is in the
development stage and has incurred a loss from operations, no benefit
is realized for the tax effect of the net operating loss carryforward
due to the uncertainty of its realization.
IMPAIRMENT OF LONG LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of
the assets to future net cash flows expected to be generated by the
assets. If the assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
amount exceeds the fair value of the assets. To date, no such
impairment has occurred.
11
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. For certain
of the Company's financial instruments, including cash, accounts
payable, and accrued expenses, the carrying amounts approximate fair
value due to their short maturities. The amounts shown for capital
leases and notes payable also approximate fair value because current
interest rates offered to the Company for capital leases and notes
payable of similar maturities are substantially the same or the
difference is immaterial.
STOCK OPTIONS
During 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation," which
defines a fair value based method of accounting for stock-based
compensation. However, SFAS No. 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued
to employees using the intrinsic method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting
for Stock Issued to Employees." Entities electing to remain with the
accounting method of APB 25 must make pro forma disclosures of net
income and earnings per share as if the fair value method of
accounting defined in SFAS No. 123 had been applied. The Company has
elected to account for its stock-based compensation to employees
under APB 25.
COMPREHENSIVE INCOME
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting comprehensive
income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during
a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gains and
losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financial statements since the Company
did not have any of the items of comprehensive income in any period
presented.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued SFAS No. 136, "Transfer of Assets to a
Not-for-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others." This statement is not applicable to the
Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not expect
adoption of SFAS No. 137 to have a material impact, if any, on its
financial position or results of operations.
12
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Instruments and Certain Hedging Activities." This statement is not
applicable to the Company.
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB
Statement No. 53 and Amendments to Statements No. 63, 89, and 121."
This statement is not applicable to the Company.
NOTE 5 - CASH
The Company maintains its cash balances in several banks located in
Southern California. The balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. As of December 31, 1999, the
uninsured portions of those balances held at the banks aggregated to
$195,828.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 consisted of the
following:
Machinery and equipment $ 838,397
Furniture and office equipment 144,452
Computer software 26,633
Leasehold improvements 41,689
----------
1,051,171
Less accumulated depreciation and amortization 400,649
----------
TOTAL $ 650,522
==========
Depreciation and amortization expense for the years ended December 31,
1999 and 1998 was $291,127 and $109,522, respectively.
13
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
NOTE 7 - NOTES PAYABLE
Notes payable consisted of 10 notes payable to various lenders,
including the holders of the Series A, B, and C convertible preferred
stock and certain holders of the Company's common stock,
collateralized by all of the Company's assets, with interest at 12%
compounded quarterly. The notes mature on March 31, 2000. Subsequent
to December 31, 1999, the maturity dates were extended to June 9,
2000. The notes were converted into common stock as part of the
reorganization discussed in Note 13.
NOTE 8 - COMMITMENTS
LEASES
The Company leases its office and laboratory space. The Company also
leases equipment under terms of various operating and capital leases
which have been personally guaranteed by the Company's majority
shareholders. Future minimum lease payments relating to these leases
were estimated to be as follows:
<TABLE>
<CAPTION>
Year Ending Operating Capital
December 31, Leases Leases
----------- ------------ -----------
<S> <C> <C>
2000 $ 93,654 $ 147,528
2001 $ 46,827 26,000
------------ -----------
$ 140,481 173,528
============
Less amount representing interest 15,060
-----------
158,468
Less current portion 133,088
-----------
LONG-TERM PORTION $ 25,380
===========
Rent expense was $163,706 and $104,502 for the years ended December 31,
1999 and 1998, respectively.
Leased capital assets included in property and equipment at December
31, 1999 were estimated to be as follows:
Furniture and office equipment $ 6,484
Lab equipment 277,528
Less accumulated amortization 81,311
-----------
TOTAL $ 202,701
===========
</TABLE>
14
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 8 - COMMITMENTS (CONTINUED)
LITIGATION
During May 1999, RDL was served with a subpoena duces tecum to produce
documents and to testify before the Grand Jury of the United States
District Court, Central District of California. The subpoena appeared
to relate to allegations of inappropriately charging or improper
billing with respect to federal government contracts and was directed
to RDL and, among others, all of its then present and former officers
and directors, together with its then affiliates, including the Company
(then named RDL Commercial Technologies Corporation).
At a meeting with the Assistant United States Attorney ("AUSA") in
charge of the investigation during July 1999, the attorneys for the
Company were advised that the Company was a subject of the
investigation. Subsequent to this meeting, the Company produced to the
AUSA all documents requested by the subpoena and provided the AUSA with
a copy of an analysis of cash receipts and disbursements of the Company
since its inception prepared by PriceWaterhouseCoopers LLP showing that
the Company has never received funds from the federal government under
any government contracts. The Company also offered to cooperate
completely with the Grand Jury investigation and on November 30, 1999,
the CFO of the Company met with the AUSA and agents of the FBI to
answer their questions concerning RDL and the Company. At the
conclusion of this meeting, the AUSA indicated that she believed the
CFO's commentary to be truthful and also indicated that, based upon the
government's investigation to date, the Company was no longer a subject
of the investigation. The AUSA indicated that if indictments were to be
forthcoming as a result of the investigation, they would name persons
and entities other than the Company. To the Company's knowledge, no
such indictments have yet been issued. It should be noted that the AUSA
has absolute discretion as to who, if anyone, will be indicted and
until this matter is completely resolved, the Company remains as a
possible target of the investigation.
15
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 9 - SHAREHOLDERS' DEFICIT
PREFERRED STOCK, SERIES A
In August 1996, the Company issued 20,625 shares of Series A
convertible preferred stock for cash proceeds of $2,750,000. In
February 1998, the Company issued 1,875 and 656 additional shares of
Series A convertible preferred stock upon the conversion of a note
payable for $250,000 and for cash proceeds of $87,500, respectively.
This stock has a cumulative cash dividend of 4% per annum, payable
quarterly. The holders of this stock have voting rights equal to the
holders of common stock. Each share of preferred stock is convertible
at any time at the option of the holder into shares of the Company's
common stock at a conversion price of $1.6544. The shares are subject
to automatic conversion upon the effective date of an underwritten
public offering of the Company's common stock with net proceeds of not
less than $20,000,000. At December 31, 1999, the Company had dividends
in arrears of $238,333.
The purchaser was also issued 10,000 warrants to purchase shares of
Series A preferred stock of PIC. The warrants have an exercise price
of $1,300 and expire the earlier of 10 years from the date of grant
or upon the effective date of an underwritten public offering of the
Company's common stock with net proceeds of not less than $20,000,000.
PREFERRED STOCK, SERIES B
In February and July 1998, the Company issued 10,179 and 1,357 shares
of Series B convertible preferred stock for cash proceeds of
$3,000,158 and $400,000, respectively. This stock has a cumulative
cash dividend of 4% per annum, payable quarterly. The holders of this
stock have voting rights equal to the holders of common stock. Each
share of preferred stock is convertible at any time at the option of
the holder into shares of the Company's common stock at a conversion
price of $1.6544. The shares are subject to automatic conversion upon
the effective date of an underwritten public offering of the
Company's common stock with net proceeds of not less than
$20,000,000. At December 31, 1999, the Company had dividends in
arrears of $254,012. The purchasers were also issued 4,286 and 571
warrants, respectively, to purchase shares of Series A preferred
stock of PIC. The warrants have an exercise price of $1,300 and
expire the earlier of 10 years from the date of grant or upon the
effective date of an underwritten public offering of the Company's
common stock with net proceeds of not less than $20,000,000.
16
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 9 - SHAREHOLDERS' DEFICIT (CONTINUED)
PREFERRED STOCK, SERIES C
In July 1998, the Company issued 6,709 and 805 shares of Series C
convertible preferred stock for cash proceeds of $5,000,000 and
$600,000, respectively. This stock has a cumulative cash dividend of 4%
per annum, payable quarterly. The holders of this stock have voting
rights equal to the holders of common stock. Each share of preferred
stock is convertible at any time at the option of the holder into
shares of the Company's common stock at a conversion price of $1.6544.
The shares are subject to automatic conversion upon the effective date
of an underwritten public offering of the Company's common stock with
net proceeds of not less than $20,000,000. At December 31, 1999, the
Company had dividends in arrears of $336,000. The purchasers were also
issued 2,825 and 339 warrants, respectively, to purchase shares of
Series A preferred stock of PIC. The warrants have an exercise price of
$1,300 and expire the earlier of 10 years from the date of grant or
upon the effective date of an underwritten public offering of the
Company's common stock with net proceeds of not less than $20,000,000.
STOCK OPTIONS
The Company adopted the 1998 Stock Option Plan (the "1998 Plan") during
February 1998, which was amended during November 1998. Under the terms
of the 1998 Plan, the aggregate number of shares that may be issued
pursuant to the exercise of options granted initially will not exceed
1,500,000. Options are not considered to be granted until an option
agreement is executed. Incentive stock options must be granted at a
price not less than 100% of the fair market value of the common stock
on the grant date. Non-qualified options must be granted at a price not
less than 85% of the fair market value of the common stock on the grant
date.
Incentive and non-qualified stock options granted to individuals who
own stock representing more than 10% of the voting power of the Company
must have an exercise price of more than 110% of the fair market value
of the common stock on the grant date. Incentive and non-qualified
stock options vest over various periods as determined by the Company
for each grant, ranging from zero to five years, and expire up to 10
years from the grant date. The 1998 Plan has a term of 10 years from
the date of its adoption by the Board of Directors.
17
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 9 - SHAREHOLDERS' DEFICIT (CONTINUED)
STOCK OPTIONS (Continued)
The following summarizes the stock option transactions under the stock
option plans:
<TABLE>
<CAPTION>
Weighted-
Average
Stock Options Exercise
Outstanding Price
--------------- ----------------
<S> <C> <C>
Outstanding, December 31, 1997 - $ -
Granted 236,398 $ 1.65
Forfeited (12,089) $ 1.65
---------------
Outstanding, December 31, 1998 224,309 $ 1.65
Granted 393,666 $ 1.64
Forfeited (208,804) $ 1.75
---------------
OUTSTANDING, DECEMBER 31, 1999 409,171 $ 1.59
===============
EXERCISABLE, DECEMBER 31, 1999 18,559 $ 1.00
===============
</TABLE>
The weighted-average life of the options outstanding and exercisable at
December 31, 1999 is 5 years. There were 1,090,829 options available for
future grant at December 31, 1999. The exercise prices for the options
outstanding at December 31, 1999 ranged from $1.00 to $1.65, and have a
weighted average contractual life of 8.5 years.
18
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 9 - SHAREHOLDERS' DEFICIT (CONTINUED)
STOCK OPTIONS (Continued)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation
cost other than that required to be recognized by Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," for the difference between the fair value of the Company's
common stock at the grant date and the exercise price of the options
has been recognized. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant date
for awards consistent with the provisions of SFAS No. 123, the
Company's net loss and loss per share for the years ended December 31,
1999 and 1998 would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Net loss as reported $ (5,274,250) $ (5,803,107)
Net loss, pro forma $ (5,334,324) $ (5,831,365)
Basic loss per share as reported $ (1.09) $ (1.15)
Basic loss per share, pro forma $ (1.10) $ (1.15)
</TABLE>
The fair value of these options was estimated at the date of grant
using the minimum value method with the following weighted-average
assumptions for the years ended December 31, 1999 and 1998: dividend
yields of 0% and 0%, respectively; risk-free interest rates of 4.7%
and 6.4%, respectively; and expected lives of 5 and 5 years,
respectively. The weighted-average exercise price was $1.59 and $1.00
at December 31, 1999 and 1998, respectively.
No compensation expense was recognized as a result of the issuance of
stock options for the years ended December 31, 1999 and 1998.
19
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 9 - SHAREHOLDERS' DEFICIT (CONTINUED)
STOCK OPTIONS (Continued)
STOCK OPTION RE-PRICING
During the year ended December 31, 1999, the Company re-priced an
aggregate of 49,223 options issued to six employees under the 1998
Plan. In relation to this re-pricing, the Company recorded compensation
expense totaling $144,842 for the year ended December 31, 1999. In
accordance with generally accepted accounting principles, the employee
stock option awards that were re-priced will be accounted for as
variable awards from the date of the re-pricing to the date the options
are exercised, forfeited, or they expire.
NOTE 10 - INCOME TAXES
As of December 31, 1999, the Company had approximately $14,290,000 in
net operating loss carryforwards that may be offset against future
taxable income. No provision for income taxes for the years ended
December 31, 1999 and 1998 is required, except for minimum state taxes,
since the Company incurred losses during such periods. The deferred
income tax benefit of the loss carryforward is the only significant
deferred income tax asset or liability of the Company and has been
offset by a valuation allowance of the same amount since management
does not believe the recoverability of this deferred tax asset during
the next fiscal year is more likely than not. Accordingly, no deferred
income tax benefit has been recognized in these financial statements.
NOTE 11 - YEAR 2000 ISSUE
The Company has completed a comprehensive review of its computer
systems to identify the systems that could be affected by ongoing Year
2000 problems. Upgrades to systems judged critical to business
operations have been successfully installed. To date, no significant
costs have been incurred in the Company's systems related to the Year
2000.
20
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 11 - YEAR 2000 ISSUE (CONTINUED)
Based on the review of the computer systems, management believes all
action necessary to prevent significant additional problems has been
taken. While the Company has taken steps to communicate with outside
suppliers, it cannot guarantee that the suppliers have all taken the
necessary steps to prevent any service interruption that may affect the
Company.
NOTE 12 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, the Company paid $98,370 to a
former officer/director for consulting services rendered pursuant to a
consulting agreement. Under the terms of the consulting agreement, the
Company is committed to pay this former officer/director $163,950
during the year ended December 31, 2000.
During the year ended December 31, 1998, certain employees and officers
of RDL provided administrative services to the Company. The Company
paid RDL $112,900 for these services. At the direction of RDL, the
Company paid $75,000 of the $112,900 directly to the controlling
shareholder of RDL.
During the years ended December 31, 1999 and 1998, the Company paid
$105,468 and $720,338, respectively, to an affiliated company to
reimburse the affiliate for the salaries of certain employees of the
affiliate used by the Company. The Company also reimbursed the
affiliate for expenses incurred on behalf of the Company by the
affiliate for $42,262 and $187,713 during the years ended December 31,
1999 and 1998, respectively.
During the years ended December 31, 1999 and 1998, the Company paid
rent of $30,000 and $157,500, respectively, to an affiliated company
for using office space in the affiliated company's building.
During the years ended December 31, 1999 and 1998, the Company paid
$274,815 and $339,314, respectively, in legal fees to a law firm in
which one of the Company's directors is a partner.
At December 31, 1997, the Company had an account payable to RDL for
$542,144. During February 1998, the Company repaid $192,144 of the
amount outstanding and issued 3,404,012 shares of its common stock
valued at $262,500 as an additional payment. The remaining amount due
of $87,500 was repaid by one of the holders of the Series A convertible
preferred stock. The Company reimbursed this shareholder during March
1998 by issuing 656 shares of its Series A convertible preferred stock.
21
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 13 - SUBSEQUENT EVENTS
BORROWINGS
In February 2000, the Company borrowed $500,000 from a third party to
provide additional interim working capital for the operations of its
business.
In March 2000, under an addendum to a loan agreement with its existing
lenders, the Company borrowed $500,000 to provide additional interim
working capital for the operations of its business.
In April 2000, under an addendum to a loan agreement with its existing
lenders, the Company borrowed $200,000 to provide additional interim
working capital for the operations of its business.
In May 2000, under an addendum to a loan agreement with its existing
lenders, the Company borrowed $200,000 to provide additional interim
working capital for the operations of its business.
STOCK OPTIONS
Subsequent to December 31, 1999, the Board of Directors of the Company
approved the repricing of all the granted stock options so that the
exercise price is $1.
Subsequent to December 31, 1999, the Company granted 683,500 stock
options to certain employees at an exercise price of $1.
SEVERANCE AGREEMENT
Subsequent to December 31, 1999, the Company entered into a severance
agreement with an employee under which it may be liable for $82,500.
CAPITAL LEASES
Subsequent to December 31, 1999, the Company entered into capital lease
agreements for computer and lab equipment valued at $31,500.
22
<PAGE>
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
REORGANIZATION
On June 8, 2000, the Company entered into an Agreement and Plan of
Reorganization, whereby all of the Company's outstanding shares of
common stock were acquired by Bud Financial Group, Inc. ("Bud"), a
Nevada corporation, in exchange for an aggregate of 10,000,000 shares
of newly issued common stock of Bud. For accounting purposes, the
transaction has been treated as a recapitalization of the Company, with
the Company as the accounting acquirer (reverse acquisition), and has
been accounted for in a manner similar to a pooling of interests. To
effect this transaction, the Company converted all of its outstanding
Series A, B, and C convertible preferred stock into 14,612,779 shares
of common stock and converted notes payable totaling $2,491,121 into
9,444,447 shares of common stock. The Company then reverse split the
aggregate 31,481,492 shares common stock on a one-for-3.148149 basis so
that 10,000,000 shares of common stock were issued and outstanding
prior to the reverse merger.
23
