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As filed with the Securities and Exchange Commission on August 3, 1999
Registration Statement No. 333-65093
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MIGRATEC, INC.
(Exact name of small business issuer as specified in its Charter)
Florida 7371 65-0125664
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification No.)
organization)
12801 North Stemmons Freeway, Suite 710
Farmers Branch, TX 75234
(972) 969-0300
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
W. Curtis Overstreet, President
MIGRATEC, INC.
12801 North Stemmons Freeway, Suite 710
Farmers Branch, TX 75234
(972) 969-0300
(Name, address and telephone number of agent for service)
With copies to:
James M. Schneider, Esq.
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, FL 33301
Telephone No.: (954) 763-1200
Facsimile No.: (954) 766-7800
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same offering:
[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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PROSPECTUS
MIGRATEC, INC.
34,571,469 shares of common stock
This prospectus relates to the offer and sale of up to 34,571,469 shares of
common stock, no par value, of MigraTEC, Inc., by certain selling shareholders.
Of the 34,571,469 shares of common stock offered, up to 8,353,719 shares are
issuable to the selling security holders upon the exercise of warrants at prices
between $0.01 and $0.70 per share. This prospectus covers the resale of the
34,571,469 shares and, in accordance with Rule 416 under the Securities Act of
1933, such presently indeterminate number of additional shares as may be
issuable pursuant to the anti-dilution provisions of the warrants. See "Selling
Security Holders."
MigraTEC's common stock is traded on the OTC Bulletin Board under the symbol
"MIGR." On July 30, 1999, the closing bid price for our common stock was $0.1094
per share.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL PURCHASERS SHOULD NOT
INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD A LOSS OF THEIR ENTIRE
INVESTMENT HEREIN. SEE "HIGH RISK FACTORS."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES , HAS THE PASSED UPON
THE ACCURACY OR ADEQUACY THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this prospectus is _______________
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PROSPECTUS SUMMARY
The information contained in the following prospectus summary is intended to
summarize more detailed information and financial information located elsewhere
in this prospectus. Accordingly, this prospectus should be read in its entirety
and in conjunction with such information.
Other than historical and factual statements, the matters and items discussed in
this prospectus are forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from the results discussed
in the forward-looking statements. Certain factors that could contribute to such
differences are discussed with the forward-looking statements throughout this
prospectus and are summarized in sections "High Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
THE COMPANY
MigraTEC, Inc., is a developer and provider of software technology, products and
services which automate the upgrade or "migration" process. We help companies
move their existing software applications to new and more advanced hardware and
software platforms and which address the Year 2000 challenge. Our automated
software "tools" can significantly decrease the time, effort and cost of an
upgrade or migration project.
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THE OFFERING AND OUTSTANDING SECURITIES
common stock outstanding 51,928,924 shares of common stock
common stock offered by selling 34,571,469 shares of common stock
security holders
Number of shares underlying common
stock purchase warrants included
in this offering 8,353,719 (1)
Risk Factors Investment in these securities
involves a high degree of risk.
See "High Risk Factors."
OTC Bulletin Board Symbol "MIGR"
- --------------------
(1) Includes: (i) warrants to purchase 300,000 shares are exercisable at $0.01
per share, (ii) warrants to purchase 1,000,000 shares are exercisable at
$0.10 per share, (iii) warrants to purchase 2,260,250 shares are
exercisable at $0.20 per share, (iv) warrants to purchase 600,000 shares
are exercisable at $0.25 per share, (v) warrants to purchase 204,878 shares
are exercisable at $0.25625 per share, (vi) warrants to purchase 3,213,591
shares are exercisable at $0.35 per share, (vii) warrants to purchase
500,000 shares are exercisable at $0.40 per share, (viii) warrants to
purchase 35,000 shares are exercisable at $0.50 per share, and (ix)
warrants to purchase 240,000 shares are exercisable at $0.70 per share, on
or prior to December 31, 2002.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
(Audited) (Unaudited)
1998 1997 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues $ 1,454,150 $ 2,045,607 $ 335,576 $ 459,029
Total operating $ 4,741,330 $ 4,500,640 $ 914,146 $ 1,595,100
expenses
Loss from operations $(3,287,180) $(2,455,033) $ (578,570) $(1,136,071)
Net loss $(3,458,075) $(2,517,606) $ (782,808) $(1,242,051)
Net loss per common $ (0.086) $ (0.094) $ (0.02) $ (0.04)
share
Balance Sheet Data:
Current assets $ 340,047 $ 456,371 $ 366,422 $ 1,277,691
Working capital deficit $(1,491,000) $(1,563,162) $(1,847,599) $ (503,340)
Total assets $ 594,091 $ 1,031,856 $ 574,567 $ 1,821,279
Total liabilities $ 1,901,495 $ 3,106,368 $ 2,268,894 $ 2,885,879
Stockholders' deficit $(1,303,652) $(2,070,760) $(1,690,575) $(1,060,848)
</TABLE>
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING MIGRATEC AND OUR BUSINESS
BEFORE PURCHASING THE SECURITIES OFFERED HEREBY. THIS PROSPECTUS CONTAINS, IN
ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. MIGRATEC'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT
CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
MIGRATEC'S LIMITED OPERATING HISTORY, RECENT OPERATING LOSSES, AND RISKS OF
OPERATIONS RAISE DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN
We have only a limited operating history upon which an evaluation of our
performance and prospects can be made. MigraTEC began active operations in
January 1991. While we have experienced certain periods of profitability since
our inception, we have sustained substantial losses in recent times. For the
years ended December 31, 1998, 1997 and 1996, we incurred net losses of
$3,458,075, $2,517,606 and $3,717,152, respectively, and for the three months
ended March 31, 1999, we incurred net losses of $782,808. At March 31, 1999, we
had an accumulated deficit of $8,236,917. Our future operations will be
influenced by numerous factors including:
o technological developments,
o further development of MigraTEC's proprietary software
products and services,
o expansion of our marketing program,
o our capacity to further identify MigraTEC as a Y2K and
migrations solutions provider,
o our ability to control increases in expenses associated with
sales growth,
o obtaining substantial additional funding,
o market acceptance of our products and services,
o our capacity to expand and maintain the quality of our
software migration products,
o competition and our ability to attract and maintain a skilled
and cohesive management group, and
o our ability to control costs.
We will also be subjected to all the risks incident to a rapidly developing and
technologically oriented business with only a limited history of operations.
Accordingly, we cannot assure you that we will be able to successfully expand,
increase our revenues, attract sufficient funding, and develop profitable
operations to offset the risks involved in the establishment of an expanding
technology-oriented business. As a result of these conditions and deficiencies,
our independent certified public accountants included an explanatory paragraph
in their report dated April 19, 1999, indicating that these conditions raise
substantial doubt about our ability to continue as a going concern. If we are
unable to manage any expansion, increase our revenues, attract
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sufficient funding, and develop profitable operations to offset these risks, our
business would be materially adversely effected.
WE WILL REQUIRE SIGNIFICANT CAPITAL RESOURCES IN ORDER TO CONTINUE OUR
OPERATIONS
Our capital requirements have been, and will continue to be, significant due to
the substantial costs associated with product development and refinement,
recruitment of skilled personnel, and the marketing of innovative software
products and related services primarily to large established corporations and
other corporations. Cash requirements for purposes of developing our products
have been substantial, and, as a result, we are dependent upon capital resources
provided by investors in order to finance our operations. In the event our
products are not developed and refined on a timely basis, contracts for the
provision of products and technology are not consummated in sufficient number,
or in the event our current resources otherwise prove to be insufficient for the
implementation of our business plan and working capital requirements, we will be
required to seek additional financing. We have no current arrangements with
respect to, or potential sources of, additional financing, and it is not
anticipated that existing shareholders will satisfy any portion of our future
financing requirements. There can be no assurance that any additional financing
will be available to us when needed, on commercially reasonable terms, or at
all. Any inability to obtain additional financing when needed would have a
material adverse affect on us, including the curtailment of our product
development, marketing and expansion activities.
THERE IS UNCERTAIN DEMAND FOR MIGRATEC'S PRODUCTS
Developing market acceptance for MigraTEC's existing and proposed products and
services will require substantial marketing and sales efforts and the
expenditure of a significant amount of funds to inform customers as to the
benefits and cost advantages of our services and products as well as to achieve
name recognition. Although our strategy is to principally rely on the marketing
efforts and market presence of our "partners," there can be no assurance that we
will be able to successfully develop or position our products or services, or
that any marketing efforts undertaken by us or our "partners" will result in
increased demand for or market acceptance of our products and services.
WE MAY BE RESPONSIBLE TO COMPANIES WHO PURCHASE OUR PRODUCTS IF OUR PRODUCTS
MALFUNCTION
While we include in our contractual terms for the provision of our Y2K products
various provisions which limit our liability in the event that client companies
are not able to successfully implement Y2K conversions and adjustments, there
can be no assurances that customers confronting adverse economic conditions
might not seek to circumvent such limitations or that third parties affected by
unsuccessful implementation programs will not seek financial remedies against
us. Given the uncertainty of implementing Y2K programs, we could be a
significant target of litigation in the future which would have a material
adverse affect on us.
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OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGY CHANGE WHICH COULD ADVERSELY EFFECT
OUR OPERATIONS
The software development industry in which we compete, as well as the computer
industry as a whole, is subject to rapid technological change and obsolescence.
In order for MigraTEC to compete effectively, we must offer products which
receive customer and consumer acceptance and fulfill customer and industry
needs. To the extent that we are unable to keep pace with technological advances
and enhancements comparable to and competitive with those made by others in the
industry, our products may become obsolete. There can be no assurances that our
products will not be rendered obsolete by changing technology or that we will be
able to respond to advances in technology or changes in customer or consumer
needs in a commercially feasible manner. If we are unable to offer products
which receive market acceptance, fulfill customer needs, and keep pace with
changing technology, our business would be materially adversely effected.
WE DEPEND HEAVILY ON MEMBERS OF OUR MANAGEMENT TEAM
MigraTEC'S success is largely dependent on the efforts of management,
particularly W. Curtis Overstreet, our President and Chief Executive Officer,
and Benjamin Swirsky, our Chairman. Although we have entered into employment
agreements with various members of our management, including all officers, there
can be no assurance that these individuals will continue their employment with
us. The loss of the services of one or more key personnel would have a material
adverse effect on our ability to maximize our use of our products and
technologies or to develop related products and technologies. Our success is
dependent upon our ability to hire and retain additional qualified executive,
programming, engineering and marketing personnel. There can be no assurance that
we will be able to hire or retain the personnel we need, and our inability to do
so would have a material adverse affect on us.
THE FUTURE OF OUR BUSINESS IS HIGHLY DEPENDENT UPON OUR ABILITY TO RECRUIT AND
RETAIN INFORMATION TECHNOLOGY PROFESSIONALS
MigraTEC'S business involves delivering services and products, and remains
partially labor intensive. Our success depends upon our ability to attract,
develop, motivate and retain highly skilled information technology consultants
possessing the technical skills and experience necessary to meet customer needs.
Qualified information technology personnel are in high demand worldwide and are
likely to remain a limited resource for the foreseeable future. The shortage of
information technology professionals has in the past and is likely in the future
to result in wage inflation. We compete for such individuals with general
information technology service firms, temporary staffing and personnel placement
companies, general management consulting firms, major accounting firms,
divisions of large hardware and software companies, systems consulting and
implementation firms, programming companies and niche providers of information
technology services. There can be no assurance that qualified information
technology personnel will continue to be available to us in sufficient numbers,
or that we will be successful in retaining current or future employees and
consultants. Our failure to attract or retain qualified information technology
personnel in sufficient numbers could have a material adverse affect on our
business, operating results and financial condition.
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WE ARE HEAVILY INDEBTED AND WE ARE IN DEFAULT ON CERTAIN DEBT OBLIGATIONS
MigraTEC'S operations have been financed in part from short-term and long-term
indebtedness provided by shareholders and others. We were obligated to repay our
senior secured promissory notes in the principal amount of $1,112,500 on July 1,
1999. We are currently in default under these notes and in negotiations with the
note holders. Nine of the senior secured note holders comprising $237,500 in
principal amount of the notes have waived the default provisions of the notes
and have agreed to extend the due date of the notes until July 1, 2000, and the
exercise price of the warrants to purchase an aggregate of 678,576 shares of our
common stock will be reduced from $0.50 to $0.35. Twenty-one holders of the
remaining $875,000 in principal amount of the notes have not accepted our offer,
and we are still in negotiations with these note holders. In the absence of
sufficient financing, we may be materially adversely affected by the requirement
to repay the notes since we may not have use of such funds to either sustain or
to continue the development of our operations. If we are unable to meet
scheduled or unscheduled payments on the notes, or restructure the terms of the
notes, or remain in default of any of the notes, our business would be
materially adversely effected.
WE ARE EXPOSED TO LIABILITY RISKS WHICH COULD ADVERSELY EFFECT OUR BUSINESS
We are exposed to liability risks with respect to other products and services
provided by us, such as damages caused by errors of our personnel and possible
misuse of client proprietary information. Although we maintain insurance
coverage, due to the nature of our projects and engagements, there can be no
assurance that such insurance coverage will continue to be available on
reasonable terms or that it will be adequate to cover any such liability.
Furthermore, many of our contracts involve projects that are critical to our
customers' business or products, and the benefits provided by us may be
difficult to quantify. Our failure or inability to meet a client's expectations
in the execution of our services or the provision of our products could result
in a material adverse effect on our business or products and, therefore, could
give rise to claims against us or damage to our reputation, which would
materially adversely affect our business, operating results and financial
condition.
WE COMPETE WITH COMPANIES WHICH HAVE FAR GREATER RESOURCES THAN WE DO
MigraTEC is engaged in a highly competitive segment of the data processing
industry. We compete directly and indirectly with many firms which provide
products and services similar to our current and proposed offerings. Most of
these competitors have capital, name recognition and financial, personnel and
other resources far greater than those of Migratec. Our ability to compete
effectively will depend, in part, upon our systems' features, their cost
effectiveness, our ability to maintain state-of-the-art technology, our ability
to service and update our products efficiently, and our success in marketing and
selling our products and services. Moreover, we expect that Y2K projects will
peak prior to calendar year 2000 as companies address their Y2K needs, leaving
us more dependent upon our more recently developed technology and services.
Thereafter, the availability of a substantial number of information technology
personnel formerly engaged in Y2K projects could have a material adverse affect
on us, including reducing the demand for our services, increasing competition
for available customer engagements, and
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creating downward pressure on pricing for our services and products. There can
be no assurance that we will be able to compete successfully, that our
competitors or future competitors will not develop technologies or products that
render our products and technology obsolete or less marketable, or that we will
be able to successfully enhance our proposed products or technology or adapt
them satisfactorily. If we are unable to compete effectively and successfully
enhance or adapt our products, services and technology, our business would be
materially adversely effected.
WE MAY NOT BE ABLE TO PROTECT ANY PROPRIETARY RIGHTS WE MAY HAVE IN OUR PRODUCTS
MigraTEC'S success is dependent upon proprietary applications software
technology which may be difficult to protect. We currently rely on a combination
of contractual rights, trade secrets, know-how, trademarks, patents,
nondisclosure agreements and technical knowledge to establish and protect our
proprietary rights. There can be no assurance, however, that the measures taken
by us to protect our proprietary rights will be adequate to prevent
misappropriation of the technology or independent development by others of
products with features based upon, or otherwise similar to, our products.
Additionally, although we believe that our technology has been independently
developed and does not infringe on the proprietary rights or trade secrets of
others, there can be no assurance that our technology does not and will not so
infringe, or that third parties will not assert infringement claims, trade
secret violations, competitive torts or other proprietary rights violations
against us in the future. In the case of infringement, we could, under certain
circumstances, be required to modify our products or obtain licenses, which
would likely require cash or other consideration. There can be no assurance that
we would be able to do either in a timely manner or upon acceptable terms and
conditions, and our failure to do so would have a material adverse effect on us.
In addition, there can be no assurance that we will have the resources to defend
or prosecute a patent infringement or other proprietary rights infringement
action.
We will seek to maintain our proprietary rights by patents, trade secret
protection and by the use of nondisclosure and restrictive covenant agreements
with our employees. While we have taken legal precautions to protect our
interests, there can be no assurance that meaningful proprietary protection can
be attained, that we will be able to enter into or enforce patents and
agreements which restrict competitive activities of our employees, or that
various individuals trained by us may not seek to engage in competitive
activities subsequent to their employment by us. We have filed a patent
application on our MigraTEC2000 technology. While we believe that, if granted,
this patent would provide protection for our technology, we cannot assure you
that any patent will issue.
WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS TO OUR SHAREHOLDERS
MigraTEC has not paid any cash dividends on common stock since inception and
does not anticipate paying cash dividends in the foreseeable future. The future
payment of dividends is directly dependent upon future earnings, capital
requirements, financial requirements, and other factors to be determined by our
Board of Directors. For the foreseeable future, it is anticipated that earnings,
if any, which may be generated from our operations will be used to finance our
growth, and that cash dividends will not be paid to common stock shareholders.
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YOU MAY EXPERIENCE IMMEDIATE SUBSTANTIAL DILUTION IF YOU PURCHASE SHARES OF OUR
COMMON STOCK
Initial purchasers of our common stock offered hereby will incur an immediate
and substantial dilution from the purchase price of their shares. As of March
31, 1999, the negative net tangible book value of our common stock was
approximately $0.036 per share.
POSSIBLE RESALES OF SECURITIES BY OUR CURRENT SHAREHOLDERS MAY HAVE A DEPRESSIVE
EFFECT ON THE MARKET FOR OUR COMMON STOCK
At July 30, 1999, 33,275,000 shares of our common stock outstanding were
"restricted securities" as that term is defined by Rule 144 under the Securities
Act of 1933 as amended, inclusive of shares being registered pursuant to the
Registration Statement, of which this prospectus is a part. Certain of such
shares will be eligible for public sale only if registered under the Securities
Act or if sold in accordance with Rule 144. Under Rule 144, a person who has
held restricted securities for a period of one year may sell a limited number of
shares to the public in ordinary brokerage transactions. Sales under Rule 144
may have a depressive effect on the market price of our common stock due to the
potential increased number of publicly held securities. The timing and amount of
sales of common stock covered by this prospectus, as well as such subsequently
filed registration statement, could have a depressive effect on the market price
of our common stock. A depression in the market price of our common stock could
cause you to be unable to resell your shares or result in a loss of your entire
investment.
THERE IS ONLY A LIMITED MARKET FOR OUR COMMON STOCK WHICH IS SUBJECT TO
VOLATILITY AND MARKETABILITY RESTRICTIONS
There is currently only a limited trading market for our common stock.
MigraTEC'S common stock trades on the OTC Bulletin Board under the symbol
"MIGR," which is a limited market and subject to substantial restrictions and
limitations in comparison to the NASDAQ System. There can be no assurance that a
substantial trading market will develop, or be sustained, if developed, for our
common stock upon completion of this offering, or that you will be able to
resell your securities or otherwise liquidate your investment without
considerable delay, if at all, resulting in a loss of your entire investment.
Recent history relating to the market prices of newly public companies indicates
that, from time to time, there may be significant volatility in the market price
of our securities because of factors unrelated, as well as related, to our
operating performance. There can be no assurances that our common stock will
ever qualify for inclusion within the NASDAQ System, or that more than a limited
market will ever develop for our common stock.
The Nasdaq Stock Market, Inc., has recently adopted certain changes to the entry
and maintenance criteria for listing eligibility on The Nasdaq SmallCap Market.
The entry standards now require at least $4 million in net tangible assets or
$750,000 in net income in two of the last three years. The entry standards also
require a public float of at least one million shares, a $5 million market value
of public float, a minimum bid price of $4.00 per share, at least three market
makers, and at least 300 round lot shareholders. The newly enacted maintenance
standards, as opposed to entry
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standards, require at least $2 million in net tangible assets or $500,000 in net
income in two of the last three years, a public float of at least 500,000
shares, a $1 million market value of public float, a minimum bid price of $1.00
per share, at least two market makers, and at least 300 round lot shareholders.
MigraTEC currently does not meet the minimum Nasdaq SmallCap financial criteria
and no assurance can be given that the common stock of MigraTEC will ever
qualify for inclusion on the NASDAQ System. Until our shares qualify for
inclusion in the NASDAQ System, our common stock will be traded in the
over-the-counter markets on the OTC Bulletin Board. As a result, our common
stock is covered by a Securities and Exchange Commission rule that imposes
additional sales practice requirements on broker-dealers who sell our securities
to persons other than established customers and accredited investors (generally
institutions with assets in excess of $5 million or individuals with net worth
in excess of $1 million or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the sale.
Consequently, the rule may affect the ability of broker-dealers to sell our
securities and may also affect the ability of shareholders to sell their shares
in the secondary market.
ANTI-TAKEOVER PROVISIONS
Our Board of Directors has the authority to issue 1,000,000 shares of Redeemable
Convertible 12% Preferred Stock, none of which are outstanding, and to fix the
dividends, liquidation, conversion, redemption and other rights, preferences and
limitations of the shares without any further vote or action of our
shareholders. Accordingly, our Board of Directors is empowered, without
shareholder approval, to issue preferred stock, with dividend, liquidation,
conversion, voting or other rights, which could adversely affect the voting
power or the rights of the holders of our common stock. In the event of
issuance, any class of preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
the control of MigraTEC. Furthermore, certain provisions of MigraTEC'S Articles
of Incorporation and By-Laws may be deemed to have anti-takeover effects and may
delay, defer or prevent a takeover attempt of MigraTEC. In addition, certain
provisions of the Florida Business Corporation Act also may be deemed to have
certain anti-takeover effects.
LIMITATION OF LIABILITY
The Florida Business Corporation Act provides that a director is not personally
liable for monetary damages to MigraTEC or any other person for breach of
fiduciary duty, except under very limited circumstances. Such a provision makes
it more difficult to assert a claim and obtain damages from a director in the
event of his non-intentional breach of fiduciary duty.
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PRICE RANGE OF COMMON STOCK
Our common stock trades under the symbol "MIGR" on the OTC Bulletin Board, which
is a limited market, and is subject to substantial restrictions and limitations
in comparison to the NASDAQ System. Since the time our common stock was included
on the OTC Bulletin Board on June 14, 1996, the price of our common stock has
generally been quoted in the range of a high closing bid price of $5.00 and a
low closing bid price of $0.09 based on limited trading. As of July 30, 1999,
the approximate number of record holders of our common stock was 790.
The following table sets forth, for the periods indicated, the high and low
closing bid prices for MigraTEC'S common stock on the OTC Bulletin Board. On
July 30, 1999, the closing price for our common stock on the OTC Bulletin Board
was $0.1094 per share. At July 30, 1999, we had 51,928,924 shares of common
stock outstanding.
Period High Bid Low Bid
--------------- ---------------- ---------------
First Quarter $ 0.70 $ 0.35
1998
Second $ 0.60 $ 0.35
Quarter 1998
Third Quarter $ 0.40 $ 0.1875
1998
Fourth $ 0.2656 $ 0.1406
Quarter 1998
First Quarter $ 0.4375 $ 0.125
1999
Second $ 0.3906 $ 0.1562
Quarter 1999
Third Quarter $ 0.1875 $ 0.0938
1999 through
July 30, 1999
DIVIDEND POLICY
MigraTEC has not paid, and does not anticipate paying, any dividends on common
stock in the foreseeable future. We currently intend to retain our future
earnings for use in operations and expansions of our business. Declaration and
payment of future dividends, if any, will be at the sole discretion of our board
of directors.
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<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of MigraTEC as at March 31,
1999. No effect is given to the exercise of any options or warrants. This table
should be read in conjunction with our financial statements and related notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
---------------
<S> <C>
Long-term portion of notes payable $ 48,411
Long-term portion of obligation under 6,462
capital lease
---------------
Total debt 54,873
---------------
Redeemable convertible 12% preferred
stock; $1,000 par value;
1,000,000 shares authorized; --
redeemable at par value plus
cumulative dividends; none issued
or outstanding
Shareholders' deficit:
Common stock, no par value;
200,000,000 shares authorized;
57,098,450 shares issued (1) 7,306,475
Additional paid-in capital 1,017,758
Treasury stock, at cost
(9,864,449 shares) (1,777,891)
Accumulated deficit (8,236,917)
---------------
Total shareholders' deficit (1,690,575)
---------------
Total capitalization $ (1,635,702)
===============
</TABLE>
- -----------------
(1) Does not give effect to the issuance of up to 16,942,654 shares of
common stock upon exercise of any outstanding options or warrants.
USE OF PROCEEDS
MigraTEC will not receive any proceeds from the sale of common stock for the
accounts of the selling security holders. There is included in the registration
statement, of which this prospectus is a part, 8,353,719 shares of common stock
issuable to the selling security holders upon the exercise of warrants. If all
of the warrants were exercised in their entirety, we would receive total
proceeds, before expenses, of approximately $2,267,800. Inasmuch as the holders
of all of the warrants have no obligation to exercise their warrants, we are not
in a position to evaluate when and if their securities will ever be exercised
and the amount of proceeds we may realize therefrom. Accordingly, we are not
able to allocate specifically at this time the proceeds we may receive from the
exercise of the warrants, and any proceeds realized will be utilized for
enhancing our research and development and for general working capital purposes.
To the extent the proceeds of such exercise are not used immediately, they will
be invested in certificates of deposit, savings deposits or other interest
bearing instruments, or will be left in the checking accounts of MigraTEC.
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<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included in, or incorporated by reference
into this Registration Statement, are forward-looking statements. In addition,
when used in this document, the words "anticipate," "estimate," "project" and
similar expressions are intended to identify forward-looking statements. Such
forward-looking statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. Although MigraTEC
believes that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations will prove to have
been correct.
Among the key factors that could cause actual results to differ materially from
expectations, estimates of costs, projected results or anticipated results are
the risk that we will be unable to generate sufficient cash flows to fund
operations or to obtain additional financing on favorable terms, the risk that
we will be unable to effectively penetrate our target markets for migration
products and services and Y2K product sales, the risk that new untested
management will be unable to successfully implement our business plan and sales
strategy, and the risk of unfavorable changes in economic and industry
conditions, as well as changes in regulatory requirements. We have also made
certain assumptions relating to our operations and the industry in general. All
written or oral forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by, but not limited to,
the factors described above.
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
MigraTEC should be read in conjunction with the consolidated financial
statements of MigraTEC included elsewhere herein.
Although we experienced significant losses for the three months ended March 31,
1999, as well as for 1998, 1997 and 1996, our management believes it is
important to note the growing opportunity for us to sell our automated migration
products and services based on the rapid growth and changes occurring in today's
marketplace, as well as the increasing market demand for migration products and
services. Our management believes, that by capitalizing on this opportunity,
revenues and earnings will increase during the remainder of 1999, although no
assurances can be given regarding such increase.
Our management believes that our net loss posted for the three months ended
March 31, 1999, was in part due to continued expenditures for reengineering our
business and shifting our strategic approach to exploiting our technology
through strategic partnerships. In mid-1998, we introduced our new Y2K tool,
MigraTEC2000, and most recently announced the completion of our initial
development of an additional migration service in April 1999.
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<PAGE> 17
YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
During 1998, MigraTEC'S sales revenues decreased by approximately 29% to
$1,454,150, compared to $2,045,607 for 1997. This decrease was primarily
attributable to focusing our efforts on utilizing our technology by developing
agreements with strategic partners involving licensing and service arrangements
related to MigraTEC2000 as a foundation for future revenue growth. Licensing and
service revenue related to MigraTEC2000 approximated $605,878 during 1998.
Service revenue from non-related MigraTEC2000 products and services was $848,272
and $2,045,607 for 1998 and 1997, respectively.
Operating Expenses
MigraTEC'S total operating expenses increased by approximately 5% to $4,741,330
during 1998, compared to $4,500,640 for 1997. Labor costs, including benefits
and insurance, decreased by approximately 20% to $2,197,511 compared to
$2,756,621, respectively for 1998 and 1997. This decrease primarily resulted
from a reduction in our labor force during the second and third quarters of
1998. General and administrative expenses decreased to $273,178 from $345,690,
primarily resulting from decreased expenditures for employee recruiting fees and
moving expenses related to relocating our principal offices in 1997. Advertising
and marketing increased to $97,029 for 1998 compared to $17,086 in 1997. Travel
decreased to $15,973 for 1998 compared to $39,749 in 1997. Rent expense
decreased to $127,800 for 1998, compared to $186,899 in 1997, attributable
primarily to decreased monthly office rent due to our move in April of 1997 from
our facilities located in Westlake, Texas, to a smaller and less costly location
in Farmers Branch, Texas. Depreciation and amortization decreased to $156,167 in
1998, compared to $233,962 in 1997, as a result of asset abandonments and
retirements. Legal and professional fees increased to $409,206 in 1998, compared
to $211,936 in 1997, primarily due to increased legal costs resulting from
various litigation in which we were involved. The decrease in labor costs was
offset by a majority of the expenditures for the Year 2000 program which are
comprised primarily of labor costs. Year 2000 program costs of $1,462,741
incurred in 1998 consists of labor costs and various other expenses related to
the development and marketing of our Year 2000 tool set, as well as research and
development related to the development of other migration tools. Such costs for
1997 totaled $293,604, and were incurred only during the fourth quarter of 1997.
As a percentage of revenues, total operating expenses increased to 326% for
1998, compared to 220% for 1997, primarily attributable to decreased revenues
and increased operating expenses as previously discussed.
Other Income and Expenses
MigraTEC recognized interest income of $9,102 in 1998 relating to the interest
earned on cash balances invested in short-term certificates of deposit. Interest
expense, which includes loan origination fees, increased to $234,534 in 1998,
compared to $156,175 in 1997. This increase was primarily due to (i)
amortization of discount related to our senior secured promissory notes, (ii)
higher interest and loan fees connected with obtaining short-term financing,
(iii) interest on
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<PAGE> 18
shareholder loans, and (iv) finance charges assessed by trade creditors for late
payment of accounts payable. Also, we incurred financing fees of $139,783, of
which $67,588 relates to the amortized portion of fees paid in 1997 in
connection with the issuance of our senior secured promissory notes and $72,195
relates to stock purchase warrants issued with debt.
Income Taxes
As a result of operating losses for 1998 and 1997, MigraTEC has not had a
federal income tax obligation. At December 31, 1998, we had a total net
operating loss of approximately $7,450,000. Our net operating loss carryover
generated for the year ended December 31, 1998, will expire in 2013.
Extraordinary Item
MigraTEC recognized a gain of $282,999 in 1998 related to the forgiveness of
debt. This gain relates to reductions in amounts due to various vendors through
renegotiation of terms.
For the year ended December 31, 1998, MigraTEC incurred a net loss of
$3,458,075, or $0.086 per share, as compared with a net loss of $2,517,606, or
$0.094 per share, for the year ended December 31, 1997.
THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues
During the first quarter of 1999, MigraTEC'S sales revenues decreased to
$335,576, compared to $459,029 for the first quarter of 1998. This decrease was
primarily attributable to focusing our efforts on utilizing our technology by
developing agreements with strategic partners involving licensing and service
arrangements related to MigraTEC2000 as a foundation for future revenue growth.
Licensing and service revenue related to MigraTEC2000 approximated $335,576
during the first quarter of 1999. Service revenue from non-related MigraTEC2000
products and services was $0 and $459,029 for the three months ended March 31,
1999 and 1998, respectively.
Operating Expenses
MigraTEC'S total operating expenses decreased by approximately 43% to $914,146
during the first quarter of 1999, compared to $1,595,100 for the first quarter
of 1998. Labor costs decreased by approximately 59% to $334,265 compared to
$811,457, for the three months ended March 31, 1999 and 1998, respectively. This
decrease primarily resulted from a reduction in our labor force during the
second and third quarters of 1998 attributable to changing our business focus.
General and administrative expenses decreased to $34,721 from $61,863 primarily
resulting from decreased expenditures for directors fees, leased computer
equipment, long distance telephone charges, and printing/copying costs.
Depreciation and amortization decreased to $33,600 for the first quarter of
1999, compared to $48,900 for the first quarter of 1998, as a result of asset
abandonments and retirements. Legal and professional fees decreased to $16,028
during the first
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<PAGE> 19
quarter of 1999 from $303,541 for the first quarter of 1998, primarily due to
decreased legal costs resulting from various litigation in which we were
involved. The decrease in labor costs was offset by a majority of the
expenditures for the Year 2000 program which are comprised of primarily labor
costs. Year 2000 program costs of $444,668 incurred in the first quarter of 1999
consists of labor costs and various other expenses related to the development
and marketing of our Year 2000 tool set, as well as research and development
related to the development of other migration tools. Such costs incurred in the
corresponding period in 1998 totaled $316,044. As a percentage of revenues,
total operating expenses decreased to 272% for the first quarter of 1999,
compared to 347% for the first quarter of 1998, primarily attributable to the
decrease in operating expenses as previously discussed.
Other Income and Expenses
Interest expense, which includes loan origination fees, decreased to $57,116 for
the first quarter of 1999, compared to $103,378 for the first quarter of 1998.
The decrease was primarily due to (i) amortization of discount related to our
senior secured promissory notes and (ii) lower interest and loan fees connected
with our reduction in principal of short-term financing. Also, we incurred
financing fees of $147,293, of which $15,993 relates to the amortized portion of
fees paid in 1997 in connection with the issuance of our senior secured
promissory notes and $131,300 relates to stock purchase warrants issued with
debt.
For the three months ended March 31, 1999, MigraTEC incurred a net loss of
$782,808, or $0.02 per share, as compared with a net loss of $1,242,051, or
$0.04 per share, for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $554,234 for the three months ended
March 31, 1999, which resulted from our operating loss, reduced by net changes
in assets and liabilities and non-cash expenses and income, and $3,611,131 for
the year ended December 31, 1998, which resulted from our operating loss,
increased by net changes in assets and liabilities and non-cash expenses and
income. This compares to net cash used by operating activities of $914,144 for
the three months ended March 31, 1998, which resulted primarily from our
operating loss, reduced by net changes in assets and liabilities and non-cash
expenses and income, and $2,153,297 for the year ended December 31, 1997, which
resulted primarily from our operating loss offset partially by net changes in
assets and liabilities and non-cash expenses and income.
At March 31, 1999, we had a net working capital deficit of $1,847,599, compared
to a net working capital deficit of $1,491,000 at December 31, 1998, a net
decrease in working capital of $356,599 for the three months then ended. For the
year ended December 31, 1998, our working capital deficit decreased by $72,162
to $1,491,000.
At March 31, 1999, we had cash of $96,678 and $245,759 in outstanding accounts
receivable ($245,759 billed and $0 unbilled), and at December 31, 1998, we had
cash of $17,389 and
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<PAGE> 20
$289,268 in outstanding accounts receivable ($279,268 billed and $10,000
unbilled), all of which is considered fully collectible.
At March 31, 1999, our outstanding debt obligations included (i) $1,099,153 in
senior secured promissory notes, net of $13,347 unamortized discount, (ii)
$542,500 in short-term loans from outside investment groups, (iii) $25,000 in
short-term loans from a director, and (iv) $79,077 in other notes payable
relating to settlement of vendor lawsuits previously filed. At December 31,
1998, our outstanding debt obligations included (i) $150,000 in short-term loans
from an outside investment group, (ii) $86,603 in other notes payable relating
to settlement of vendor lawsuits previously filed, (iii) $1,087,141 in senior
secured promissory notes, net of $25,359 unamortized discount, and (iv) $30,000
in advances from an officer.
During the first three months of 1999, we received proceeds of $637,216 from
financing activities. We collected (1) $264,585 in connection with our issuance
of common stock and (2) $447,500 in proceeds from short-term loans from various
outside investment groups, a director and an officer. Our cash proceeds were
offset by $74,869 expended for our repayment of principal of short-term loans
from an officer and other notes payable relating to settlement of vendor
lawsuits previously filed, as well as obligations under capital lease. During
1998, we received proceeds of $3,620,244 from financing activities. We collected
(1) $4,844,250 in connection with our issuance of common stock, of which
$275,000 was from debt conversion, and (2) $961,500 in proceeds from short-term
loans from a bank, various outside investment groups, directors, and an officer.
Our cash proceeds were offset by (1) $740,000 paid to purchase 9,400,000 shares
of treasury stock and (2) $1,332,543 expended for our repayment of principal of
short-term loans from a bank, various outside investment groups, directors and
an officer, shareholder advances and obligations under capital lease.
We continue to actively work with trade creditors to negotiate settlements
regarding outstanding accounts payable on terms favorable to us. As of the
filing of our Form 10-QSB for the three months ended March 31, 1999, we had been
successful in settling $802,568 in outstanding accounts payable for
approximately $357,244, thereby saving us just over $445,324.
To continue to fund our operations for 1999, we have (1) completed a private
offering during March 1999 which yielded gross proceeds of $241,313, (2) entered
into several short-term notes payable during the first quarter of 1999 with
outside investment groups, including one director and one officer, totaling
$447,500, and (3) received gross proceeds of $59,537 for the exercise of
warrants relating to various short-term notes payable and the exercise of
consultant and employee stock options.
Most recently, we began the process of obtaining additional capital through a
private offering whereby we plan to issue up to 6,000,000 restricted and
unregistered shares of our common stock at $0.125 per share. We have entered
into agreements with two individual investors to purchase the 6,000,000
restricted and unregistered shares in our private offering. As of the date
hereof, we have received proceeds from our private offering totaling $550,000.
In addition, if needed, we are considering issuing additional equity through a
private offering during the second half of 1999 in an amount sufficient to meet
our current operating expenses until such time that product revenues
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<PAGE> 21
are sufficient to sustain our operations. However, we cannot assure you that any
additional financing will be available to us when needed, on commercially
reasonable terms, or at all.
Our continued existence and plans for future growth are dependent in part upon
our ability to obtain the capital necessary to operate, primarily through the
issuance of additional debt or equity, and in part on our ability to effectively
penetrate the market for software migration services, related products, and Year
2000 software products and services. We were obligated to repay our senior
secured promissory notes in the principal amount of $1,112,500 on July 1, 1999.
We are currently in default under these notes and in negotiations with the note
holders to extend the due date of the notes until July 1, 2000, and reduce the
exercise price of their related stock purchase warrants from $0.50 to $0.35. In
the absence of sufficient financing, we may be materially adversely affected by
the requirement to repay the notes since we may not have use of funds to either
sustain or to continue the development of our operations. If we are unable to
meet scheduled or unscheduled payments on the notes, or restructure the terms of
the notes, or remain in default of any of the notes, our business would be
materially adversely effected. Furthermore, if we are not able to generate
sufficient sales revenues and cash flows, achieve break-even, or obtain
additional funding in the near term, we will be unable to continue as a going
concern.
YEAR 2000
The Securities and Exchange Commission, in Staff Legal Bulletin No. 5 (CF/IM),
has stated that public operating companies should consider whether they will be
affected by any material expenditures, problems or uncertainties associated with
the Y2K issue, which affects many existing computer systems that use only two
digits to identify a year in the date field. We believe that the matters raised
by Staff Legal Bulletin No. 5 are not applicable in any material way to our own
computer systems, and we intend to confirm that any computer systems that we may
purchase or lease in the future will have addressed the Y2K issue.
We are currently determining the extent to which we may be impacted by third
parties' failure to remedy their own Y2K issues. We are having, and will
continue to have, formal communications with all of our significant customers,
payers, suppliers, and other third parties to determine the extent, if any, to
which our interface systems could be impacted by any third party Y2K issues and
related remedies. There can be no assurance that the systems of other companies
with which our systems interact will be timely converted and would not have an
adverse effect on our business.
ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
("SOP 98-5"), "Reporting on the Costs of Start-up Activities." This statement is
required to be adopted for fiscal years beginning after December 15, 1998, and
requires the expensing of all start-up costs, as defined, as they are incurred.
We have voluntarily applied accounting policies consistent with SOP 98-5 for the
years ended December 31, 1998 and 1997.
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In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that all derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The accounting
provisions for qualifying hedges allow a derivative's gains and losses to offset
related results on the hedged item in the income statement, and requires that we
must formally document, designate, and assess the effectiveness of transactions
that qualify for hedge accounting. We are not required to adopt this Statement
until January 2000. We have not determined our method or timing of adopting this
Statement or the impact on our financial statements. However, when adopted this
Statement could increase volatility in reported earnings and other comprehensive
income of MigraTEC.
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BUSINESS
INTRODUCTION
MigraTEC, Inc., was organized under the laws of the state of Florida on February
24, 1989. MigraTEC was a development stage enterprise until it acquired a
privately-owned, Texas-based company, which had begun operations in 1991, on
February 29, 1996.
The initial focus of our business was to provide contract computer programming
education services. Subsequently, we developed and sold several software
products, and we further diversified into consulting services and providing
assistance to clients wishing to migrate or convert their software from the
Windows operating system to the IBM OS/2 platform. Identifying the need to
automate the migration process, we developed our first set of software tools for
that purpose, and licensed our technology to IBM in 1993. Our software license
with IBM generated virtually all of our revenues for the next three years,
during which we continued to enhance and further automate our migration
technology.
GENERAL
With the ongoing rapid development and availability of ever-advancing
technology, the process of companies continually seeking ways to upgrade their
information processing systems is taking place at an accelerating pace.
MigraTEC is a developer and provider of software technology and services which
automate the upgrade or "migration" process helping companies move their
existing software applications to new and more advanced hardware and software
platforms and which address the Year 2000 challenge. We believe that our
migration software tools and technology can facilitate the migration activities
of companies for years to come.
Ordinarily, the upgrade or migration process is a manual, time-consuming and
costly process. Migration preserves the functionality, business logic and
consistency of the existing software application, thereby avoiding the business
interruption, retraining and reengineering problems created when a software
application is totally replaced. Thus, migration not only extends the productive
life of existing software applications, which have already been developed at
significant cost, but also ensures the continued ease of ongoing maintenance of
the software. MigraTEC's automated software "tools" can significantly decrease
the time, effort and cost of an upgrade or migration project. We believe that
the productivity of our software tools will produce a growing revenue stream for
us, principally produced from licensing our tools to large technology hardware,
software and service organizations for use in delivering services to their own
customers.
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BACKGROUND
MigraTEC's software technology has been utilized in over 400 migration projects,
facilitated either directly by MigraTEC or through a license of previous
MigraTEC technology to IBM. Successful migration projects performed by us
include Caterpillar Inc., Ameritech Inc., USAA Insurance, Duke Energy, Bell
Sygma, The Sabre Group Inc., Payless ShoeSource Inc., Group 1 Software Europe
Ltd. and AutoTester Inc., including follow-up projects at Duke Energy, Bell
Sygma, Ameritech Inc. and The Sabre Group Inc. Our Y2K technology and services
have been utilized by several companies including EDS, Metamor, Computer
Horizons, The Sabre Group Inc., Century Services Inc. and Reasoning Inc.
When our software license to IBM expired in 1996, our revenue stream decreased
significantly and we incurred significant debt. In order to implement a
turnaround plan and reestablish our financial viability, we brought in a new
management team during 1997 and early 1998. Our turnaround plan was based on
developing a new generation of MigraTEC's proprietary "core" software technology
and establishing us as a "technology partner" of large strategically positioned
companies. We successfully raised capital through a series of private offerings.
The significant trade debt that we incurred during 1996 and 1997 was also
successfully addressed. Currently, we are focused on further developing our
proprietary technology to serve as the foundation for advanced "universal
migration" software tools designed to facilitate the transition between numerous
computer languages and operating platforms. We intend to utilize our enhanced
technology to facilitate our own provision of migration services and to generate
revenues through the licensing of our technology to large technical services
organizations.
MARKET OVERVIEW AND STRATEGY
With rapid technological changes occurring in today's marketplace, such as the
move to the Internet, Windows and WindowsNT, the development of 64-bit
processors and operating systems, and Y2K compliance issues, our management
believes that MigraTEC's proprietary software technology represents an
attractive resource for companies seeking access to technology that will allow
them to respond to these challenges and market opportunities.
We believe that the processes relating to the "core" portion of our technology,
for which a patent application was filed in June of 1998, can be used as the
nucleus for many "best of breed" software products. To maximize the opportunity
that our "core" technology presents, we formulated and have begun to execute a
plan that allows us to assess market opportunities and bring new products to
market quickly at a relatively low cost. The key steps to implement our plan
have been:
o In April 1998 we retained Deloitte & Touche ("D&T") to conduct
an in-depth analysis of our "core" technology and to recommend
potential "best of breed" products that can be developed from
our "core" technology. This analysis confirmed that we have
valuable technology from which many software products or
"tools" can be developed. The D&T analysis further identified
over a dozen strategic market needs which can be addressed
with further development of MigraTEC's "core" technology.
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o In the second half of 1998, MigraTEC completed development of
an expanded Y2K offering and began development of upgrade
capabilities for the Sun Microsystems Solaris operating system
from 32 to 64-bit. Initial development of the 32 to 64-bit
technology was completed in April 1999, and we are now ready
to license this technology to third parties.
o In the second half of 1998 we also undertook the definition
and development of the next generation of our migration
software technology.
o We are currently in discussions with several large companies
about possible joint ventures to develop additional products.
o In the first quarter of 1999, we began development of a
software tool to automate the migration of software
applications from DEC Unix to Solaris Unix. We can now provide
"factory" services using this technology. We believe that we
will be able to provide "factory" services to facilitate any
type of Unix to Unix migration by the end of the third quarter
of 1999.
o In the first quarter of 1999, we began development of a
software tool to automate the 32 to 64-bit upgrade process for
software applications running on the Windows/Intel operating
system. We can now provide "factory" services using this
technology.
o In the second quarter of 1999, we began development of an
automated code analysis tool which we believe will be ready
for licensing during the fourth quarter of 1999.
We believe that the further development of our technology will create the
following revenue opportunities:
o Funding for enhancing MigraTEC'S core technology pursuant to
the specifications of "strategic partners."
o Royalties/revenue sharing produced from licensing MigraTEC'S
enhanced technology to "strategic partners."
o Revenues from software sales to "end user" customers.
o Revenues from expanded service offerings to be provided by
MigraTEC.
Larger companies such as Sun Microsystems, Oracle, IBM, EDS, Microsoft and Intel
are seeking out smaller technology companies like MigraTEC to form development
partnerships to address emerging market opportunities. We are continuing to
discuss co-development opportunities with these companies and anticipate that
with our "core" technology there will be other opportunities for strategic
relationships.
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We have recently signed a five-year agreement with EDS which licenses MigraTEC's
Y2K software to EDS and guarantees EDS access to future software products
developed by us. We have also signed agreements with Computer Horizons, Metamor
and Ctek, licensing our Y2K software tool. Under the terms of our agreements, we
will be paid an amount per line of code that is processed using the MigraTEC2000
software tool.
We believe that our strategic "partnering" and co-development strategy will
provide:
o "Partners" that can direct development efforts towards
emerging markets.
o "Partners" with extensive sales and marketing resources and a
vested interest in getting the end product into the market.
o Funding necessary to expand key development efforts.
We believe that by concentrating on the further development of "strategic
partnerships" with large technology companies and services providers, we can
successfully benefit from our partners' strategic market positions and growing
customer bases.
PRODUCTS AND SERVICES
OVERVIEW
MigraTEC's proprietary technology is designed to automate a significant amount
of the upgrade or migration process by identifying critical code elements in the
software to be migrated, thereby automating a high percentage of the changes
required. In June of 1998, we submitted a patent application covering certain
processes relating to the "core" portion of our proprietary software technology.
We are designing our software products so they can be used:
o by MigraTEC to provide a variety of services for our business
customers, and
o by other services and/or systems integrators in order to
facilitate their delivery of solutions and/or hardware to
their customers.
"UNIVERSAL" MIGRATION TOOL
We are currently working on the development of a migration work bench which is
intended to be a "universal migration" software tool which will incorporate our
"core" technology already developed by us. This software tool is being designed
to further automate the migration of a customer's software from a wide variety
of existing operating system platforms to a wide variety of target operating
systems which should significantly decrease the time and cost of the migration
project. This should remove the major obstacles facing most companies when
making a decision with regard to upgrading their operating systems or software
applications.
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MigraTEC believes that the value of a migration work bench to a computer
hardware vendor would be immense in facilitating a "buy decision" by greatly
reducing the customer's total upgrade or migration process. We also believe that
a migration work bench would be extremely valuable to services providers and
systems integrators in reducing their costs and time requirements involved in
performing an upgrade or migration project. We believe that there is significant
potential for entering into strategic relationships with hardware vendors,
services providers and systems integrators under which we can generate revenues
through licensing agreements and/or provisions of services utilizing our
migration work bench. We are currently in discussions with such entities
regarding structuring of strategic relationships involving our technology.
32 TO 64-BIT UPGRADE TOOLS
We recently announced the availability of our new 32 to 64-bit technology
designed to automate the upgrade process for software applications utilizing
either Sun Microsystems' Solaris or Windows/Intel operating systems. This
represents the first of our new migration work bench tools and automates the
otherwise predominantly manual process of making changes to customers' existing
software applications so they will more fully utilize the increased capabilities
of the 64-bit operating systems. We will use our software tools in our own 32 to
64-bit upgrade "factory" and plan to license our technology to strategic
services partners.
OTHER MIGRATION TOOLS
MigraTEC is currently in the process of developing several automated "Unix to
Unix" software tools which we believe will be available for licensing by the end
of the third quarter of 1999. We also expect to have an automated code analysis
tool available for licensing during the fourth quarter of 1999.
MIGRATEC2000
The first "product" to which we have applied our enhanced technology is
MigraTEC2000, our Y2K software tool to remediate Y2K problems for client/server
applications. Our MigraTEC2000 software product utilizes a parsing technology to
perform the following: (1) an inventory of the current source code to ensure
that all lines of code in the application are present for analysis and
remediation, (2) an analysis of the code to ensure that all lines of code
containing Y2K date related fields have been identified, and (3) an automated
remediation of the code pursuant to parameters and instructions determined by
the client. The patent application we filed covered certain processes relating
to the "core" portion of our technology which was incorporated into our
MigraTEC2000 software product. Parsing technology, which our management believes
is superior to scanning technologies, is a technology that analyzes the
structural relationships contained within computer program code. The superiority
that parsing technology achieves is in the identification of not only the
program elements requiring further analysis but also the numerous and subtle
ways in which those elements interact with each other to produce secondary
effects.
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<PAGE> 28
The Y2K problem arises from the widespread use of computer programs which were
programmed using two-digit year codes when calculating dates after December 31,
1999. Many "mission critical" programs do not presently have the ability to
correctly interpret and apply date codes representing the year 2000 and later.
"00" may be interpreted as the year 1900 instead of the year 2000 causing
potentially massive information processing and reporting mistakes and the
malfunction of systems which are controlled by date codes. Industries and
software applications which may be particularly affected include those related
to financial services, insurance, transportation, health care, billing, planning
and scheduling, and represent billions of lines of code containing date-related
instructions which will need to be checked and remediated. Failure to correct
Y2K problems may result in significant portions of a company's business being
inoperable.
Originally, the Y2K issue was thought to be a "mainframe only" problem. This was
due primarily to the fact that most non-mainframe (client/server) programs had
been written within the past ten years, and, thus, were thought to be Y2K
compliant. However, in reality, a significant percentage of client/server
programs are not Y2K compliant. Since most companies have just recently begun to
recognize the potential for Y2K problems in the client/server area, they have a
limited amount of time in which to bring their programs into compliance.
Our MigraTEC2000 software and proprietary migration software technology have
attracted the interest of several services providers including IBM, Sun
Microsystems, EDS, and Reasoning Inc., as well as others interested in
partnering opportunities. During 1998, EDS, Keane Inc., Ernst & Young, and
Reasoning Inc. evaluated MigraTEC2000. Each of these companies indicated that
MigraTEC2000 is a high-quality tool designed for the remediation of
client/server applications written in C and C++. We have entered into agreements
with EDS, Computer Horizons, Metamor, Ctek, Century Services and Reasoning Inc.
involving the use of MigraTEC2000, and we anticipate that our Y2K revenues will
continue to be generated through early 2000.
COMPETITION
MigraTEC is engaged in a highly competitive segment of the data processing
industry. We compete, directly or indirectly, with a large number of companies
providing various levels of services or products comparable with those provided
by us. We compete with many firms which provide products and services similar to
our current and proposed offerings. Most of our competitors have capital, name
recognition and financial, personnel and other resources far greater than ours.
Our ability to compete effectively will depend, in part, upon our systems'
features, their cost effectiveness, our ability to maintain state-of-the-art
technology, our ability to service our products efficiently, and our success in
marketing and selling our products and services. No assurance can be given that
we will effectively compete within our market.
Industry standards with respect to the markets for the technology and products
being developed by us are continually evolving, which often results in product
obsolescence or short product life cycles. Accordingly, our ability to compete
will depend on our ability to complete development and introduce into the
marketplace our proposed products and technology, to continually enhance
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<PAGE> 29
and improve our products and technology in a timely manner, to adapt our
proposed products in order to be compatible with specific products manufactured
by others, and to successfully develop and market new products and technology.
There can be no assurance that we will be able to compete successfully, that our
competitors or future competitors will not develop technologies or products that
render our products and technology obsolete or less marketable, or that we will
be able to successfully enhance our proposed products or technology or adapt
them satisfactorily.
EMPLOYEES
As of July 30, 1999, MigraTEC employed 26 persons on a full-time basis. None of
our employees are covered by a collective bargaining agreement. We believe that
we enjoy harmonious relations with our employees. We also utilize the services
of up to 5 independent contractors, as programming consultants, on an as-needed,
project basis.
DESCRIPTION OF PROPERTY
MigraTEC leases approximately 15,000 square feet of office space at 12801 North
Stemmons Freeway, Suite 710, Farmers Branch, Texas 75234. The base rent under
our lease is $10,650 per month. Our lease expires on April 30, 2000.
MigraTEC does not currently own real property.
LEGAL PROCEEDINGS
On July 24, 1998, Carroll Independent School District filed suit against us in
District Court, Tarrant County, Texas, seeking payment for unpaid business
personal property taxes in the amount of $79,657, plus attorney's fees, court
costs, penalties and interest (Carroll Independent School District v. One Up
Corporation, Cause No. L-14690). The case is presently awaiting trial, which was
set for July 29, 1999, but has been postponed until late August 1999, as we
continue our efforts to settle the suit.
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<PAGE> 30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current executive officers, directors and significant employees of MigraTEC
and our subsidiaries are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
W. Curtis Overstreet 53 President, Chief Executive Officer
and Director
Benjamin Swirsky (1) (2) 57 Chairman of the Board and Director
Rick J. Johnson 40 Chief Operating Officer
Mark C. Myers 45 Chief Financial Officer, Secretary
and General Counsel
Joseph B. Meredith 44 Vice President of Business
Development
Deane C. Watson, Jr. (1) (2) 52 Director
Marcus R. Rowan (2) 38 Vice Chairman of the Board and
Director
Richard A. Gray, Jr. (1) 51 Director
- --------------------
</TABLE>
(1) Member of our Audit Committee.
(2) Member of our Compensation Committee.
W. CURTIS OVERSTREET. Mr. Overstreet was appointed President and Chief Executive
Officer of MigraTEC, Inc., and elected to our Board of Directors on April 10,
1997. Prior to his appointment as President, Mr. Overstreet served as a
consultant to our management for several weeks, during which time he reviewed
our management and technical expertise, the status of current client projects,
the prospects for future contracts, and also analyzed our financial situation.
The review and analysis of this information and data was used to prepare the new
business plan for MigraTEC. From October 1994 to March 1997, Mr. Overstreet was
Regional Vice President for Software AG, based in Dallas, Texas. Prior thereto,
from January 1992 to October 1994, Mr. Overstreet served as Executive Vice
President for Software Recording Corporation, based in Dallas, Texas. From
August 1987 to October 1992, Mr. Overstreet served as President of the
Dallas-based company which he founded, AutoTester, Inc. From August 1982 to
August 1987, Mr. Overstreet served as Executive Vice President of the Company he
founded, PetroWare, based in Dallas, Texas. From May 1976 to August 1982, Mr.
Overstreet served as President of the Amarillo-based company which he founded,
Computer Software Resources. Prior thereto, from February 1968 to May 1976, Mr.
Overstreet was Systems Engineer/Marketing Representative for IBM at their
offices located in Amarillo, Texas.
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<PAGE> 31
BENJAMIN SWIRSKY. Mr. Swirsky was elected to our Board of Directors in July
1997, and subsequently was elected Chairman in December 1997. Currently, Mr.
Swirsky is serving as Chairman and CEO of Nextel Group Inc., a
telecommunications company headquartered in Toronto, Canada. From 1993 to 1998,
Mr. Swirsky was the President and Chief Executive Officer of Slater Steel, Inc.,
a diversified industrial company with investments in steel production, service,
forging and hardware and trucking industries. Slater Steel is headquartered in
Toronto, Ontario, and conducts operations in Canada and the United States. From
1978 to 1993, Mr. Swirsky served in the various capacities of President, Chief
Executive Officer and Vice Chairman of Bramalea, one of North America's largest
real estate development companies. Prior thereto, from 1968 to 1978, Mr. Swirsky
of Peat, Marwick, Mitchell, Chartered Accountants ultimately becoming a senior
partner and a member of the executive committee. Mr. Swirsky currently serves on
the boards of directors of Visual Data Inc., Four Seasons Hotels Inc., P.C. Docs
Inc., Cam Vec Inc., Commercial Alcohols Inc., and Easy Access Inc.
RICK J. JOHNSON. Mr. Johnson was appointed Chief Operating Officer of MigraTEC,
Inc., on July 1, 1997, and served as our Secretary from July 1997 through March
1998. From January to March 1997, Mr. Johnson was Director of Operations Support
- - Integrated Business Solutions and thereafter also Director of Applications
Solutions for Software AG, Americas, based in Dallas, Texas. Prior thereto, from
January 1995 to December 1996, Mr. Johnson served as Business Manager - West
U.S. Area for that company. From February 1982 to January 1995, Mr. Johnson
served in various executive capacities with Andersen Consulting and its
predecessor division at Arthur Andersen & Co., based in Dallas, Texas.
MARK C. MYERS. Mr. Myers was appointed to the positions of Chief Financial
Officer, General Counsel and Secretary of MigraTEC, Inc., on April 1, 1998. From
1996 to 1997, Mr. Myers served as COO and CFO for Interactive Software, Inc., an
Oracle software consulting services and software sales company, based in Dallas,
Texas. Prior thereto, Mr. Myers served in numerous executive capacities
including President of Healthtronix from 1992 to 1996, President and founder of
United Medicorp, Inc., a high-tech medical insurance claim processing and
consulting company, from 1989 to 1992, President of Premier Services, Inc., from
1986 to 1989, Vice President and General Counsel for ARM, Inc., from 1985 to
1986, Assistant General Counsel and Director of Regulatory Affairs for U.S.
Telephone from 1982 to 1985, and a practicing attorney for Moseley, Jones, Enoch
& Martin from 1980 to 1982.
JOSEPH B. MEREDITH. Mr. Meredith was appointed Vice President of Business
Development of MigraTEC, Inc., on June 2, 1997. From January 1995 to May 1997,
Mr. Meredith was Account Executive for Software AG, Americas, based in Dallas,
Texas. Prior thereto, from August 1993 to November 1994, Mr. Meredith served as
Director of Business Development for BSG Corporation, based in Houston, Texas.
From May 1986 to August 1993, Mr. Meredith was Senior Account Executive for EDS
Corporation located in Dallas, Texas. From October 1982 to April 1986, Mr.
Meredith served as Regional Vice President for Parker North America Corporation
headquartered in Newport Beach, California.
29
<PAGE> 32
DEANE C. WATSON, JR. Mr. Watson was elected to our Board of Directors in March
1998. Currently, Mr. Watson is a practicing attorney in general business
practice with an emphasis in oil and gas, real estate and collections. Since
1992, Mr. Watson has also served as President and Managing Director of Omega
Energy Corporation, an oil and gas production company. Prior thereto, Mr. Watson
has served in numerous other capacities including residential builder/developer
from 1986 to 1989, independent petroleum landman from 1989 to 1992 and from 1980
to 1986, and Vice President/Escrow Officer of Chicago Title Company from 1973 to
1980.
MARCUS R. ROWAN. Mr. Rowan was elected to our Board of Directors as both Vice
Chairman and Director in April 1998. Presently, Mr. Rowan serves as President of
Berkshire Interests, a commercial real estate property development and
investments firm, headquartered in Dallas, Texas. Previously, Mr. Rowan has
served in other capacities with an emphasis in commercial real estate, including
commercial real estate broker for Helmsley-Spear Inc. located in New York, New
York, and Henry S. Miller Company located in Dallas, Texas. Mr. Rowan currently
serves on the board of directors of American Electromedics Corporation.
RICHARD A. GRAY, JR. Mr. Gray was elected to our Board of Directors in April
1998. From 1986 to the present, Mr. Gray has served as President of Gray & Co.
Realtors, Inc., a commercial real estate company involved in the sale,
development and management of real estate for both Asian and U.S. markets. Gray
& Co. Realtors, Inc., is headquartered in Dallas, Texas, and conducts operations
mainly in the Pacific Rim (Hong Kong, China, Philippines, Vietnam and Thailand)
and the United States. Prior thereto, from 1974 to 1986, Mr. Gray was a partner
of Hudson & Hudson, a commercial real estate company located in Dallas, Texas.
Each director is elected to hold office until the next annual meeting of
shareholders and until his successor is elected and qualified. The officers of
MigraTEC serve at the pleasure of our board of directors.
There are no family relationships among any of our executive officers or
directors.
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<PAGE> 33
BOARD COMMITTEES
Effective December 16, 1997, MigraTEC established a Compensation Committee and
an Audit Committee.
Our Compensation Committee, being comprised of a majority of independent
directors, will administer our stock option plan and make recommendations to our
full Board of Directors concerning compensation, including incentive
arrangements, of our officers and key employees. Currently, members of our
Compensation Committee include Benjamin Swirsky, Deane C. Watson, Jr., and
Marcus R. Rowan.
Our Audit Committee, being comprised of a majority of independent directors,
will review the engagement of our independent accountants and review the
independence of our accounting firm. Our Audit Committee will also review the
audit and non-audit fees of our independent accountants and the adequacy of our
internal accounting controls. Currently, members of our Compensation Committee
include Benjamin Swirsky, Deane C. Watson, Jr., and Richard A. Gray, Jr.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Act permits the indemnification of directors, employees, officers
and agents of Florida corporations. Our Articles of Incorporation indemnify our
directors and officers to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of MIGRATEC as to which indemnification is
being sought. Insofar as indemnification for liability arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of MigraTEC, pursuant to the foregoing provisions or otherwise, MigraTEC has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
COMPENSATION OF DIRECTORS
Beginning December 1, 1997, MigraTEC adopted a policy whereby Directors would be
compensated for their services at a rate of $2,000 per month. Through May 31,
1998, we paid $30,583.67 for Directors' fees. Effective June 1, 1998, we revised
our policy regarding Director compensation, adopting a policy whereby board
members will not be compensated for their services until such time that Director
compensation is re-instituted by our Board. Directors will, however, continue to
be reimbursed for expenses incurred in attending board and committee meetings
and will be indemnified against any claims arising out of his or her status as a
director of MigraTEC, including claims arising under federal and state
securities laws. In addition, Directors are eligible to receive options under
our 1999 Stock Option Plan.
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<PAGE> 34
EXECUTIVE COMPENSATION
Total cash compensation paid to all executive officers as a group for services
provided to MigraTEC in all capacities during the year ended December 31, 1998,
aggregated to $535,382. Set forth below is a summary compensation table in the
tabular format specified in the applicable rules of the Securities and Exchange
Commission.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen-
Position Period Salary Bonus sation Award(s) SARs (#) Payouts sation
- -------------- ------ ---------- ---------- ---------- ---------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Curtis 1998 $ 132,917 $ -- $ 28,404 $ -- 6,000,000 -- $ --
Overstreet, 1997 $ 64,442 $ 48,000 $ 5,483 $ -- -- -- $ 29,500
President, 1996 $ -- $ -- $ -- $ -- -- -- $ --
CEO and
Director
Rick J 1998 $ 121,833 $ -- $ -- $ -- 1,500,000 -- $ --
Johnson, COO 1997 $ 62,500 $ 15,000 $ -- $ -- -- -- $ --
1996 $ -- $ -- $ -- $ -- -- -- $ --
Mark C 1998 $ 87,500 $ -- $ -- $ 900,000 -- -- $ --
Myers, CFO 1997 $ -- $ -- $ -- $ -- -- -- $ --
and Secretary 1996 $ -- $ -- $ -- $ -- -- -- $ --
Joseph B 1998 $ 85,677 $ -- $ 16,061 $ -- 1,200,000 -- $ --
Meredith, 1997 $ 43,750 $ -- $ 14,656 $ -- -- -- $ --
V.P. of 1996 $ -- $ -- $ -- $ -- -- -- $ --
Business
Development
Richard G 1998 $ -- $ -- $ -- $ -- -- -- $ --
Dews, 1997 $ 1,500 $ -- $ -- $ -- -- -- $ --
Former 1996 $ 145,636 $ -- $ -- $ 63,650 -- -- $ --
President,
CEO and
Chairman
</TABLE>
Employment Agreements
On April 10, 1997, we entered into an employment agreement with our President
and CEO. Our agreement includes provisions for an annual base salary (currently
$140,000), with incentives to earn salary increases and bonuses to be determined
by and subject to discretion of our Board of Directors.
On July 1, 1997, we entered into an employment agreement with our Chief
Operating Officer. Our agreement includes provisions for an annual base salary
(currently $117,000), with incentives to earn salary increases and bonuses to be
determined by and subject to discretion of our Board of Directors.
On April 1, 1998, we entered into an employment agreement with our Chief
Financial Officer. Our agreement includes provisions for an annual base salary
(currently $112,500), with incentives to earn salary increases and bonuses to be
determined by and subject to discretion of our Board of Directors.
On June 2, 1997, we entered into an employment agreement with our Vice President
of Business Development. Our agreement includes provisions for an annual base
salary (currently $88,000), with incentives to earn salary increases and bonuses
to be determined by and subject to discretion of our Board of Directors, as well
as sales commissions ranging from 2% to 4% of sales as stipulated in our
agreement.
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<PAGE> 35
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Percentage
Number of Total
of Securities Options/SARs
Underlying Granted Exercise or
Options/SARs Employees in Base Price Expiration Date
Name Granted Fiscal Year Per Share Through
- ------------------------ ------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
W. Curtis Overstreet (1) 6,000,000 39.34% $ 0.20 n/a
Rick J. Johnson (2) 1,500,000 9.84% $ 0.20 n/a
Mark C. Myers 900,000 5.90% $ 0.20 n/a
Joseph B. Meredith (3) 1,200,000 7.87% $ 0.20 n/a
Deane C. Watson, Jr (4) 1,000,000 6.56% $ 0.20 May 31, 2002
Benjamin Swirsky (5) 1,200,000 7.87% $ 0.20 May 31, 2002
Marcus R. Rowan 1,100,000 7.21% $ 0.20 May 31, 2002
Richard A. Gray, Jr 1,000,000 6.56% $ 0.20 May 31, 2002
</TABLE>
(1) These options replace those which had been previously granted during
the second quarter of 1997, and have been canceled. The 1997 options:
(i) were exercisable at $0.37 per share, (ii) vested over a shorter
period of time, and (iii) contained an anti-dilutive clause that
increased the number of options available for exercise upon certain
circumstances. These new options contain no such clause. At April 15,
1998, the date the 1997 options were canceled, the number of options
that would have been available to Mr. Overstreet totaled approximately
4,300,000.
(2) These options replace those which had been previously granted during
the second quarter of 1997, and have been canceled. The 1997 options:
(i) were exercisable at $0.33 per share, (ii) vested over a shorter
period of time, and (iii) contained an anti-dilutive clause that
increased the number of options available for exercise upon certain
circumstances. These new options contain no such clause. At April 15,
1998, the date the 1997 options were canceled, the number of options
that would have been available to Mr. Johnson totaled approximately
850,000.
(3) These options replace those which had been previously granted during
the second quarter of 1997, and have been canceled. The 1997 options:
(i) were exercisable at $0.31 per share, (ii) vested over a shorter
period of time, and (iii) contained an anti-dilutive clause that
increased the number of options available for exercise upon certain
circumstances. These new options contain no such clause. At April 15,
1998, the date the 1997 options were canceled, the number of options
that would have been available to Mr. Meredith totaled approximately
850,000.
(4) These options replace those which had been previously granted during
the second quarter of 1997, and have been canceled. The 1997 grant,
which was canceled effective April 15, 1998, was for 25,000 options
exercisable at $0.35 per share vested 100% at date of grant.
(5) These options replace those which had been previously granted during
the second quarter of 1997, and have been canceled. The 1997 grant,
which was canceled effective April 15, 1998, was for 50,000 options
exercisable at $0.35 per share vested 100% at date of grant.
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<PAGE> 36
STOCK OPTION PLAN
In April 1997, we announced plans to terminate our Employee Stock Option Plan
that we had adopted effective March 25, 1996.
In 1997, we adopted a new stock option plan. The 1997 Stock Option Plan provides
for the grant of options to purchase up to 2,000,000 shares of our common stock
to employees, officers, directors, and consultants of MigraTEC. Options may be
either "incentive stock options" within the meaning of Section 422 of the United
States Internal Revenue Code of 1986, as amended, or non-qualified options.
Incentive stock options may be granted only to our employees, while
non-qualified options may be issued to non-employee directors, consultants, and
others, as well as to employees of MigraTEC.
The Plan will be administered by our Board of Directors or a committee thereof,
who determine, among other things, those individuals who shall receive options,
the time period during which the options may be partially or fully exercised,
the number of shares of common stock issuable upon the exercise of each option,
and the option exercise price.
The exercise price of an incentive stock option may not be less than the fair
market value per share of common stock on the date the option is granted. The
exercise price of a non-qualified option may be established by our Board of
Directors. The aggregate fair market value, determined as of the date the option
is granted, of common stock for which any person may be granted incentive stock
options which first become exercisable in any calendar year may not exceed
$100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to such person, 10% or more of the total
combined voting power of all classes of stock of MigraTEC (a "10% Shareholder")
shall be eligible to receive any incentive stock options under the Plan unless
the exercise price is at least 110% of the fair market value of the shares of
common stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to such limitation.
Incentive stock options may not be transferred by an optionee other than by will
or the laws of descent and distribution, and, during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
shall be entitled to exercise the option, unless otherwise determined by our
Board of Directors. Upon termination of employment of an optionee by reason of
death or permanent and total disability, such optionee's options remain
exercisable for one year thereafter to the extent such options were exercisable
on the date of such termination. No similar limitation applies to non-qualified
options.
Options under the Plan must be issued within ten years from the effective date
of the Plan, which is December 16, 1997. Incentive stock options granted under
the Plan cannot be exercised more than ten years from the date of grant.
Incentive stock options issued to a 10% Shareholder are limited to five year
terms. Options granted under the Plan generally provide for the payment of the
exercise price in cash and may provide for the payment of the exercise price by
delivery to
34
<PAGE> 37
MigraTEC of shares of common stock already owned by the optionee having a fair
market value equal to the exercise price of the options being exercised, or by a
combination of such methods. Therefore, if so provided in an optionee's options,
such optionee may be able to tender shares of common stock to purchase
additional shares of common stock and may theoretically exercise all of his
stock options with no additional investment other than the purchase of his
original shares.
Any unexercised options that expire or that terminate upon an employee's ceasing
to be employed by MigraTEC become available again for issuance under the Plan.
The Plan may be terminated or amended at any time by our Board of Directors,
except that the number of shares of common stock reserved for issuance upon the
exercise of options granted under the Plan may not be increased without the
consent of our shareholders.
Pursuant to the Plan, through February 28, 1999, we granted to members of our
management and employees options to purchase an aggregate of 1,474,792 shares of
our common stock exercisable at prices ranging from $0.35 to $0.1562,
exercisable through February 22, 2004.
Effective February 28, 1999, we terminated the 1997 Stock Option Plan, which had
not been approved by our shareholders within the time specified in the 1997
Plan, and therefore canceled all of the outstanding options previously issued
pursuant to the 1997 Plan. On March 1, 1999, we adopted a new stock option plan,
the 1999 Stock Option Plan, authorizing the issuance of incentive stock options,
non-statutory options and reload options to eligible persons as described in the
1999 Plan. Pursuant to the 1999 Plan, as of the date hereof, we have granted to
members of our management and employees options to purchase an aggregate of
1,459,036 shares of our common stock exercisable at prices ranging from $0.3438
to $0.1875 per share, exercisable through July 1, 2004.
OTHER STOCK OPTION GRANTS
In addition to options granted pursuant to our 1999 Stock Option Plan described
above, we granted options on April 1, 1998, to Mark C. Myers, our Chief
Financial Officer and Secretary, to purchase 900,000 shares of our common stock
at $0.20 per share, vesting at the rate of 1/24 each month beginning April 30,
1998, exercisable at vesting anytime during employment. On May 1, 1998, we
granted options to our three remaining executive officers to purchase an
aggregate of 8,700,000 shares of our common stock at $0.20 per share, their
options being 50% vested on the date of grant and vesting an additional 1/24
each month thereafter, exercisable at vesting anytime during employment. At that
time, we also granted options to our four non-employee directors to purchase an
aggregate of 4,300,000 shares of our common stock at $0.20 per share, their
options vesting at the rate of 1/24 each month beginning May 31, 1998,
exercisable at vesting through May 31, 2002. In addition, we granted options to
Jeffrey C. Manchester, a former Director of MigraTEC, on June 19, 1997, to
purchase 25,000 shares of our common stock at $0.35 per share, fully vested at
grant date, exercisable on or prior to June 19, 2000.
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<PAGE> 38
CERTAIN TRANSACTIONS
The following section describes transactions since inception to which we or our
subsidiaries were a party and in which any of our officers, directors, director
nominees, or principal shareholders had a direct or indirect interest.
During the year ended December 31, 1995, we advanced $984,013 to Mr. Richard G.
Dews, our then President/CEO and majority shareholder, pursuant to provisions
contained in Mr. Dews' employment agreement. The advance was subject to an
annual interest rate of 7 1/2% which was accrued as an additional advance.
During the years ended December 31, 1996 and 1995, the advance earned interest
income of $33,522 and $51,095, respectively. The employment agreement called for
the advance to be repaid during the three year period ended December 31, 1998.
However, on June 14, 1996, we received into our treasury 854,903 common shares,
valued at $1.25 per share, in exchange for early retirement of the shareholder
advances, including accrued interest, totaling $1,068,629, comprised of $984,013
principal plus $84,616 accrued and unpaid interest earned on the advance through
June 14, 1996.
On March 6, 1996, we entered into an agreement to pay $100,000 over a 12 month
period to American Technology Associates Corporation, the President of which,
Mr. Richard Darrell, was a former employee of MigraTEC, in exchange for services
rendered. As of the date hereof, all amounts due under the agreement have been
paid in full.
During 1996, the employment agreement with Mr. Richard G. Dews, our former
President/CEO/majority shareholder, which, among other provisions, called for
annual compensation of $600,000 from January 1, 1996, to December 31, 1998, was
set aside pending renegotiation. At that time, Mr. Dews agreed to waive the
annual compensation as called for in the agreement and to accept as compensation
only those amounts which were actually received.
During 1996, Mr. Richard G. Dews, MigraTEC`s former President/CEO, and Mr. H.
Wayne Sanderson, MigraTEC`s former Vice-President and Secretary, advanced
Gamounts to us totaling $72,000. As of the date hereof, all amounts due relative
to these two advances have been paid in full.
During 1996 and 1997, we had back wages due to Mr. H. Wayne Sanderson, our
former Vice-President and Secretary, of approximately $35,500. As of the date
hereof, all amounts due relative to these back wages have been paid in full.
During January and February of 1998, we entered into short-term notes payable
with three directors with varying terms and maturities totaling $254,000.
Additional terms and conditions of the loan agreements included (1) a conversion
feature whereby the loans could be converted to shares of our common stock at
$0.20 per share and (2) the issuance of warrants to purchase an aggregate of
175,000 shares of our common stock at prices ranging from $0.20 to $0.01 per
share. On March 26, 1998, we issued 1,000,000 shares of our common stock to the
three directors in connection with our first March 1998 private offering and
pursuant to the conversion feature contained in the loan agreements. The
remaining balance of the notes payable not
36
<PAGE> 39
converted and accrued interest were paid in full effective April 22, 1998. On
March 30 and 31, 1999, we issued 75,000 shares of our common stock to two of the
directors as a result of the exercise of warrants to purchase shares at $0.20
per share.
In addition to the directors discussed above, we issued 500,000 shares of our
common stock to a director at $0.20 per share under terms of our first March
1998 private offering which commenced March 9, 1998.
Effective March 25, 1998, we reached an agreement with our former principal
executive officer, Mr. Richard G. Dews, regarding actions of Mr. Dews as
Chairman and CEO and efforts by Mr. Dews to sell shares of our common stock,
originally acquired and restricted pursuant to Rule 144 of the Act, and claims
made against us by Mr. Dews totaling approximately $640,000. Pursuant to the
agreement, which was finalized on March 31, 1998, (1) we acquired from Mr. Dews
9,400,000 shares of our common stock for $740,000, (2) we agreed to file a
registration statement or take other appropriate steps to allow free trading of
the remaining shares owned by Mr. Dews, (3) we issued to Mr. Dews a transferable
warrant to purchase up to 600,000 shares of our unregistered and free trading
common stock, subject to Section 144 rules and regulations, at $0.25 per share,
(4) we paid to Mr. Dews $60,000 in full satisfaction, including principal and
accrued interest, of amounts previously loaned to us by Mr. Dews, (5) we
released Mr. Dews from all claims arising from or relating to our employment of
Mr. Dews or the promissory note from us to Mr. Dews, (6) Mr. Dews released us
from all claims, estimated by Mr. Dews to total approximately $640,000, arising
from or relating to our employment of Mr. Dews or the promissory note from us to
Mr. Dews, including back wages relating to accrued but unused vacation pay, and
(7) pursuant to a promissory note dated March 25, 1998, no stated interest, we
agreed to pay to Marilyn Johnson the amount of $68,250 in installments of $1,000
for 68 months on the tenth of each month beginning April 10, 1998, with the
final payment of $250 being due on December 10, 2003. Attorney fees incurred by
us as a result of negotiating the settlement with Mr. Dews were comprised of (1)
the transfer of 390,454 shares of our common stock and (2) $210,523 paid in
cash. One-half of the attorney fees paid related to this settlement were paid to
a director of MigraTEC, acting in the capacity of our legal counsel.
In addition to the attorney fees discussed above, for the years ended December
31, 1998 and 1997, we incurred fees totaling $37,639 and $21,583, respectively,
related to legal services which were provided by a director of MigraTEC, acting
in the capacity of our legal counsel.
Effective April 8, 1998, we issued 3,500,000 shares of our common stock to Tom
H. Cabe at $0.20 per share under terms of our second March 1998 private offering
which commenced March 30, 1998.
Effective July 1, 1998, we granted to three directors of MigraTEC, who had
either been involved as placement agents in our two March 1998 private stock
offerings or who had furnished consulting services to us, warrants to purchase
up to an aggregate of 1,683,250 shares of our common stock at $0.20 per share.
The warrants were fully vested at the date of grant, and are exercisable on or
before July 1, 2001.
37
<PAGE> 40
Effective November 27, 1998, we entered into a short-term loan agreement whereby
an officer loaned us $30,000, bearing interest at 16% per annum, payable
December 31, 1998. Additional terms and conditions of the loan agreement
included payment of a $600 loan origination fee and issuance of a two-year
warrant to purchase 3,000 shares of our common stock at $0.01 per share. The
loan, including fees and accrued interest, was paid in full, and the warrant was
exercised effective February 8, 1999.
During 1998, we paid fees totaling $24,584 to four directors in their capacity
as directors.
Effective January 29, 1999, we entered into a short-term loan agreement whereby
an officer loaned us $30,000, bearing interest at 16% per annum. Additional
terms and conditions of the loan agreement included payment of a $600 loan
origination fee and issuance of a two-year warrant to purchase 3,000 shares of
our common stock at $0.01 per share. The loan, including fees and accrued
interest, was paid in full, on March 15, 1999, and the warrant was exercised
effective February 8, 1999.
Effective February 8, 1999, we entered into a short-term loan agreement whereby
a director loaned us $25,000, bearing interest at 10% per annum, payable
February 8, 2000. Additional terms and conditions of the loan agreement included
the issuance of a two-year warrant to purchase 50,000 shares of our common stock
at $0.01 per share. The warrant was exercised effective February 25, 1999.
Effective March 15, 1999, we issued 160,000 shares of our common stock to an
officer at $0.125 per share under terms of a private offering. In a related
transaction, we granted to the officer a two-year warrant to purchase 32,000
shares of our common stock at $0.20 per share.
Effective March 16, 1999, we issued 784,000 shares of our common stock to Tom H.
Cabe at $0.125 per share under terms of a private offering. In a related
transaction, we granted to Mr. Cabe a two-year warrant to purchase 156,800
shares of our common stock at $0.20 per share.
From May 18 to July 16, 1999, we issued 3,600,000 shares of our common stock to
Tom H. Cabe at $0.125 per share under terms of a private offering. In a related
transaction, we granted to Mr. Cabe two-year warrants to purchase up to an
aggregate of 560,000 shares of our common stock at $0.20 per share exercisable
through July 16, 2001.
38
<PAGE> 41
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date hereof, certain information
regarding our common stock beneficially owned by (i) each shareholder known by
us to be the beneficial owner of five (5%) percent or more of our outstanding
common stock, (ii) each of our officers and directors, and (iii) all executive
officers and directors as a group. As of the date hereof, there are 51,928,924
shares of our common stock outstanding.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Percentage of Outstanding
Name (1) Ownership (2) Shares Owned (2)
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Tom H. Cabe 8,600,800 (3) 11.79 %
W. Curtis Overstreet 5,125,000 (4) 7.03 %
Benjamin Swirsky 1,547,500 (5) 2.12 %
Rick J. Johnson 1,281,250 (6) 1.76 %
Mark C. Myers 1,068,227 (7) 1.46 %
Joseph B. Meredith 1,025,000 (8) 1.41 %
Deane C. Watson, Jr. 1,628,560 (9) 2.23 %
Marcus R. Rowan 2,502,417 (10) 3.43 %
Richard A. Gray, Jr. 2,958,333 (11) 4.06 %
All directors and executive officers
as a group (8 persons) 17,136,287 (12) 23.50 %
</TABLE>
- --------------------------------
(1) Unless otherwise indicated below, the address of each person is c/o
MigraTEC at 12801 North Stemmons Freeway, Suite 710, Farmers Branch,
Texas 75234. Unless otherwise noted, we believe that all persons named
in the table have sole voting and investment power with respect to all
the shares of common stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Proxy
Statement upon the exercise of warrants or options. Each beneficial
owner's percentage ownership is determined by assuming that warrants or
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from the date of this
Proxy Statement have been exercised.
(3) Mr. Cabe's address is 5114 Yolanda Lane, Dallas, Texas 75229. Includes
716,800 shares of common stock underlying warrants exercisable through
July 15, 2001, at an exercise price of $0.20 per share.
(4) Mr. Overstreet is our current President and CEO, as well as a Director.
Includes 5,125,000 shares of common stock underlying options
exercisable at $0.20 per share anytime during employment.
39
<PAGE> 42
(5) Mr. Swirsky is our current Chairman. Includes 1,047,500 shares of
common stock underlying options and warrants exercisable through May
31, 2002, at an exercise price of $0.20 per share.
(6) Mr. Johnson is our current COO. Includes 1,281,250 shares of common
stock underlying options exercisable at $0.20 per share anytime during
employment.
(7) Mr. Myers is our current CFO and Secretary. Includes: (i) 675,000
shares of common stock underlying options exercisable at $0.20 per
share anytime during employment and (ii) 32,000 shares of common stock
underlying warrants exercisable through March 15, 2001, at an exercise
price of $0.20 per share.
(8) Mr. Meredith is our current Vice President of Business Development.
Includes 1,025,000 shares of common stock underlying options
exercisable at $0.20 per share anytime during employment.
(9) Mr. Watson is a Director of MigraTEC. Includes: (i) 733,333 shares of
common stock underlying options and warrants exercisable through May
31, 2002, at an exercise price of $0.20 per share, (ii) 100,000 shares
of common stock underlying warrants exercisable through January 29,
2000, at an exercise price of $0.01 per share, (iii) 200,000 shares of
common stock owned by The Watson Family Trust, and (iv) 100,000 shares
of common stock owned by The Watson Family Trust underlying warrants
exercisable through September 9, 2001, at an exercise price of $0.10
per share.
(10) Mr. Rowan is a Director of MigraTEC. Includes 2,102,417 shares of
common stock underlying options and warrants exercisable through May
31, 2002, at an exercise price of $0.20 per share.
(11) Mr. Gray is a Director of MigraTEC. Includes: (i) 708,333 shares of
common stock underlying options exercisable through May 31, 2002, at an
exercise price of $0.20 per share, (ii) 100,000 shares of common stock
owned by Brenda Gray, and (iii) 100,000 shares of common stock owned by
The Gray Family Trust.
(12) Includes: (i) 12,829,833 shares of common stock underlying options and
warrants exercisable through May 31, 2002, at an exercise price of
$0.20 per share, (ii) 100,000 shares of common stock underlying
warrants exercisable through January 29, 2000, at an exercise price of
$0.01 per share, (iii) 100,000 shares of common stock owned by The
Watson Family Trust underlying warrants exercisable through September
9, 2001, at an exercise price of $0.10 per share, (iv) 200,000 shares
of common stock owned by The Watson Family Trust, (v) 100,000 shares of
common stock owned by Brenda Gray, and (vi) 100,000 shares of common
stock owned by The Gray Family Trust.
40
<PAGE> 43
SELLING SECURITY HOLDERS
STOCK OWNERSHIP
The following table sets forth the name of each selling security holder, the
amount of shares of common stock, including shares of common stock underlying
the warrants, held directly or indirectly by each holder as of July 30, 1999,
the amount of shares of common stock to be offered by each such holder, the
amount of common stock to be owned by each such holder following sale of such
shares of common stock, and the percentage of shares of common stock to be owned
by each such holder following completion of such offering. As of the date of
this prospectus, there are 51,928,924 shares of our common stock outstanding.
<TABLE>
<CAPTION>
Percentage to
Number of Shares to be Owned be Owned
Name of Selling Shares Shares to be After After
Security Holder Owned Offered Offering Offering
- ------------------------- --------- ------------ ------------------ -------------
<S> <C> <C> <C> <C>
455885 B.C. Limited 100,000 100,000 0 0
Richard A. Adler 100,000 100,000 0 0
Elias Argyropoulos 25,000 25,000 0 0
Atlas, Pearlman, Trop 71,429 71,429 0 0
& Borkson P.A
Philip Barretti 152,858 152,858 0 0
Connie Benesch 25,000 25,000 0 0
Larry Berkin 175,000 175,000 0 0
Alan Best 100,000 100,000 0 0
Benjamin Blech 25,000 25,000 0 0
Greg Bonkowski 25,000 25,000 0 0
Robert R. Booker 150,000 150,000 0 0
Daniel Boutcher 33,500 33,500 0 0
Brillco Inc. 25,000 25,000 0 0
Browning Living Trust 50,000 50,000 0 0
A.R. Campbell 100,000 100,000 0 0
Matthew Campbell 382,000 382,000 0 0
James Carpenter 71,429 71,429 0 0
Cautious Ventures 71,429 71,429 0 0
Chao Ming Chang 100,000 100,000 0 0
John Clark 500,000 500,000 0 0
Harvey H. Conger Trust #2 250,000 250,000 0 0
Angela Coppola 125,000 125,000 0 0
James Craig 71,429 71,429 0 0
Blakeney C. Davenport 500,000 500,000 0 0
Robert Davenport 750,000 750,000 0 0
David Dunning
Children's Trust 250,000 250,000 0 0
Leslie David 196,429 196,429 0 0
Richard G. Dews 1,800,000 600,000 1,200,000 *
Dreher Living Trust 25,000 25,000 0 0
Robert Enright 100,000 100,000 0 0
Richard Feldman 214,287 214,287 0 0
</TABLE>
41
<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C>
Fred Fialkow 71,429 71,429 0 0
Richard Friedman 285,716 285,716 0 0
Henry Gellis 181,000 181,000 0 0
GHK Corporation 2,400,000 2,400,000 0 0
Lloyd G. Glazer 50,000 50,000 0 0
Brenda Gray 100,000 100,000 0 0
Gray Family Trust 100,000 100,000 0 0
George D. Gray 50,000 50,000 0 0
Richard A. Gray, Jr 2,050,000 2,050,000 0 0
Carrie Lee Green 100,000 100,000 0 0
James Haberman 71,429 71,429 0 0
Bervin Hatton 250,000 250,000 0 0
C.R. Hefner, Jr 1,437,500 1,437,500 0 0
Barry & Robin Helfan 150,000 150,000 0 0
Robin Helfan 35,715 35,715 0 0
Helmbrist Investments,
Ltd. 246,429 246,429 0 0
Han Henning 142,858 142,858 0 0
Lorry Holotik 200,000 200,000 0 0
Charles B. Humphrey 125,000 125,000 0 0
Sam W. Hunsaker 125,000 125,000 0 0
Herbert L. Hutner 40,000 40,000 0 0
Innovative Research
Associates, Inc. 35,000 35,000 0 0
Sheldon Inwentash 300,000 300,000 0 0
Charles F. Irish, Jr 125,000 125,000 0 0
Anders Jansson 71,429 71,429 0 0
Roy Johnson 25,000 25,000 0 0
Lance Johnston 640,000 640,000 0 0
Maurice Karlin 71,429 71,429 0 0
Edward P. King 126,000 125,000 1,000 *
David J. Knust IRA 50,000 50,000 0 0
Debbie A. Knust IRA 50,000 50,000 0 0
Bill R. Kochwelp 137,500 137,500 0 0
Chana Keussous 200,000 200,000 0 0
Elana Keussous 200,000 200,000 0 0
Richard Kuna 25,000 25,000 0 0
Benjamin Kraiem 40,000 40,000 0 0
Hal Kraiem 40,000 40,000 0 0
Jennifer Kraiem 40,000 40,000 0 0
Yehezkel Kraiem 280,000 280,000 0 0
Laudau Trust 142,858 142,858 0 0
Walter Lawrence 25,000 25,000 0 0
Jiin Jen Lee 71,429 71,429 0 0
Fred D. Levine 100,000 100,000 0 0
Paul Lewis 50,000 50,000 0 0
Bruce Light 250,000 250,000 0 0
Larry & Bruce Light 71,429 71,429 0 0
Jeffrey Manchester 96,429 96,429 0 0
Jeffrey Markowitz 285,716 285,716 0 0
Ronda Mathews 100,000 100,000 0 0
</TABLE>
42
<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C>
Michelle McDonough 100,000 100,000 0 0
Oliver M. Mendell 40,000 40,000 0 0
James W. Meredith 275,000 275,000 0 0
Dr. Milton Mintz 125,000 125,000 0 0
MJ Capital Partners 82,500 82,500 0 0
Steven J. Murfin 150,000 150,000 0 0
Charlotte R. Nelson 25,000 25,000 0 0
Noble Investment Compan 704,878 704,878 0 0
Darell Norris 142,858 142,858 0 0
Norris Family Trust 100,000 100,000 0 0
Allen Notowitz 250,000 250,000 0 0
Odds on Inc. Retirement 200,000 200,000 0 0
John V. Overstreet 50,000 50,000 0 0
Scott Paterson 500,000 500,000 0 0
Sean R. Phinney 25,000 25,000 0 0
Phoenix Energy
Companies, Inc. 3,500,000 3,500,000 0 0
Tom Pollock 85,714 85,714 0 0
Porter Partners, L.P. 1,500,000 1,500,000 0 0
W. Christopher Price,
S.S.P 125,000 125,000 0 0
Pyrenees Capital Ltd. 142,858 142,858 0 0
Quarry Bay Investments 100,000 100,000 0 0
Remiad Management
Securities Ltd. 50,000 50,000 0 0
Denae Richards 50,000 50,000 0 0
Charles A. & Ann Q
Richey 250,000 250,000 0 0
Diane Duvall Rogers 250,000 250,000 0 0
John Rooney 71,429 71,429 0 0
Marci Rosenbaum 50,000 50,000 0 0
Stephen Rosenbaum 10,000 10,000 0 0
Norman Rothman 71,429 71,429 0 0
Norman & Caryl Rothman 71,429 71,429 0 0
Marcus Rowan 1,860,750 1,860,750 0 0
Russell Post Properties 71,429 71,429 0 0
Omer Schrock 79,829 71,429 8,400 *
Dennis Schubert 35,715 35,715 0 0
Ed Searcy 70,000 70,000 0 0
Seaview Investment
Group Trust 100,000 100,000 0 0
David M. Sherer 100,000 100,000 0 0
Shelly L. Skeen 20,000 20,000 0 0
Thomas A. Slamecka 250,000 250,000 0 0
Sydney Smith 21,000 21,000 0 0
J.C. Sterquell 625,000 625,000 0 0
Linda C. Strugar 30,000 30,000 0 0
Benjamin Swirsky 697,500 697,500 0 0
TDF Management 71,429 71,429 0 0
Joseph H. Thal 125,000 125,000 0 0
Kenneth & Mollie Torbik 50,000 50,000 0 0
Huitt Tracey 25,000 25,000 0 0
Richard B. Trull 50,000 50,000 0 0
N. Mark Varel 100,000 100,000 0 0
</TABLE>
43
<PAGE> 46
<TABLE>
<S> <C> <C> <C> <C>
Paul Varrick 25,000 25,000 0 0
James Vervack 200,000 200,000 0 0
Lars Wahlin 142,858 142,858 0 0
Deane Watson, Jr 375,000 375,000 0 0
Watson Family Trust 300,000 300,000 0 0
Joseph Wendling 12,500 12,500 0 0
Lonnie L. Whiddon, M.D 2,500,000 2,500,000 0 0
Rick & Glenna Williams 50,000 50,000 0 0
Janet Witter 47,250 47,250 0 0
Ya Ting Yan 100,000 100,000 0 0
Ying Yang 50,000 50,000 0 0
Fei Zhuang 71,429 71,429 0 0
------------------------
Total 35,780,869 34,571,469
========================
</TABLE>
- ----------------------------
* Less than 2%.
(1) In April 1996, we sold 91,000 shares of our common stock at prices
between $1.50 and $1.75 per share for a total of $141,750 to two
executive level employees. All of the shares of common stock included
in this issuance are included in the shares of common stock listed
above to be sold by the selling security holders.
(2) In December 1996, we issued 15,750 shares of our common stock at $2.00
per share for a total of $31,500 to an executive level employee
pursuant to a stock option agreement dated July 31, 1996. All of the
shares of common stock included in this issuance are included in the
shares of common stock listed above to be sold by the selling security
holders.
(3) In December 1996, we completed our $550,000 private offering of 7%
convertible subordinated debentures to accredited and/or sophisticated
investors. Pursuant to terms of our offering, in January and February
1997, all of the debentures were converted at per share prices of
$0.09125 and $0.04875, resulting in the issuance of 10,291,534 shares
of our common stock. The offering was conducted by Noble Investment
Company of Palm Beach which acted as the placement agent for the
offering. In connection therewith, Noble, in consideration for serving
as the placement agent for the offering, received: (i) warrants to
purchase 204,878 shares of common stock exercisable at $0.25625 per
share and (ii) warrants to purchase 500,000 shares of common stock
exercisable at $0.40 per share. Only the shares of common stock
underlying the aforementioned warrants are included in the shares of
common stock listed above to be sold by the selling security holders.
(4) In June 1997, we granted a warrant to purchase up to 10,000 shares of
our common stock at $0.35 per share to the holder of a short-term note.
All of the shares of common stock underlying the aforementioned warrant
are included in the shares of common stock listed above to be sold by
the selling security holders.
44
<PAGE> 47
(5) In June 1997, we granted a warrant to purchase up to 25,000 shares of
our common stock at $0.35 per share to Jeffrey C. Manchester, then a
director of MigraTEC. All of the shares of common stock underlying the
aforementioned warrant are included in the shares of common stock
listed above to be sold by the selling security holders.
(6) In September 1997, we issued 60,000 shares of our common stock at $0.01
per share for a total of $600 to the holder of a short-term note
pursuant to a stock option agreement dated December 15, 1996. All of
the shares of common stock included in this issuance are included in
the shares of common stock listed above to be sold by the selling
security holders.
(7) In September 1997, we granted a warrant to purchase up to 240,000
shares of our common stock at $0.70 per share to a consultant. All of
the shares of common stock underlying the aforementioned warrant are
included in the shares of common stock listed above to be sold by the
selling security holders.
(8) In October 1997, we completed our $500,000 private placement offering
of our common stock at per share prices of $0.25 and $0.30 resulting in
the issuance of 1,832,000 shares to 11 individual investors and the
finder for the transaction. All of the shares of common stock included
in this private offering are included in the shares of common stock
listed above to be sold by the selling security holders.
(9) In November 1997, we completed our $1,112,500 private offering of
non-convertible 10% senior secured promissory notes, including warrants
to purchase an aggregate of 3,178,591 shares of our common stock at
$0.35 per share, to accredited and/or sophisticated investors. The
offering was conducted by Noble Investment Company of Palm Beach which
acted as the placement agent for the offering. In connection therewith,
Noble, in consideration for serving as the placement agent for the
offering, received $127,938. All of the shares of common stock
underlying the aforementioned warrants are included in the shares of
common stock listed above to be sold by the selling security holders.
(10) During the first quarter of 1998, we issued warrants to purchase up to
an aggregate of 1,810,000 shares of our common stock to the holders of
several short-term notes. The warrants are exercisable at per share
prices ranging from $0.01 to $0.20. All of the shares of common stock
underlying the aforementioned warrants are included in the shares of
common stock listed above to be sold by the selling security holders.
(11) In February 1998, we sold 125,000 shares of our common stock at $0.20
per share for a total of $25,000 to an individual investor. All of the
shares of common stock included in this issuance are included in the
shares of common stock listed above to be sold by the selling security
holders.
45
<PAGE> 48
(12) In March 1998, we granted a transferable warrant to purchase up to
600,000 shares of our common stock at $0.25 per share to Mr. Richard G.
Dews, MigraTEC'S former President, CEO and majority shareholder. All of
the shares of common stock underlying the aforementioned warrant are
included in the shares of common stock listed above to be sold by the
selling security holders.
(13) In May 1998, we completed our $4,500,500 private placement offerings of
our common stock at $0.20 per share resulting in the issuance of
22,502,500 shares to 82 individual investors and warrants to purchase
up to an aggregate of 2,147,750 shares of our common stock to the
various finders for the transaction exercisable at $0.20 per share. All
of the shares of common stock included in this private offering and
underlying the aforementioned warrants are included in the shares of
common stock listed above to be sold by the selling security holders.
(14) In September 1998, we completed our $307,500 private offering of our
common stock to 14 individual investors at $0.20 per share resulting in
the issuance of 1,537,500 shares. In addition, we issued warrants to
purchase an aggregate of 1,000,000 shares of our common stock at $0.10
per share. All of the shares of common stock included in this private
offering and underlying the aforementioned warrants are included in the
shares of common stock listed above to be sold by the selling security
holders.
MigraTEC has undertaken to maintain the Registration Statement current for a
period of not less than nine months from the effective date of the Registration
Statement of which this prospectus is a part in order that sales of shares of
common stock may be made by the selling security holders. MigraTEC has agreed to
pay for all costs and expenses incident to the issuance, offer, sale and
delivery of the common stock, including, but not limited to, all expenses and
fees of preparing, filing and printing the Registration Statement and prospectus
and related exhibits, amendments and supplements thereto, and mailing of such
items. MigraTEC will not pay selling commissions and expenses associated with
any such sales by the selling security holders. MigraTEC has agreed to indemnify
the selling security holders against civil liabilities including liabilities
under the Securities Act of 1933. The selling security holders have advised us
that sales of shares of their common stock may be made from time to time by or
for the accounts of the selling security holders in one or more transactions in
the over-the-counter market, in negotiated transactions or otherwise, at prices
related to the prevailing market prices or at negotiated prices.
46
<PAGE> 49
PLAN OF DISTRIBUTION
The shares offered hereby by the selling security holders may be sold from time
to time by the selling security holders, or by pledgees, donees, transferees or
other successors in interest. Such sales may be made on one or more exchange, or
in the over-the-counter market, or otherwise at prices and at terms then
prevailing, or at prices related to the then current market price, or in
negotiated transactions. The shares may be sold by one or more of the following
methods, including, without limitation: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face or other direct transactions between the selling security
holders and purchasers without a broker-dealer or other intermediary. In
effecting sales, broker-dealers or agents engaged by the selling security
holders may arrange for other broker-dealers or agents to participate. Such
broker-dealers may receive commissions or discounts from the selling security
holders in amounts to be negotiated immediately prior to the sale. Such
broker-dealers and agents and any other participating broker-dealers or agents
may be deemed to be "underwriters" within the meaning of the Act in connection
with such sales. In addition, any securities covered by this prospectus that
qualify for sale pursuant to Rule 144 might be sold under Rule 144 rather than
pursuant to this prospectus.
Upon MigraTEC being notified by the selling security holders that any material
arrangement has been entered into with a broker-dealer, agent or underwriter for
the sale of shares through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker-dealer, agent
or underwriter, a supplemented prospectus will be filed, if required, pursuant
to Rule 424(c) under the Act, disclosing (a) the name of each such
broker-dealer, agent or underwriter, (b) the number of shares involved, (c) the
price at which such shares were sold, (d) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), agent(s) or underwriter(s) or
other items constituting compensation or indemnification arrangements with
respect to particular offerings, where applicable, (e) that such
broker-dealer(s), agent(s) or underwriter(s) did not conduct any investigation
to verify the information set out or incorporated by reference in this
prospectus, as supplemented, and (f) other facts material to the transaction.
47
<PAGE> 50
DESCRIPTION OF SECURITIES
GENERAL
The following description of the material terms of MigraTEC'S common stock is
subject to the Florida Act and to the provisions contained in MigraTEC'S
Articles of Incorporation, as amended, and By-Laws.
Our authorized capital stock consists of 200,000,000 shares of common stock, no
par value, and 1,000,000 shares of redeemable convertible 12% preferred stock,
$1,000.00 par value. Immediately prior to the offering, we had outstanding
51,928,924 shares of common stock and no shares of redeemable preferred stock.
MigraTEC has 790 shareholders of record.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders, and are not entitled
to cumulate their votes in the election of directors. This means that holders of
more than 50% of shares voting for the election of directors can elect all of
our directors. The holders of 50% of our outstanding common stock constitute a
quorum at any meeting of shareholders, and the vote by the holders of a majority
of the outstanding shares are required to effect certain fundamental corporate
changes, such as liquidation, merger or amendment of our Articles of
Incorporation.
Our common stock has no preemptive or other subscription rights and there are no
conversion rights or redemption or sinking fund provisions. Shares of common
stock are not liable for further call or assessment.
Holders of shares of our common stock are entitled to receive ratably any
dividends as may be declared from time to time by our Board of Directors in its
discretion from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of MigraTEC, holders of our common stock are entitled
to share ratably in all assets remaining after payment of liabilities and
distribution to holders of preferred stock, if any.
PREFERRED STOCK
We are authorized to issue up to 1,000,000 shares of redeemable convertible 12%
preferred stock, $1,000.00 par value per share, of which no shares are
outstanding as of the date hereof. In addition to the redeemable preferred
stock, preferred stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by our Board of Directors, without
further action by shareholders, and may include voting rights, including the
right to vote as a series on particular matters, preferences as to dividends and
liquidation, conversion rights, redemption rights, and sinking fund provisions.
Our issuance of any preferred stock could adversely affect the rights of our
holders of common stock and, therefore, reduce the value of our common stock.
The ability of our Board of Directors to issue preferred stock could discourage,
delay or prevent a takeover of MigraTEC.
48
<PAGE> 51
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
MigraTEC may be subject to the control-share acquisition provisions of Section
607.0902 of the Florida Act.
The control share acquisition provisions generally provide that control shares
of an issuing public corporation acquired in a control share acquisition have no
voting rights until voting rights are granted by a resolution approved by a
majority of shares entitled to vote excluding control shares. Control share
acquisition provisions apply to "Issuing Public Corporations" which are defined
to include corporations with: (i) 100 or more shareholders, excluding all
nominees or brokers; (ii) principal offices in Florida; and (iii) more than 10%
of its shares owned by Florida residents.
"Control shares" are defined as shares that, when acquired and added to other
shares owned by a person, enable that person to exercise voting power with
respect to shares of an issuing public corporation within the ranges of
one-fifth to one-third, one-third to one-half, and one-half or more of the
outstanding voting power. This term does not include all shares owned by the
person but only those shares acquired to put the shareholder "over the top" with
respect to that particular range. The Florida Act provides that shares acquired
within any 90-day period either before or after purchase are considered to be
one acquisition. Approval of voting rights requires: (i) approval by each class
entitled to vote separately by majority vote and (ii) approval by each class or
series entitled to vote separately by a majority of all votes entitled to be
cast by that group excluding all control shares.
If an acquiring person proposes to make or has made a control share acquisition,
he may deliver to the issuing public corporation an acquiring person's statement
("APS"). The acquiring person may then request that the issuing public
corporation call a special meeting of the shareholders at the acquiring person's
expense to consider granting rights to the control shares. If no APS has been
filed, any control shares acquired in a control share acquisition by such person
may, after 60 days has passed since the last acquisition of control shares, be
redeemed at their fair market value. If an APS is filed, the shares are not
subject to redemption unless the shares are not accorded full voting rights by
shareholders. The effect and intent of the control share acquisition provision
is to deter corporate takeovers. Therefore, it is more likely than not that
control of MigraTEC will remain in the hands of the existing principal
shareholders. See "Principal Shareholders."
TRANSFER AGENT
The transfer agent for MigraTEC is Interwest Transfer Company, P.O. Box 17136,
Salt Lake City, Utah 84117.
49
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, 51,928,924 shares of our common stock are
outstanding of which 7,164,000 shares will be "restricted securities," as such
term is defined under the Securities Act of 1933, exclusive of our common stock
to be sold pursuant to the Registration Statement of which this prospectus is a
part.
In general, Rule 144, as presently in effect, promulgated under the Act, permits
a shareholder of MigraTEC who has beneficially owned restricted shares of common
stock for at least one year to sell without registration, within any three-month
period, such number of shares not exceeding the greater of 1% of the then
outstanding shares of common stock or, if the common stock is quoted on NASDAQ,
the average weekly trading volume over a defined period of time, assuming
compliance by MigraTEC with certain reporting requirements of Rule 144.
Furthermore, if the restricted shares of common stock are held for at least two
years by a person not affiliated with MigraTEC (in general, a person who is not
an executive officer, director or principal shareholder of Migratec during the
three-month period prior to resale), their restricted shares can be sold without
any volume limitation. Any sales of shares by shareholders pursuant to Rule 144
may have a depressive effect on the price of our common stock.
LEGAL MATTERS
The validity of the issuance of our securities offered hereby will be passed
upon for us by Atlas, Pearlman, Trop & Borkson, P.A., Fort Lauderdale, Florida.
Atlas, Pearlman, Trop & Borkson, P.A., which is listed as a selling security
holder herein, owns 71,429 shares of our common stock.
EXPERTS
Our financial statements appearing in this prospectus have been audited by King
Griffin & Adamson P.C., independent certified public accountants, to the extent
and for the periods set forth in their report appearing elsewhere herein, which
contains an explanatory paragraph raising substantial doubt as to our ability to
continue as a going concern, and are included herein in reliance upon their
report, given upon the authority of their firm as experts in accounting and
auditing.
50
<PAGE> 53
ADDITIONAL INFORMATION
We intend to furnish to our shareholders annual reports, which will include
financial statements audited by independent accountants, and other periodic
reports as we may determine to furnish or as may be required by law, including
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended.
We have filed with the Securities and Exchange Commission, 450 Fifth Street
N.W., Washington D.C. 20549, a Registration Statement on Form SB-2 under the
Securities Act with respect to our securities offered hereby. This prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits thereto, as permitted by the rules and regulations of the
commission. For further information, reference is made to the Registration
Statement and to the exhibits filed therewith. Statements contained in this
prospectus as to the contents of any contract or other document which has been
filed as an exhibit to the Registration Statement are qualified in their
entirety by reference to such exhibits for a complete statement of their terms
and conditions. The Registration Statement and the exhibits thereto may be
inspected without charge at the offices of the commission and copies of all or
any part thereof may be obtained from the commission's principal office at 450
Fifth Street N.W., Washington D.C. 20549, or at certain of the regional offices
of the commission located at 7 World Trade Center, 13th Floor, New York, New
York 10048, or 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
upon payment of the fees prescribed by the commission. Electronic reports and
other information filed through the Electronic Data Gathering, Analysis, and
Retrieval System are publicly available through the commission's website
(http://www.sec.gov). In addition, following approval of our common stock for
quotation on The Nasdaq SmallCap Market, reports and other information
concerning MigraTEC may be inspected at the office of the National Association
of Securities Dealers, Inc., 1735 K Street N.W., Washington D.C. 20006.
51
<PAGE> 54
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
AUDITED Financial Statements
Consolidated Balance Sheets at December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997 F-4
Consolidated Statements of Stockholders' (Deficit) for the Years
Ended December 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
through
F-26
UNAUDITED Financial Statements
Consolidated Balance Sheets at March 31, 1999 (unaudited), and
December 31, 1998 (audited) F-27
Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 and 1998 F-28
Consolidated Statements of Stockholders' (Deficit) for the Three
Months Ended March 31, 1999 and 1998 F-29
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 F-30
Notes to Consolidated Financial Statements F-31
through
F-33
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MigraTEC, Inc.
We have audited the consolidated balance sheets of MigraTEC, Inc. and Subsidiary
as of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 MigraTEC, Inc. and
Subsidiary as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company's losses in 1998 and 1997, net capital deficiency,
amounts due in the short term under notes payable, and the outstanding
contingencies raise substantial doubt about the Company's ability to continue as
a going concern. Management plans as to these matters are also described in Note
3. The financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and classifications
of liabilities that might result from the outcome of the uncertainty.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
April 19, 1999
F-2
<PAGE> 56
MIGRATEC, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 17,389 $ 4,076
Accounts receivable - billed, net of allowance for
doubtful accounts of $0 and $123,720 respectively 279,268 394,755
Accounts receivable - unbilled
10,000 --
Shareholder advance
3,766 3,766
Restricted cash -- 28,150
Deferred tax asset -- 9,024
Other current assets 29,624 16,600
----------- -----------
Total current assets 340,047 456,371
PROPERTY AND EQUIPMENT, NET 198,702 452,555
OTHER ASSETS
Financing fees 33,794 101,382
Other assets 21,548 21,548
----------- -----------
Total other assets 55,342 122,930
----------- -----------
Total Assets $ 594,091 1,031,856
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Cash overdraft $ -- $ 112,963
Notes payable, net of discount of $25,359 and $0, respectively,
including $30,000 and $63,276, respectively, due to shareholders 1,297,579 338,276
Transfer liability -- 187,500
Accounts payable 347,294 779,904
Accrued expenses 159,069 404,258
Obligation under capital lease 27,105 25,267
Customer deposits in excess of unbilled receivables -- 171,365
----------- -----------
Total current liabilities 1,831,047 2,019,533
LONG-TERM LIABILITIES
Long-term portion of notes payable, net of discount of $0 and $76,077, 56,165 1,036,423
Long-term portion of obligation under capital lease 14,283 41,388
Deferred tax liability -- 9,024
----------- -----------
Total long-term liabilities 70,448 1,086,835
MINORITY INTEREST (3,752) (3,752)
COMMITMENTS AND CONTINGENCIES (NOTES 3, 10, AND 16)
REDEEMABLE CONVERTIBLE 12% PREFERRED STOCK; $1,000 PAR VALUE; 1,000,000
SHARES AUTHORIZED; REDEEMABLE AT PAR VALUE PLUS CUMULATIVE DIVIDENDS;
NONE ISSUED OR OUTSTANDING -- --
STOCKHOLDERS' DEFICIT
Common stock; no par value; 200,000,000 shares authorized;
54,421,618 and 30,199,154 shares issued in 1998 and 1997, respectively 7,041,890 2,197,640
Additional paid-in capital 886,458 796,263
Treasury stock, at cost (9,864,449 and 854,903 shares, respectively) (1,777,891) (1,068,629)
Accumulated deficit (7,454,109) (3,996,034)
----------- -----------
Total stockholders' deficit (1,303,652) (2,070,760)
----------- -----------
Total Liabilities and Stockholders' Deficit $ 594,091 $ 1,031,856
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 57
MIGRATEC, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUES $ 1,454,150 $ 2,045,607
COSTS AND EXPENSES
Salaries and benefits 1,626,335 2,084,146
Contract labor 571,176 672,475
General and administrative 273,178 345,690
Advertising and marketing 97,029 17,086
Travel 15,973 39,749
Rent 127,800 186,899
Depreciation and amortization 156,167 233,962
Legal and professional fees 409,206 211,936
Year 2000 program costs 1,462,741 293,604
Provision for contract losses -- 6,800
Bad debt expense 1,725 123,720
Loss on release of assets -- 284,573
------------ ------------
Total operating expenses 4,741,330 4,500,640
------------ ------------
Loss from operations (3,287,180) (2,455,033)
OTHER INCOME (EXPENSES)
Interest income 9,102 1,281
Miscellaneous income 4,807 --
Interest expense (234,534) (156,175)
Financing fees (120,363) (108,806)
Financing fees, related parties (19,420) --
Gain (loss) on sale of assets (93,486) 8,392
------------ ------------
Total other income (expenses) (453,894) (255,308)
Minority interest in (income) loss of consolidated subsidiary -- 9,384
------------ ------------
Loss before income taxes and extraordinary item (3,741,074) (2,700,957)
Provision for income tax expense (benefit) -- --
------------ ------------
Net loss before extraordinary item (3,741,074) (2,700,957)
Extraordinary income from forgiveness of debt (net of income taxes of $0) 282,999 183,351
------------ ------------
Net loss $ (3,458,075) $ (2,517,606)
============ ============
Loss before extraordinary item per common share $ (0.093) $ (0.100)
============ ============
Extraordinary income per common share $ 0.007 $ 0.006
============ ============
Net loss per common share (basic and diluted) $ (0.086) $ (0.094)
============ ============
Weighted average common shares and common
equivalents outstanding 40,220,420 26,910,116
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 58
MIGRATEC, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Deficit
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Common Treasury Additional
Stock Stock Treasury Stock Paid-in
Issued Amount Stock Amount Capital
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 18,002,253 $ 1,166,960 (854,903) (1,068,629) $ 712,186
Issuance of stock to employees under the
Employee Stock Purchase Plan for cash 13,367 5,080 -- -- --
Issuance of stock in connection with the
conversion of debentures 10,291,534 525,000 -- -- --
Issuance of stock in connection with the
exercise of warrants for cash 60,000 600 -- -- --
Issuance of stock in connection with private
placements for cash 1,800,000 500,000 -- -- --
Issuance of stock for services rendered 32,000 -- -- -- 8,000
Discount related to issuance of Secured
Promissory Notes with Warrants -- -- -- -- 76,077
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 30,199,154 2,197,640 (854,903) (1,068,629) 796,263
Issuance of stock in connection with private
placements for cash 22,790,000 4,558,000 -- -- --
Issuance of stock in connection with
conversion of debt to equity 1,375,000 275,000 -- -- --
Issuance of stock in connection with the
exercise of options and warrants for cash 54,000 11,250 -- -- --
Treasury stock received in exchange for cash -- -- (9,400,000) (740,000) --
Issuance of stock for services rendered - -- 390,454 30,738 -- --
Issuance of warrants for computer
consulting services rendered -- -- -- -- 18,000
Issuance of warrants for financing fees - -- -- -- 72,195 --
Issuance of stock to employees under the
Employee Stock Purchase Plan -
shares matched by employer 3,464 -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 54,421,618 $ 7,041,890 (9,864,449) $(1,777,891) $ 886,458
=========== =========== =========== =========== ===========
<CAPTION>
(Accumulated
Deficit) Total
----------- -----------
<S> <C> <C>
Balance at January 1, 1997 $(1,478,428) $ (667,911)
Issuance of stock to employees under the
Employee Stock Purchase Plan for cash -- 5,080
Issuance of stock in connection with the
conversion of debentures -- 525,000
Issuance of stock in connection with the
exercise of warrants for cash -- 600
Issuance of stock in connection with private
placements for cash -- 500,000
Issuance of stock for services rendered -- 8,000
Discount related to issuance of Secured
Promissory Notes with Warrants -- 76,077
Net loss (2,517,606) (2,517,606)
----------- -----------
Balance at December 31, 1997 (3,996,034) (2,070,760)
Issuance of stock in connection with private
placements for cash -- 4,558,000
Issuance of stock in connection with
conversion of debt to equity -- 275,000
Issuance of stock in connection with the
exercise of options and warrants for cash -- 11,250
Treasury stock received in exchange for cash -- (740,000)
Issuance of stock for services rendered - 30,738
Issuance of warrants for computer
consulting services rendered -- 18,000
Issuance of warrants for financing fees - 72,195
Issuance of stock to employees under the
Employee Stock Purchase Plan -
shares matched by employer -- --
Net loss (3,458,075) (3,458,075)
----------- -----------
Balance at December 31, 1998 $(7,454,109) $(1,303,652)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 59
MIGRATEC, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,458,075) $(2,517,606)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 156,167 233,962
(Gain) loss on sale and disposal of assets 93,486 276,181
Assets given in lieu of wages, net -- 14,233
Bad debt expense 1,725 123,720
Financing fees 67,588 68,250
Warrants issued for financing fees 72,195 --
Amortization of discount on notes payable 50,718 --
Common stock and warrants issued for goods and services 48,738 8,000
Minority interest -- (9,384)
Extraordinary income from forgiveness of debt (282,999) (183,351)
Change in assets and liabilities:
(Increase) decrease in accounts receivable - billed 113,762 (402,318)
(Increase) decrease in accounts receivable - unbilled (10,000) 203,070
Decrease in income tax refund receivable -- 507,733
(Increase) decrease in restricted cash 28,150 (28,150)
Increase in other current assets (13,024) (11,773)
Increase in other assets -- (122,930)
Increase (decrease) in accounts payable (149,611) 92,896
Increase (decrease) in accrued expenses (158,586) 101,255
Decrease in customer deposits in excess of unbilled receivables (171,365) (507,085)
----------- -----------
Total adjustments (153,056) 364,309
----------- -----------
Net cash used by operating activities (3,611,131) (2,153,297)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment -- (46,726)
Sales of property and equipment 4,200 15,700
----------- -----------
Net cash provided (used) in investing activities 4,200 (31,026)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash overdraft (112,963) 112,963
Proceeds from notes payable, excluding shareholder amounts 854,000 575,000
Proceeds from (repayment of) transfer of accounts receivable with recourse (187,500) 187,500
Proceeds from other debt financing -- 1,112,500
Proceeds from issuance of common stock 4,569,250 505,680
Purchase of treasury stock (740,000) --
Payments under obligations of capital lease (25,267) (34,724)
Proceeds from (repayment of) shareholder advances (33,276) (5,406)
Repayment of notes payable, excluding shareholder amounts (704,000) (302,053)
----------- -----------
Net cash provided in financing activities 3,620,244 2,151,460
----------- -----------
Net increase (decrease) in cash 13,313 (32,863)
Cash - beginning 4,076 36,939
----------- -----------
Cash - ending $ 17,389 $ 4,076
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 192,067 $ 41,809
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of stock in connection with the conversion of debentures $ -- $ 525,000
=========== ===========
Equipment obtained under capital lease $ -- $ 101,379
=========== ===========
Issuance of stock upon conversion of debt to equity $ 275,000 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 60
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. BACKGROUND AND BUSINESS ACTIVITY
MigraTEC, Inc., was organized under the laws of the state of Florida on February
24, 1989. MigraTEC, Inc., was a development stage enterprise until it acquired a
privately-owned, Texas-based company on February 29, 1996. At that time,
MigraTEC, Inc. ("MigraTEC") (then a privately-held Texas corporation) entered
into a reverse acquisition agreement with New York Acquisitions, Inc., a
publicly-held "shell" Florida corporation. MigraTEC became a wholly-owned
subsidiary of the public company through the exchange of 11,337,432 shares on a
post-split basis of the public company's common stock for all of the outstanding
stock of MigraTEC. The name New York Acquisitions, Inc., was amended to One Up
Corporation and then subsequently to MigraTEC, Inc. For accounting purposes, the
reorganization of MigraTEC and the public company is regarded as an acquisition
by the public company of all of the outstanding stock of MigraTEC, and is
accounted for as a recapitalization of the public company with MigraTEC as the
acquirer (a reverse acquisition).
The initial focus of the business was to provide contract computer programming
education. A professional curriculum was developed as the foundation for these
courses. By 1992, MigraTEC had developed and sold several software products, as
well as further diversifying into consulting services and migration assistance
for clients wishing to migrate their software from the Windows operating system
to the IBM OS/2 platform. By 1993, MigraTEC had identified a need for an
automated migration technique and developed its first set of software tools for
that purpose. Initially, MigraTEC licensed the tools to IBM on an exclusive
basis until December 31, 1995. During 1995, MigraTEC developed more advanced
migration technologies and methodologies, the Company automated much of the
migration process, allowing clients to migrate source code from Windows 16 bit
to Windows 95 and NT, from OS/2 to Windows 95 and NT, and enhanced its
capabilities to migrate Windows source code to OS/2. Since January 1996,
MigraTEC has offered its migration services to the public, utilizing these new
techniques, continuing in the development and sale of strategic applications
software migration technology.
During 1997 the Company made a decision to reorient its strategic approach to
exploit its technology as a product offering as opposed to a service offering.
Consequently, since October 1997, the technical focus of the Company has been
reoriented to concentrating on product development and building a technical
marketing organization. Development efforts initiated in October 1997 have lead
to MigraTEC currently launching a new flagship product for the Year 2000
analysis and remediation of desktop applications called MigraTEC2000.
Additionally, during the fourth quarter R&D efforts have enabled the Company to
market its Resource Migration Service, a service which provides a complete
process for migrating resource files (containing dialog boxes and controls,
icons, cursors, bitmaps and fonts) and their corresponding resource header files
and is supported by MigraTEC proprietary, automated resource migration utility
which greatly reduces the time and effort traditionally required to manually
migrate an application's resources.
F-7
<PAGE> 61
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 1. BACKGROUND AND BUSINESS ACTIVITY (CONTINUED)
MigraTEC is the parent of a majority owned foreign subsidiary, One Up Computer
Services, Ltd. One Up Computer Services, Ltd., was incorporated under the laws
of the Province of Ontario, Canada, in October 1992. The operations of One Up
Computer Services, Ltd., in the past had not been significant to the operations
of Migratec. Early in the first quarter of 1997, One Up Computer Services, Ltd.,
ceased operations.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of MigraTEC, the public company,
and its majority owned foreign subsidiary, collectively referred to as the
Company. Intercompany transactions and balances have been eliminated in
consolidation.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. The Company provides for depreciation on the straight-line basis
over the estimated useful lives of the related assets ranging from three to ten
years. Leasehold improvements are amortized straight-line over the life of the
improvements or the lease term if shorter.
Major repairs or replacements of property and equipment are capitalized.
Maintenance, repairs and minor replacements are charged to operations as
incurred.
Software Development Costs
During 1998 and 1997 the Company expensed $1,462,741 and $293,604 of costs,
respectively, in connection with its Year 2000 program. The Company begins to
capitalize costs for the development of any new software after technological
feasibility has been established. Costs for newly developed software will be
amortized over the estimated economic life of the software from the time that a
particular product is developed.
Income Taxes
Deferred income taxes are determined using the asset and liability method, under
which deferred tax assets and liabilities are determined based on differences
between financial accounting and tax basis of assets and liabilities. Income tax
expense or benefit is the payable or refund for the period plus or minus the
change during the period in deferred tax assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
F-8
<PAGE> 62
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company recognizes revenue as services are performed in accordance with the
terms as set forth in their contract agreements. Losses expected to be incurred
on contracts in progress are charged to operations in the period such losses are
determined. At December 31, 1998 and 1997, accrued expenses include
approximately $0 and $6,800, respectively, of additional direct labor costs that
exceed related contract revenues.
Currency Translation
The functional currency translation of the majority owned subsidiary's assets,
liabilities, revenues and expenses was insignificant to the Company's
consolidated financial statements. Accordingly, the accompanying consolidated
financial statements do not include translation gains and losses.
Statements of Cash Flows
For purposes of the statements of cash flows, cash equivalents include time
deposits, certificates of deposits, and all highly liquid debt instruments with
original maturities of three months or less when purchased.
Loss Per Share
Loss per share has been computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the respective periods. The
effect of outstanding warrants and options on the net loss for 1998 and 1997
would be anti-dilutive and, accordingly, they are not included in the
computation of weighted average shares for the years ended December 31, 1998 and
1997.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
The Company recognizes revenue as services are performed. Estimated losses are
recorded in the period determined. Revenue or losses could change if estimates
of percentage complete on contracts changes due to delays or unforeseen
problems.
F-9
<PAGE> 63
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation
The Company measures compensation cost for its stock-based compensation plans
under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." The difference, if any, between the
fair value of the stock on the date of grant over the amount received for the
stock is accrued over the related vesting period. Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," requires companies electing to continue to use APB 25 to account
for its stock-based compensation plan to make pro forma disclosures of net
income (loss) and earnings (loss) per share as if SFAS 123 had been applied (See
Note 13).
Adoption of New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS 133 is effective beginning in 2000. The
adoption of SFAS 133 is not expected to have a material impact on the financial
position or results of operations of the Company.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
("SOP 98-5"), "Reporting on the Costs of Start-up Activities." This statement is
required to be adopted for fiscal years beginning after December 15, 1998, and
requires the expensing of all start-up costs, as defined, as they are incurred.
The Company has voluntarily applied accounting policies consistent with SOP 98-5
for the years ended December 31, 1998 and 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires enterprises to report, by major component and in total, all changes in
equity from non-owner sources. The Statement is effective for the Company's
fiscal year ended December 31, 1998. There was no impact to the Company's
disclosure as a result of adopting this standard.
Reclassifications
Certain amounts recorded in prior periods have been reclassified to conform to
the current classification.
F-10
<PAGE> 64
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 3. GOING CONCERN UNCERTAINTY
As reflected in the accompanying consolidated financial statements, the Company
incurred a loss of $3,458,075 and used operating cash of $3,611,131 for the year
ended December 31, 1998. In addition, the Company's current liabilities exceed
current assets by $1,491,000 at December 31, 1998, and the Company was unable to
meet certain debt maturities at December 31, 1998. The Company's continued
existence and plans for future growth are dependent in part upon its ability to
obtain the capital necessary to operate, primarily through the issuance of
additional debt or equity, and in part on its ability to effectively penetrate
the market for software migration services, related products, and Year 2000
software products and services. If the Company is not able to achieve
break-even, obtain additional or alternative funding, or generate sufficient
sales revenues and cash flows in the near term, the Company will be unable to
continue as a going concern.
Recently, the Company began reengineering its business focus, shifting its
strategic approach to exploiting its technology through the development of
strategic relationships. To continue to fund its operations for 1999, the
Company has (1) completed a private offering during March 1999 which yielded
gross proceeds of $241,313 (unaudited), (2) entered into several short-term
notes payable during the first quarter of 1999 with certain investor groups,
including one director and one officer, totaling $447,500 (unaudited), and (3)
received gross proceeds of $47,537 (unaudited) for the exercise of warrants
relating to various short-term notes payable and the exercise of consultant and
employee stock options. Most recently, the Company has begun the process of
obtaining additional capital through a private offering whereby the Company
plans to issue up to 6,000,000 shares of its Common Stock at $0.125 per share.
In addition, if needed, the Company is considering issuing additional equity
through a private offering during the second half of 1999 in an amount
sufficient to meet the Company's current operating expenses until such time that
product revenues begin to ramp up. Management anticipates that its efforts will
move the Company forward with a focus on achieving improved operating
performance by the end of 1999.
The anticipated increase in revenues coupled with a continued emphasis on
controlling costs should position the Company to achieve improved results for
1999, although no assurances can be given regarding such increase. While much
remains to be accomplished, management believes that the Company has made
significant progress towards stabilization. While the success of the Company
will in part depend upon its ability to market and sell its products and
services, management believes that the successful implementation of its plan to
shift the Company's strategic approach to exploiting its technology through
strategic relationships, should move the Company forward with a focus on
achieving profitability by the end of 1999. The anticipated increase in revenues
coupled with a continued emphasis on controlling costs should position the
Company to achieve improved results for 1999. However, there can be no assurance
that the Company will generate an increase in revenues or earnings, or achieve
improved operating performance or results.
F-11
<PAGE> 65
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 3. GOING CONCERN UNCERTAINTY (CONTINUED)
The financial statements do not include any adjustments to reflect the possible
effects on recoverability and classification of assets or classification of
liabilities which may result from the inability of the Company to continue as a
going concern.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Furniture and equipment $ 697,312 $ 904,127
Equipment under capital lease 101,379 101,379
Leasehold improvements 30,746 30,746
----------- -----------
829,437 1,036,252
Less accumulated depreciation and amortization (630,735) (583,697)
----------- -----------
$ 198,702 $ 452,555
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997, was
$120,573 and $166,790, respectively. Amortization expense on equipment under
capital lease and leasehold improvements was $35,594 and $67,172, as of December
31, 1998 and 1997, respectively.
NOTE 5. NOTES PAYABLE
The notes payable at December 31, 1998 and 1997, includes the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
(i) a note payable to an officer/shareholder, dated
November 27, 1998, bearing interest at 16% per
annum, payable December 31, 1998 $ 30,000 $ --
(ii) a note payable to a third party, dated December 4,
1998, bearing interest at 16% per annum,
collateralized by all assets owned or thereafter
acquired, payable December 31, 1999 150,000 --
(iii) a note payable to a former employee, dated March
25, 1998, bearing interest at 14% per annum,
payable December 10, 2003 42,603 --
(iv) a note payable to a third party, dated October 29,
1998, payable October 10, 2000 44,000 --
</TABLE>
F-12
<PAGE> 66
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 5. NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
(v) Senior Secured Promissory Notes, in the amount
of $1,112,500, less discount of $25,359 and
$76,077, respectively, collateralized by accounts
receivable, equipment, and intellectual property,
payable July 1, 1999 1,087,141 1,036,423
(vi) a note payable to a third party, dated June 10,
1997, bearing interest at 16% per annum,
collateralized by all assets owned or thereafter
acquired, originally payable September 10, 1997,
and subsequently extended to April 15, 1998 -- 100,000
(vii) a note payable to a third party, dated August 25,
1997, bearing interest at 18% per annum, payable
November 26, 1997 -- 100,000
(viii) a note payable to a third party, dated September 1,
1997, bearing interest at 16% per annum, payable
November 30, 1997 -- 75,000
(ix) a note payable to a former officer/shareholder,
dated September 27, 1997, bearing interest at 8%
per annum, payable on demand -- 10,161
(x) a note payable to a former officer/shareholder,
dated August 15, 1996, bearing interest at 8% per
annum, payable on demand -- 53,115
----------- -----------
1,353,744 1,374,699
Less current portion (1,297,579) (338,276)
----------- -----------
Long-term portion $ 56,165 $ 1,036,423
=========== ===========
</TABLE>
A summary of the future maturities of the notes are as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
<S> <C>
1999 $1,297,579
2000 27,400
2001 8,505
2002 9,775
2003 10,485
----------
$1,353,744
==========
</TABLE>
F-13
<PAGE> 67
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 6. CAPITAL LEASE
The Company acquired office equipment under the provisions of a long-term
capital lease. For financial reporting purposes, minimum lease payments relating
to the office equipment have been capitalized. The lease expires in June 2000.
The future minimum lease payments under the capital lease and the net present
value of the future minimum lease payments at December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999 $ 29,156
2000 14,578
----------
Total minimum lease payments 43,734
Amount representing interest (2,346)
----------
Net present value of the future minimum
lease payments (including current
portion of $27,105) $ 41,388
==========
</TABLE>
NOTE 7. INCOME TAXES
Deferred tax assets and liabilities at December 31, 1998 and 1997, consist of
the following:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Current deferred tax asset $ 24,600 $ 106,424
Current deferred tax liability (22,745) (22,745)
Valuation allowance (1,855) (74,655)
----------- ------------
Net current deferred tax asset (liability) $ -- $ 9,024
=========== ===========
Noncurrent deferred tax asset $ 2,400,559 $ 1,161,802
Noncurrent deferred tax liability -- (22,745)
Valuation allowance (2,400,559) (1,148,081)
----------- -----------
Net noncurrent deferred tax asset (liability) $ -- $ (9,024)
=========== ===========
</TABLE>
The current deferred tax asset results primarily from accrued salaries, the
allowance for doubtful accounts, and other expenses not currently deductible for
tax purposes. The current deferred tax liability results from an adjustment for
the change from the cash to the accrual method for federal income tax purposes
in a prior year. The noncurrent deferred tax asset results primarily from
differences in depreciation rates for book and federal income tax purposes and
the benefit of net operating losses. The remaining net current and long-term
deferred tax assets have a 100% valuation allowance recorded against them due to
the uncertainty of generating future taxable income. The valuation allowance
increased from December 31, 1997, to December 31, 1998, by $1,179,678.
F-14
<PAGE> 68
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 7. INCOME TAXES (CONTINUED)
The Company's income tax expense (benefit) for the years ended December 31, 1998
and 1997, differed from the statutory federal rate of 34 percent as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Statutory rate applied to income (loss)
before income taxes $(1,175,745) $ (918,325)
Increase (decrease) in income taxes:
Penalties and interest -- 1,847
Valuation allowance 1,179,678 838,274
Extraordinary item -- 62,339
Amounts not deductible for
federal income tax purposes
and other (3,933) 15,865
----------- -----------
Income tax expense (benefit) $ -- $ --
=========== ===========
</TABLE>
Net operating losses generated through December 31, 1998, eligible to be carried
forward to future years of approximately $6,900,000 (subject to limitations of
Internal Revenue Code Section 382) will expire between 2010 and 2013.
NOTE 8. RELATED PARTY TRANSACTIONS
During January and February of 1998, the Company entered into short-term notes
payable with three directors with varying terms and maturities totaling
$254,000. Additional terms and conditions of the loan agreements included (1) a
conversion feature whereby the loans could be converted to shares of the
Company's Common Stock at $0.20 per share and (2) the issuance of warrants to
purchase an aggregate of 175,000 shares of the Company's Common Stock at prices
ranging from $0.20 to $0.01 per share. On March 26, 1998, the Company issued
1,000,000 shares of its Common Stock to the three directors in connection with
the first March 1998 private offering and pursuant to the conversion feature
contained in the loan agreements. The remaining balance of the notes payable not
converted and accrued interest were paid in full effective April 22, 1998.
Subsequent to December 31, 1998, on March 30 and 31, 1999, the Company issued
75,000 shares of its commons stock to two of the directors as a result of the
exercise of warrants to purchase shares at $0.20 per share.
In addition to the directors discussed above, the Company issued 500,000 shares
of its Common Stock to a director/shareholder at $0.20 per share under terms of
the first March 1998 private offering which commenced March 9, 1998.
F-15
<PAGE> 69
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 8. RELATED PARTY TRANSACTIONS (CONTINUED)
Effective March 25, 1998, the Company reached an agreement with its former
principal executive officer, Mr. Richard Dews, regarding actions of Mr. Dews as
Chairman and CEO, efforts by Mr. Dews to sell shares of the Company's Common
Stock, originally acquired and restricted pursuant to Rule 144 of the Act, and
claims made against the Company by Mr. Dews totaling approximately $640,000.
Pursuant to the agreement, which was finalized on March 31, 1998, (1) the
Company acquired from Mr. Dews 9,400,000 shares of the Company's Common Stock
for $740,000, (2) the Company agreed to file a registration statement or take
other appropriate steps to allow free trading of the remaining shares owned by
Mr. Dews, (3) the Company issued to Mr. Dews a transferable warrant to purchase
up to 600,000 shares of the Company's unregistered and free trading Common
Stock, subject to Section 144 rules and regulations, at $0.25 per share, (4) the
Company paid to Mr. Dews $60,000 in full satisfaction, including principal and
accrued interest, of amounts previously loaned to the Company by Mr. Dews, (5)
the Company released Mr. Dews from all claims arising from or relating to the
employment of Mr. Dews or the promissory note from the Company to Mr. Dews, (6)
Mr. Dews released the Company from all claims, estimated by Mr. Dews to total
approximately $640,000, arising from or relating to the employment of Mr. Dews
or the promissory note from the Company to Mr. Dews, including back wages
relating to accrued but unused vacation pay, and (7) pursuant to a promissory
note dated March 25, 1998, no stated interest, the Company agreed to pay to
Marilyn Johnson the amount of $68,250 in installments of $1,000 for 68 months on
the tenth of each month beginning April 10, 1998, with the final payment of $250
being due on December 10, 2003. Attorney fees paid by the Company as a result of
negotiating the settlement with Mr. Dews were comprised of (1) the transfer of
390,454 shares of the Company's Common Stock and (2) $210,523 paid in cash.
One-half of the attorney fees paid related to this settlement were paid to a
director of the Company, acting in the capacity of the Company's legal counsel.
In addition to the attorney fees discussed above, for the year ended December
31, 1998, the Company incurred fees totaling $37,639 related to legal services
which were provided by a director of the Company acting in the capacity of the
Company's legal counsel.
Effective July 1, 1998, the Company granted, to three directors, who had either
been involved as Placement Agents in the two March 1998 private stock offerings
or who had furnished consulting services to the Company, stock warrants to
purchase an aggregate of 1,683,250 shares of the Company's Common Stock at $0.20
per share. The warrants were fully vested at the date of grant, and are
exercisable on or before July 1, 2001.
Effective July 15, 1998, the balances remaining due as of December 31, 1997, to
a shareholder/ former officer for amounts previously advanced to the Company of
$10,153 and for back wages of $24,417 were paid in full.
F-16
<PAGE> 70
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 8. RELATED PARTY TRANSACTIONS (CONTINUED)
Effective November 27, 1998, the Company entered into a short-term loan
agreement whereby an officer/shareholder loaned the Company $30,000, bearing
interest at 16% per annum, payable December 31, 1998. Additional terms and
conditions of the loan agreement included payment of a $600 loan origination fee
and issuance of a two-year warrant to purchase 3,000 shares of the Company's
Common Stock at $0.01 per share. As of December 31, 1998, accrued expenses
includes $1,060 in interest, including the loan origination fee. Subsequent to
December 31, 1998, the loan, including accrued interest, was paid in full, and
the warrant was exercised effective February 8, 1999.
During 1998, the Company paid fees totaling $24,584 to four directors in their
capacity as directors.
NOTE 9. STOCKHOLDERS DEFICIT AND STOCK OPTIONS
Pursuant to the terms and conditions of certain short-term loans made to the
Company by certain investor groups, including three directors and one officer,
during 1998 the Company granted 468,000 stock warrants, fully vested at date of
grant, to purchase shares of its Common Stock with varying exercise prices and
terms. On March 9, 1998, the Company issued 22,500 shares of its Common Stock as
a result of the exercise of warrants to purchase shares at $0.01 per share. On
February 8, 1999, the Company issued 33,000 shares of its Common Stock to
certain investor groups, including one officer, as a result of the exercise of
warrants to purchase shares at $0.01 per share. As a result of issuing these
warrants with exercise amounts below fair value, the Company booked a charge to
financing fees of $72,195. On March 30 and 31, 1999, the Company issued 112,500
shares to certain investor groups, including two directors, of its Common Stock
as a result of the exercise of warrants to purchase shares at $0.20 per share.
As of the date of this report, 300,000 of the aforementioned warrants remain
unexercised and outstanding.
On March 31, 1998, pursuant to the terms and conditions of an agreement reached
with its former principal executive officer, Mr. Richard G. Dews, effective
March 25, 1998 (See Note 8), (1) the Company acquired from Mr. Dews 9,400,000
shares of the Company's Common Stock for $740,000, and (2) the Company issued to
Mr. Dews a transferable warrant to purchase up to 600,000 shares of the
Company's unregistered and free trading Common Stock at $0.25 per share.
Additionally, pursuant to an agreement with the Company's legal counsel, the
Company satisfied a portion of the attorney fees incurred by the Company as a
result of negotiating the settlement with Mr. Dews through the transfer of
390,454 shares of the Company's Common Stock.
F-17
<PAGE> 71
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 9. STOCKHOLDERS DEFICIT AND STOCK OPTIONS (CONTINUED)
Effective April 1, 1998, pursuant to the terms of a one-year employment
agreement, the Company granted options to purchase 900,000 shares of the
Company's Common Stock at an exercise price of $0.20 per share to its Chief
Financial Officer. The options vest at the rate of 1/24 per month beginning
April 1, 1998, and are exercisable at vesting at any time during employment.
Effective April 30, 1998, the exercise price of 500,000 warrants (previously
granted to the Placement Agent for the Regulation S Offering, which commenced in
November 1996 to raise debt financing) was reduced from $0.50 to $0.40 per
share.
Effective May 1, 1998, the Company granted stock options to three officers to
purchase an aggregate of 8,700,000 shares of the Company's Common Stock at $0.20
per share. The options were 50% vested at May 1, 1998, and vest an additional
1/24 at the end of each month thereafter. Vested options are exercisable at any
time during employment. These new options replace those which had been
previously granted, and have been canceled, during the second quarter of 1997 to
the three officers at per share prices ranging from $0.31 to $0.37, and which
contained an anti-dilutive clause that increased the number of options available
for exercise upon recapitalization, stock split, stock dividend, or issuance of
stock below fair market value. These new options contain no such anti-dilutive
clause. In addition, the options previously granted vested over a shorter period
of time, and would have been fully vested by June 13, 1999. At April 15, 1998,
the number of options that would have been available to the three officers
pursuant to the canceled second quarter 1997 grant totaled approximately
6,000,000.
Effective May 1, 1998, the Company granted stock warrants to four directors to
purchase an aggregate of 4,300,000 shares of the Company's Common Stock at $0.20
per share. The warrants vest 1/24 at the end of each month beginning May 31,
1998, and expire on May 31, 2002. Approximately one-half of these new warrants
replace those that had been previously granted to the chairman of the board and
another director during the second quarter of 1997. The warrants previously
granted (which were to purchase 75,000 shares of the Company's Common Stock at
$0.35 per share, were fully vested at date of grant, and expired after three
years) have been canceled.
Effective July 1, 1998, the Company granted, to various individuals, including
three directors, who had either been involved as Placement Agents in the two
March 1998 private stock offerings or who had furnished consulting services to
the Company, stock warrants to purchase an aggregate of 2,147,750 shares of the
Company's Common Stock at $0.20 per share. The warrants were fully vested at the
date of grant, and are exercisable on or before July 1, 2001.
Effective July 28, 1998, the Company canceled warrants previously granted to a
consultant to purchase 15,000 and 50,000 shares at $0.50 and $0.75 per share,
respectively.
F-18
<PAGE> 72
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 9. STOCKHOLDERS DEFICIT AND STOCK OPTIONS (CONTINUED)
Effective October 5, 1998, pursuant to the terms of a Work for Hire Agreement
between the Company and two consultants, whereby the Company received certain
computer consulting services from the consultants, the Company granted to the
consultants stock warrants to purchase an aggregate of 200,000 shares of the
Company's Common Stock at $0.12 per share. The warrants were fully vested at the
date of grant, and are exercisable on or before November 19, 2000.
In 1997, the Company adopted a new stock option plan, the 1997 Stock Option
Plan, authorizing the issuance of incentive stock options, non-statutory options
and reload options to eligible persons as described in the Plan.
Pursuant to the Plan, the Company granted stock options during 1998 as follows:
(i) to one individual who was employed as of January 1, 1998, to
purchase 192,000 shares of the Company's Common Stock at $0.41 per
share. The options vest at a rate of 1/48 each month, are
exercisable at vesting, and expire one year after fully vested;
(ii) to seven individuals who were employed as of May 1, 1998, to
purchase 69,600 shares of the Company's Common Stock at $0.53 per
share. The options vest at a rate of 1/48 each month, are
exercisable at vesting, and expire one year after fully vested;
(iii) to 20 individuals who were employed as of September 1, 1998, to
purchase 787,392 shares of the Company's Common Stock at $0.23 per
share. The options vest at a rate of 1/48 each month, are
exercisable at vesting, and expire one year after fully vested;
(iv) to nine employees who were hired subsequent to January 1, 1998, to
purchase 137,800 shares of the Company's Common Stock at prices
ranging from $0.67 to $0.1562 per share. The options are vested
6.25% ninety days after each employee's date of hire, vest an
additional 1/48 each month thereafter, are exercisable at vesting,
and expire one year after fully vested.
Subsequent to December 31, 1998, management terminated the 1997 Stock Option
Plan which had not been approved by the Company's shareholders within the time
specified in the 1997 Plan. Therefore, all of the outstanding options issued
pursuant to the 1997 Plan have been canceled. Effective March 1, 1999, the
Company adopted a new stock option plan, the 1999 Stock Option Plan, authorizing
the issuance of incentive stock options, non-statutory options and reload
options to eligible persons as described in the 1999 Plan. Pursuant to the 1999
Plan, as of the date hereof, the Company has granted to members of its
management and employees options to purchase an aggregate of 1,435,936 shares of
Common Stock of the Company exercisable at prices ranging from $0.3438 to
$0.1875 per share.
F-19
<PAGE> 73
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 9. STOCKHOLDERS DEFICIT AND STOCK OPTIONS (CONTINUED)
Substantially all options and warrants granted during 1998 have exercise prices
which approximate fair value at the date of grant.
On February 3, 1998, the Company issued to certain investor groups, including a
director, 125,000 shares of its Common Stock at $0.20 per share under a private
placement memorandum for total net cash proceeds of $25,000.
On March 9, 1998, the Company commenced the first of two private offerings (the
"Offering #1"). The Offering #1 provided for up to 17,500,000 shares of the
Company's Common Stock for a maximum of $3,500,000. The Offering #1 was offered
on a "best efforts" basis. The Offering #1, which terminated March 26, 1998,
after an eight day extension, yielded gross proceeds to the Company totaling
$2,831,000. Included in the Offering #1 are 1,000,000 shares issued to three
directors upon conversion of debt pursuant to terms and conditions contained in
various loan agreements.
On March 30, 1998, the Company commenced the second private offering (the
"Offering #2"). The Offering #2 provided for up to 8,500,000 shares of the
Company's Common Stock for a maximum of $1,700,000. The Offering #2 was offered
on a "best efforts" basis. The Offering #2, which terminated May 6, 1998, after
a twenty-one day extension, yielded gross proceeds to the Company totaling
$1,669,500. Included in the Offering #2 are 375,000 shares issued to two
individuals upon conversion of debt pursuant to terms and conditions contained
in various loan agreements.
On May 29, 1998, the Company issued 31,500 shares of its Common Stock to a
former employee upon exercise of options previously granted to purchase shares
at $0.35 per share.
During September 1998, the Company issued 1,537,500 shares of its Common Stock
to 14 individual investors at $0.20 per share under terms of a private offering
for total net cash proceeds of $307,500. In a related transaction, the Company
granted warrants to purchase an aggregate of 1,000,000 shares of its Common
Stock at $0.10 per share. The warrants expire September 9, 2001. Subsequent to
December 31, 1998, effective February 8, 1999, the Company issued 50,000 shares
of its Common Stock in connection with the exercise of a portion of the warrants
(See Note 16).
During 1998, the Company issued to three former employees an aggregate of 3,464
shares of its Common Stock representing the Company's 50% matching of shares
previously purchased by the employees pursuant to the terms of the Employee
Stock Purchase Plan.
F-20
<PAGE> 74
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 10. COMMITMENTS AND CONTINGENCIES
MigraTEC leases its present office facility under a noncancelable operating
lease, which expires April 30, 2000. Future minimum commitments under this lease
are as follows:
<TABLE>
<S> <C>
Period ending December 31,
1999 $ 127,800
2000 42,600
----------
Total $ 170,400
==========
</TABLE>
Beginning in April and May of 1998, the Company entered into a series of
one-year lease agreements with Green Tree Vendor Services and United Capital
Leasing Corp. for various computer equipment at an average monthly cost of
approximately $2,800.
During 1996 the Company entered into employment agreements with several key
employees for a term of one year (automatically renewing each year), of which
three remain employed by the Company to date. The total annual base salaries of
the three remaining employees is approximately $225,000.
On July 24, 1998, Carroll Independent School District filed suit against the
Company in District Court, Tarrant County, Texas, seeking payment for unpaid
business personal property taxes in the amount of $79,657, plus attorney's fees,
court costs, penalties and interest. As of December 31, 1998, accounts payable
includes $88,756 related to the property taxes. The case is presently awaiting
trial, which has been set for May 22, 1999, as the Company continues its efforts
to settle the suit.
In October 1998, the Company reached an agreement to settle the suit previously
filed by Copelco Credit Corporation (seeking payment for the remainder of the
balance due under a contract for leased copier equipment in the amount of
$90,763 plus attorney fees, court costs and interest) for $51,000. The Company
made an initial payment of $5,000 upon execution of the settlement agreement,
and has agreed to make monthly payments in the amount of $2,000 on the tenth of
each month for 23 months beginning December 10, 1998. The balance remaining at
December 31, 1998, of $44,000 is included in the accompanying balance sheet as a
note payable (See Note 5).
For the year ended December 31, 1998, the Company booked extraordinary income of
$282,999 relating to forgiveness of debt. This income relates to reductions in
amounts due to various vendors through renegotiation of terms.
F-21
<PAGE> 75
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In April 1999, the Company reached an agreement to settle the suit previously
filed by Business Aircraft Leasing, Inc., (seeking payment for unpaid fees
relating to the Company's trade accounts payable of $29,349 plus attorney fees,
litigation expenses and interest) for $35,000. The Company made an initial
payment of $5,000 upon execution of the settlement agreement, and has agreed to
make monthly payments in the amount of $1,500 on the fifteenth of each month for
20 months beginning May 15, 1999. The total amount of the unpaid fees at
December 31, 1998, of $29,349 is included in the accompanying balance sheet as
an accrued expense.
NOTE 11. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments of the Company that are subject to credit risk are cash
and trade accounts receivable. Approximately $262,189 of the net accounts
receivable has been collected through the date of this report. The Company's
accounts receivable balances are generally unsecured. In the event of complete
nonperformance of accounts receivable, the maximum exposure to the Company is
the recorded amount shown on the balance sheet.
For the year ended December 31, 1998, approximately 84% of the Company's gross
revenues were earned from three customers, each of whom separately contributed
46%, 25% and 13% to the Company's total gross revenues for the year then ended.
For the year ended December 31, 1997, approximately 75% of the Company's gross
revenues were earned from three customers, each of whom separately contributed
45%, 15% and 15% to the Company's total gross revenues for the year then ended.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments," requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate. Cash,
trade accounts receivable, accounts payable, accrued liabilities and other
liabilities are carried at amounts that reasonably approximate their fair
values.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------
Carrying Fair
amount value
---------- ----------
<S> <C> <C>
Fixed rate debt, short-term $1,297,579 $1,297,579
========== ==========
Fixed rate debt, long-term $ 56,165 $ 56,165
========== ==========
</TABLE>
The fair values of the Company's fixed rate debt have been estimated based upon
relative changes in the Company's variable borrowing rates since origination of
the fixed rate debt.
F-22
<PAGE> 76
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 13. STOCK OPTIONS AND WARRANTS
Pursuant to the 1997 Stock Option Plan (the "1997 Plan"), as well as in
accordance with certain employee and consultant agreements, the Company has
issued stock options and warrants (See Note 16). The options under the 1997 Plan
and other options and warrants included in the table below are all considered
compensatory.
Following is a summary of compensatory warrant and option activity:
<TABLE>
<CAPTION>
Warrant/Option Price
-----------------------
Options Warrants Total Per Share Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31, 1996 752,352 454,878 1,207,230 $ 1.2970 $1,565,750
Granted 4,701,255 440,000 5,141,255 0.3795 1,951,056
Canceled 730,346 250,000 980,346 1.4379 1,409,650
Exercised -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Outstanding at December 31, 1997 4,723,261 644,878 5,368,139 0.3925 2,107,156
Granted 15,576,492 2,347,750 17,924,242 0.2130 3,817,573
Canceled 4,915,061 140,000 5,055,061 0.3962 2,002,934
Exercised 31,500 -- 31,500 0.3500 11,025
---------- ---------- ---------- ---------- ----------
Outstanding at December 31, 1998 15,353,192 2,852,628 18,205,820 $ 0.2148 $3,910,770
========== ========== ========== ========== ==========
</TABLE>
The outstanding stock options and warrants with contractual lives expire from
April 30, 1999, through November 22, 2003. Included in the 15,353,192 options
outstanding are 1,392,736 options issued under the 1997 Plan which were canceled
subsequent to December 31, 1998, because the 1997 Plan was not approved by the
shareholders within the time specified in the 1997 Plan.
The following summarizes information about compensatory options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
- --------------------------------------------------------------------------------- ------------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
- ---------------------------------- ----------- ---------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Options with contractual lives
$0.67 to $0.1562 5,753,192 3.47 Years $0.2243 1,842,074 $0.2313
Options without contractual lives
$0.20 9,600,000 n/a $ 0.20 6,137,500 $ 0.20
</TABLE>
The options issued without contractual lives expire when the employees are
terminated with cause.
A summary of changes in the Company's non-compensatory options follows:
F-23
<PAGE> 77
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 13. STOCK OPTIONS AND WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
Non-Compensatory Weighted Average
Options Exercise Price
---------------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996 -- --
Granted 3,748,591 $ 0.3646
Exercised 0.0100 60,000
Canceled -- --
--------- ---------
Outstanding at December 31, 1997s 3,688,591 0.3703
Granted 2,568,000 0.1854
Exercised 0.0100 22,500
Canceled 500,000 0.5000
--------- ---------
Outstanding at December 31, 1998s 5,734,091 $ 0.2776
========= =========
</TABLE>
The Company has recorded compensation expense in 1998 and 1997 for all options
and warrants issued to non-employees. Such compensation expense was determined
using the Black-Scholes method option-pricing model, using assumptions
consistent with those noted below. Included in the options granted in 1998 were
options issued in connection with debt. Such options have been valued using the
Black-Scholes method option-pricing model, using assumptions consistent with
those noted below. Such resulting amount has been recorded as a financing fee to
be expensed over the term of the debt. All options issued to employees and
directors were issued with exercise prices equal to fair value. Fair value for
all options issued is generally the trading price at the date of issuance.
However, where significant amounts of stock options were issued to officers and
directors as described in Note 9, and for warrants issued in connection with
debt related to the Private Offerings also described in Note 9, within a
relatively short time frame, at or around the time the Private Offerings were
completed, management determined for this large block of shares that the Private
Offering price (which also constituted a large block of shares) was a better
indicator of fair value than the trading price. Had compensation cost for the
Company's stock options been determined consistent with SFAS 123, the Company's
net loss per share would have been adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997
----------- -----------
<S> <C> <C> <C>
Net income (loss) As reported $(3,458,075) $(2,517,606)
=========== ===========
Pro forma $(5,081,264) $(3,180,214)
=========== ===========
Income (loss) per common share As reported $ (0.086) $ (0.094)
=========== ===========
Pro forma $ (0.126) $ (0.118)
=========== ============
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes method option-pricing model. The following assumptions were used
for grants in 1998: dividend yield of 0%, volatility of 86%, risk free interest
rate estimated as 5% with an expected life of 1 to 5 years. The following
assumptions were used for grants in 1997: dividend yield of 0%, volatility of
133%, risk free interest rate estimated as 6% with an expected life of 1 to 5
years.
F-24
<PAGE> 78
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 13. STOCK OPTIONS AND WARRANTS (CONTINUED)
The model is based on historical stock prices and volatility which, due to the
low volume of transactions, may not be representative of future price variances.
NOTE 14. EMPLOYEE SAVINGS PLAN
Effective January 1, 1994, the Company adopted a discretionary 401(k) savings
plan ("Plan") for its employees. This Plan is available to all employees meeting
certain eligibility requirements, as further described in the Plan documents. No
discretionary employer contributions were made for the years ended December 31,
1998 and 1997. Participants are 100% vested in the portion of the plan
representing employee contributions. Participants vest 20% in employer
contributions after two years of service (as defined by the Plan document) and
20% each year thereafter.
NOTE 15. YEAR 2000
The Company has completed a survey of internal administrative office equipment
and software for Year 2000 ("Y2K") issues. Additionally, the software developed
by the Company is Y2K compliant. The Company plans to continue to evaluate the
Y2K readiness of its consultants, vendors, and suppliers and develop contingency
plans where necessary. Based on current information, the Company believes that
the cost of compliance with the Year 2000 will not be material to the Company's
financial condition or operations, and will not significantly affect the
Company's ability to deliver its products and services; however, given the
uncertain consequences of Y2K issues outside the scope or control of the
Company, there can be no assurance that any one or more such Y2K consequences
would not have a material adverse effect on the Company.
NOTE 16. SUBSEQUENT EVENTS
Subsequent to December 31, 1998, management terminated the 1997 Stock Option
Plan which had not been approved by the Company's shareholders within the time
specified in the 1997 Plan. Therefore, all of the outstanding options issued
pursuant to the 1997 Plan have been canceled. Effective March 1, 1999, the
Company adopted a new stock option plan, the 1999 Stock Option Plan, authorizing
the issuance of incentive stock options, non-statutory options and reload
options to eligible persons as described in the Plan. Pursuant to the 1999 Stock
Option Plan, as of the date hereof, the Company has granted to members of its
management and employees options to purchase an aggregate of 1,435,936 shares of
Common Stock of the Company exercisable at prices ranging from $0.3438 to
$0.1875 per share (See Note 9).
Subsequent to December 31, 1998, the Company entered into several short-term
notes payable with certain investor groups, including one director and one
officer, with varying terms and maturities totaling $447,500 (unaudited) (See
Note 3).
F-25
<PAGE> 79
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 16. SUBSEQUENT EVENTS (CONTINUED)
Pursuant to the terms and conditions of the aforementioned short-term loans made
to the Company by certain investor groups, including one director and one
officer, the Company granted 638,000 stock warrants, fully vested at date of
grant, to purchase shares of its Common Stock with varying exercise prices and
terms. Additionally, during the first quarter of 1999, the Company issued
783,500 shares of its Common Stock to certain investor groups, including three
directors and one officer, as a result of the exercise of warrants previously
granted to purchase shares at prices ranging from $0.20 to $0.01 per share.
Effective February 8, 1999, the Company issued 50,000 shares of its Common Stock
to one individual upon exercise of warrants previously granted to purchase
shares at $0.10 (See Note 9).
During March 1999, the Company issued 1,930,500 shares of its Common Stock to 12
individual investors and one officer at $0.125 per share under terms of a
private offering for total net cash proceeds of $241,313 (unaudited). In a
related transaction, the Company granted two-year warrants to purchase an
aggregate of 386,100 shares of its Common Stock at $0.20 per share.
During the first quarter of 1999, the Company issued to a former employee 332
shares of its Common Stock representing the Company's 50% matching of shares
previously purchased by the employee pursuant to the terms of the Employee Stock
Purchase Plan.
During April of 1999, the Company issued (1) an aggregate of 7,075 shares of its
Common Stock to two former employees upon exercise of options previously granted
to purchase shares at $0.1875 per share and (2) 100,000 shares of its Common
Stock to a consultant upon exercise of options previously granted to purchase
shares at $0.12 per share.
F-26
<PAGE> 80
MIGRATEC, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1999, and December 31, 1998
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS 03/31/99 12/31/98
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 96,678 $ 17,389
Accounts receivable - billed, net of allowance for doubtful
accounts of $0 and $0, respectively 245,759 279,268
Accounts receivable - unbilled -- 10,000
Shareholder advance 3,766 3,766
Other current assets 20,219 29,624
----------- -----------
Total current assets 366,422 340,047
PROPERTY AND EQUIPMENT, NET 168,795 198,702
OTHER ASSETS
Financing fees 17,802 33,794
Other assets 21,548 21,548
----------- -----------
Total other assets 39,350 55,342
----------- -----------
Total Assets $ 574,567 $ 594,091
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable, net of discount of $13,347 and $25,359, respectively,
including $0 and $30,000, respectively, due to shareholders $ 1,697,319 $ 1,297,579
Accounts payable 321,564 347,294
Accrued expenses 167,554 159,069
Obligation under capital lease 27,584 27,105
----------- -----------
Total current liabilities 2,214,021 1,831,047
LONG-TERM LIABILITIES
Long-term portion of notes payable 48,411 56,165
Long-term portion of obligation under capital lease 6,462 14,283
----------- -----------
Total long-term liabilities 54,873 70,448
MINORITY INTEREST (3,752) (3,752)
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CONVERTIBLE 12% PREFERRED STOCK; $1,000 PAR VALUE; 1,000,000
SHARES AUTHORIZED; REDEEMABLE AT PAR VALUE PLUS CUMULATIVE DIVIDENDS;
NONE ISSUED OR OUTSTANDING -- --
STOCKHOLDERS' DEFICIT
Common stock; no par value; 200,000,000 shares authorized;
57,098,450 and 54,421,618 shares issued at March 31, 1999, and
December 31, 1998, respectively 7,306,475 7,041,890
Additional paid-in capital 1,017,758 886,458
Treasury stock, at cost (9,864,449 shares) (1,777,891) (1,777,891)
Accumulated deficit (8,236,917) (7,454,109)
----------- -----------
Total stockholders' deficit (1,690,575) (1,303,652)
----------- -----------
Total Liabilities and Stockholders' Deficit $ 574,567 $ 594,091
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-27
<PAGE> 81
MIGRATEC, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ 335,576 $ 459,029
COSTS AND EXPENSES
Salaries and benefits 276,700 511,276
Contract labor 57,565 300,181
General and administrative 34,721 61,863
Advertising and marketing 16,023 16,968
Travel 2,891 2,652
Rent 31,950 31,950
Depreciation and amortization 33,600 48,900
Legal and professional fees 16,028 303,541
Year 2000 program costs 444,668 316,044
Bad debt expense -- 1,725
------------ ------------
Total operating expenses 914,146 1,595,100
------------ ------------
Loss from operations (578,570) (1,136,071)
OTHER INCOME (EXPENSES)
Interest income 171 145
Interest expense (57,116) (103,378)
Financing fees (147,293) (7,997)
------------ ------------
Total other income (expenses) (204,238) (111,230)
Minority interest in (income) loss of consolidated subsidiary -- --
------------ ------------
Loss before income taxes and extraordinary item (782,808) (1,247,301)
Provision for income tax expense (benefit) -- --
------------ ------------
Net loss before extraordinary item (782,808) (1,247,301)
Extraordinary income from forgiveness of debt (net of income taxes of $0) -- 5,250
------------ ------------
Net loss $ (782,808) $ (1,242,051)
============ ============
Loss before income taxes and extraordinary item per common share $ (0.02) $ (0.04)
============ ============
Extraordinary income per common share $ -- $ --
============ ============
Net loss per common share (basic and diluted) $ (0.02) $ (0.04)
============ ============
Weighted average common shares and common
equivalents issued and outstanding (basic and diluted) 45,243,109 30,829,925
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-28
<PAGE> 82
MIGRATEC, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Deficit
Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Common Treasury Additional
Stock Stock Treasury Stock Paid-in
Issued Amount Stock Amount Capital
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 30,199,154 $ 2,197,640 (854,903) $(1,068,629) $ 796,263
Issuance of stock in connection with private
placements for cash 13,430,000 2,686,000 -- -- --
Issuance of stock in connection with
conversion of debt to equity 1,375,000 275,000 -- -- --
Issuance of stock in connection with the
exercise of options and warrants for cash 22,500 225 -- -- --
Treasury stock received in exchange for cash -- -- (9,400,000) (740,000)
Issuance of stock for services rendered -- -- 390,454 30,738
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at March 31, 1998 45,026,654 $ 5,158,865 (9,864,449) $(1,777,891) $ 796,263
=========== =========== =========== =========== ===========
Balance at January 1, 1999
54,421,618 $ 7,041,890 (9,864,449) $(1,777,891) $ 886,458
Issuance of stock in connection with private
placements for cash 1,843,000 230,375 -- -- --
Issuance of stock in connection with the
exercise of options and warrants for cash 833,500 34,210 -- -- --
Issuance of warrants for financing fees -- -- -- -- 131,300
Issuance of stock to employees under the
Employee Stock Purchase Plan -
shares matched by employer 332 -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 57,098,450 $ 7,306,475 (9,864,449) $(1,777,891) $ 1,017,758
=========== =========== =========== =========== ===========
<CAPTION>
Accumulated
Deficit Total
----------- -----------
<S> <C> <C>
Balance at January 1, 1998 $(3,996,034) $(2,070,760)
Issuance of stock in connection with private
placements for cash -- 2,686,000
Issuance of stock in connection with
conversion of debt to equity -- 275,000
Issuance of stock in connection with the
exercise of options and warrants for cash -- 225
Treasury stock received in exchange for cash (740,000)
Issuance of stock for services rendered 30,738
Net loss (1,242,051) (1,242,051)
----------- -----------
Balance at March 31, 1998 $(5,238,085) $(1,060,848)
=========== ===========
Balance at January 1, 1999 $(7,454,109) $(1,303,652)
Issuance of stock in connection with private
placements for cash -- 230,375
Issuance of stock in connection with the
exercise of options and warrants for cash -- 34,210
Issuance of warrants for financing fees -- 131,300
Issuance of stock to employees under the
Employee Stock Purchase Plan -
shares matched by employer -- --
Net loss (782,808) (782,808)
----------- -----------
Balance at March 31, 1999 $(8,236,917) $(1,690,575)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-29
<PAGE> 83
MIGRATEC, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (782,808) $(1,242,051)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 33,600 48,900
Financing fees
15,993 7,997
Warrants issued for financing fees 131,300 --
Amortization of discount on notes payable 12,012 25,354
Common stock issued for services -- 30,738
Change in assets and liabilities:
Decrease in accounts receivable 33,509 379,755
(Increase) decrease in unbilled revenue 10,000 (78,630)
Decrease in restricted cash -- 28,150
(Increase) decrease in other current assets 9,405 (8,177)
Increase in other assets -- (25,000)
Decrease in accounts payable (25,730) (1,841)
Increase in accrued expenses 8,485 92,026
Decrease in customer deposits in excess of unbilled receivables -- (171,365)
----------- -----------
Total adjustments 228,574 327,907
----------- -----------
Net cash used by operating activities (554,234) (914,144)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,693) --
----------- -----------
Net cash used in investing activities (3,693) --
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in cash overdraft -- (112,963)
Proceeds from notes payable, excluding shareholder amounts 417,500 704,000
Proceeds from transfer of accounts receivable with recourse -- 77,500
Proceeds from issuance of common stock 264,585 2,961,225
Payments under obligations of capital lease (7,342) (6,894)
Repayment of shareholder advances (30,000) (57,306)
Repayment of notes payable, excluding shareholder amounts (7,527) (504,000)
Repayment of transfer liability -- (265,000)
Purchase of treasury stock -- (740,000)
----------- -----------
Net cash provided in financing activities 637,216 2,056,562
----------- -----------
Net increase in cash 79,289 1,142,418
Cash - beginning 17,389 4,076
----------- -----------
Cash - ending $ 96,678 $ 1,146,494
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 58,455 $ 101,015
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-30
<PAGE> 84
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by MigraTEC, Inc., pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position as of March 31, 1999, and the
results of operations and cash flows for the three months ended March 31, 1999
and 1998. The unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1998, including the accompanying notes.
NOTE 2. BUSINESS ACTIVITY
On February 29, 1996, MigraTEC, Inc. ("MigraTEC"), a Texas corporation, entered
into a reverse acquisition agreement with New York Acquisitions, Inc., a
publicly held "shell" Florida corporation. MigraTEC became a wholly-owned
subsidiary of the public company through the exchange of 11,337,432 shares on a
post-split basis of the public company's common stock for all of the outstanding
stock of MigraTEC. The name New York Acquisitions, Inc., was amended to One Up
Corporation and then subsequently to MigraTEC, Inc.
NOTE 3. GOING CONCERN UNCERTAINTY
As reflected in the accompanying consolidated financial statements, the Company
incurred a loss of $782,808 and used operating cash of $554,234 for the three
months ended March 31, 1999. In addition, the Company's current liabilities
exceed current assets by $1,847,599 at March 31, 1999, and the Company was
unable to meet certain debt maturities at March 31, 1999. The Company's
continued existence and plans for future growth are dependent in part upon its
ability to obtain the capital necessary to operate, primarily through the
issuance of additional debt or equity, and in part on its ability to effectively
penetrate the market for software migration and upgrade services, related
products, and Year 2000 software products and services. If the Company is not
able to achieve break-even, obtain additional or alternative funding, or
generate sufficient sales revenues and cash flows in the near term, the Company
will be unable to continue as a going concern.
Recently, the Company began reengineering its business focus, shifting its
strategic approach to utilizing its technology through the development of
strategic relationships. To continue to fund its operations for 1999, the
Company has (1) completed a private offering during March 1999 which yielded
gross proceeds of $241,313, (2) entered into several short-term notes payable
during the first quarter of 1999 with certain investor groups, including a
director and an officer, totaling $447,500, and (3) received gross proceeds of
$59,537 for the exercise of warrants relating to various short-term notes
payable and the exercise of consultant and employee stock options.
F-31
<PAGE> 85
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
(Unaudited)
NOTE 3. GOING CONCERN UNCERTAINTY (CONTINUED)
Most recently, the Company began the process of obtaining additional capital
through a private offering whereby the Company plans to issue up to 6,000,000
restricted and unregistered shares of its Common Stock at $0.125 per share. The
Company has entered into agreements with two individual investors to purchase
the 6,000,000 restricted and unregistered shares in the private offering. As of
the date hereof, the Company has received proceeds from the private offering
totaling $250,000. In addition, if needed, the Company is considering issuing
additional equity through a private offering during the second half of 1999 in
an amount sufficient to meet the Company's current operating expenses until such
time that product revenues are sufficient to sustain operations of the Company.
Management anticipates that its efforts will move the Company forward with a
focus on achieving improved operating performance by the end of 1999.
The anticipated increase in revenues from additional software tools developed by
the Company coupled with a continued emphasis on controlling costs should
position the Company to achieve improved results for 1999, although no
assurances can be given regarding such increase. While much remains to be
accomplished, management believes that the Company has made significant progress
towards stabilization. While the success of the Company will in part depend upon
its ability to market and sell its products and services, management believes
that the successful implementation of its plan to shift the Company's strategic
approach to utilizing its technology through strategic relationships, should
move the Company forward with a focus on achieving improved results for 1999.
However, there can be no assurance that the Company will generate an increase in
revenues or earnings, or achieve improved operating performance or results.
The financial statements do not include any adjustments to reflect the possible
effects on recoverability and classification of assets or classification of
liabilities which may result from the inability of the Company to continue as a
going concern.
NOTE 4. STOCKHOLDERS' DEFICIT AND STOCK OPTIONS
Subsequent to December 31, 1998, management terminated the 1997 Stock Option
Plan, which had not been approved by the Company's shareholders within the time
specified in the 1997 Plan, and therefore canceled all of the outstanding
options previously issued pursuant to the 1997 Plan. On March 1, 1999, the
Company adopted a new stock option plan, the 1999 Stock Option Plan, authorizing
the issuance of incentive stock options, non-statutory options and reload
options to eligible persons as described in the 1999 Plan. Pursuant to the 1999
Plan, as of the date hereof, the Company has granted to members of its
management and employees options to purchase an aggregate of 1,507,936 shares of
Common Stock of the Company exercisable at prices ranging from $0.3438 to
$0.1875 per share.
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<PAGE> 86
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
(Unaudited)
NOTE 4. STOCKHOLDERS' DEFICIT AND STOCK OPTIONS (CONTINUED)
Pursuant to the terms and conditions of certain short-term loans made to the
Company by certain investor groups, including one director and one officer,
during the first quarter of 1999, the Company granted warrants to purchase an
aggregate of 638,000 shares of its Common Stock at an exercise price of $0.01
per share, fully vested at date of grant. All of these warrants were exercised
prior to March 31, 1999. As a result of issuing these warrants with exercise
amounts below fair value, the Company booked a charge to financing fees of
$131,300.
During the first quarter of 1999, the Company issued 195,500 shares of its
Common Stock to certain investor groups, including two directors and one
officer, as a result of the exercise of warrants previously granted to purchase
shares at prices ranging from $0.20 to $0.01 per share.
During March 1999, the Company issued 1,930,500 restricted and unregistered
shares of its Common Stock to 12 individual investors and one officer at $0.125
per share under terms of a private offering for total net cash proceeds of
$241,313. In a related transaction, the Company granted two-year warrants to
purchase an aggregate of 386,100 shares of its Common Stock at $0.20 per share.
During the first quarter of 1999, the Company issued to a former employee 332
shares of its Common Stock representing the Company's 50% matching of shares
previously purchased by the employee pursuant to the terms of the Employee Stock
Purchase Plan.
During April and May of 1999, the Company issued (1) an aggregate of 7,075
shares of its Common Stock to two former employees upon exercise of options
previously granted to purchase shares at $0.1875 per share and (2) 200,000
shares of its Common Stock to two consultants upon exercise of warrants
previously granted to purchase shares at $0.12 per share.
During April of 1999, the Company began the process of obtaining additional
capital through a private offering whereby the Company plans to issue up to
6,000,000 restricted and unregistered shares of its Common Stock at $0.125 per
share. The Company has entered into agreements with two individual investors to
purchase the 6,000,000 restricted and unregistered shares in the private
offering. As of the date hereof, the Company has issued 2,000,000 restricted and
unregistered shares of its Common Stock to the two individual investors pursuant
to the offering. In a related transaction, the Company granted two-year warrants
to purchase an aggregate of 400,000 shares of its Common Stock at $0.20 per
share.
Substantially all options and warrants granted during the first quarter of 1999
have exercise prices which approximate fair value at the date of grant.
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<PAGE> 87
No dealer, sales representative, or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given, must not be relied upon as having been authorized
by MigraTEC or any of the underwriters. This prospectus does not constitute an
offer of any securities other than those to which it relates or an offer to
sell, or a solicitation of any offer to buy, to any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that the information set forth herein is correct as of any
time subsequent to the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary ..................................................... 2
The Company ............................................................ 2
The Offering and Outstanding Securities ................................ 3
Summary Consolidated Financial
Information ......................................................... 4
Risk Factors ........................................................... 5
Price Range of Common Stock ............................................ 12
Dividend Policy ........................................................ 12
Capitalization ......................................................... 13
Use of Proceeds ........................................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ....................................................... 14
Business ............................................................... 21
Management ............................................................. 28
Summary Compensation Table ............................................. 32
Certain Transactions ................................................... 36
Principal Shareholders ................................................. 39
Selling Security Holders ............................................... 41
Plan of Distribution ................................................... 47
Description of Securities .............................................. 48
Shares Eligible for Future Sale ........................................ 50
Legal Matters .......................................................... 50
Experts ................................................................ 50
Additional Information ................................................. 51
Index to Financial Statements .......................................... F-1
</TABLE>
MIGRATEC, INC.
34,571,469 SHARES OF
COMMON STOCK
PROSPECTUS
------------------
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act contains provisions entitling our directors
and officers to indemnification from judgments, settlements, penalties, fines,
and reasonable expenses, including attorney's fees, as the result of an action
or proceeding in which they may be involved by reason of having been a director
or officer of MIGRATEC. In our Articles of Incorporation, we have included a
provision that limits, to the fullest extent now or hereafter permitted by the
Florida Act, the personal liability of our directors to us or our shareholders
for monetary damages arising from a breach of their fiduciary duties as
directors. Under the Florida Act as currently in effect, this provision limits a
director's liability except where a director breaches a duty. Our Articles of
Incorporation and By-Laws provide that we shall indemnify our directors and
officers to the fullest extent permitted by the Florida Act. The Florida Act
provides that no director or officer of MigraTEC shall be personally liable to
us or our shareholders for damages for breach of any duty owed to us or our
shareholders, except for liability for (i) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (ii) any
unlawful payment of a dividend or unlawful stock repurchase or redemption in
violation of the Florida Act, (iii) any transaction from which the director
received an improper personal benefit, or (iv) a violation of a criminal law.
This provision does not prevent us or our shareholders from seeking equitable
remedies, such as injunctive relief or rescission. If equitable remedies are
found not to be available to shareholders in any particular case, shareholders
may not have any effective remedy against actions taken by directors or officers
that constitute negligence or gross negligence.
Our Articles of Incorporation also include provisions to the effect that,
subject to certain exceptions, we shall, to the maximum extent permitted from
time to time under the law of the State of Florida, indemnify and upon request
shall advance expenses to, any director or officer to the extent that such
indemnification and advancement of expenses is permitted under such law, as may
from time to time be in effect.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of MigraTEC pursuant
to any charter provision, By-Law, contract, arrangement, statute or otherwise,
we have been advised that in the opinion of the commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
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<PAGE> 89
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and resale of our securities offered hereby.
MigraTEC is responsible for the payment of all expenses in connection with the
offering.
<TABLE>
<S> <C>
Registration fee under the Securities Act of 1933 * $ 2,854
Blue Sky filing fees and expenses * 1,000
Printing and engraving expenses * 25,000
Legal fees and expenses * 25,000
Accounting fees and expenses * 25,000
Transfer agent fees and expenses * 6,000
Miscellaneous * 10,000
----------
Total $ 94,854
==========
</TABLE>
* Estimated.
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<PAGE> 90
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On February 28, 1996, we issued an aggregate of 2,267,486 shares of common stock
to two officers pursuant to the exercise of options previously granted on
November 1, 1995, to purchase shares at a price of $0.029548 per share. Each of
the officers were either accredited and/or sophisticated investors, had
preexisting relationships with members of management of MigraTEC, were employees
or members of management of MigraTEC, and/or had access to relevant information
pertaining to the operations or contemplated operations of MigraTEC.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
On March 20, 1996, we completed a private offering of 418,500 shares of common
stock to 23 individual investors at $0.667 per share. Each of the investors were
either accredited and/or sophisticated investors, had preexisting relationships
with members of management of MigraTEC, were employees or members of management
of MIGRATEC, and/or had access to relevant information pertaining to the
operations or contemplated operations of MigraTEC. Accordingly, such issuances
were exempt from the registration requirements of the Act pursuant to Section
4(2) of the Act.
Between April 10, 1996, and April 17, 1996, we issued an aggregate of 1,426,000
shares of common stock, pursuant to the terms of, and as compensation for,
accounting, financial, legal and consulting services provided to us beginning
February 29, 1996, and through April 7, 1997, by seven separate entities. In
addition, we granted to one of the consultants warrants to purchase up to
800,000 shares of common stock at per share prices ranging from $1.00 to $2.50.
Each of the consultants were either accredited and/or sophisticated investors,
had preexisting relationships with members of management of MigraTEC, were
employees or members of management of MigraTEC, and/or had access to relevant
information pertaining to the operations or contemplated operations of MigraTEC.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
On April 18, 1996, we sold 91,000 shares of common stock at prices between $1.50
and $1.75 per share to two executive level employees of MigraTEC. Each of the
employees were either accredited and/or sophisticated investors, had preexisting
relationships with members of management of MigraTEC, were employees or members
of management of MigraTEC, and/or had access to relevant information pertaining
to the operations or contemplated operations of MigraTEC. Accordingly, such
issuances were exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
On June 27, 1996, we issued an aggregate of 320,000 shares of common stock to
two consultants in consideration for consulting services rendered to us between
January 5, 1996 and June 30, 1997. Each of the consultants were either
accredited and/or sophisticated investors, had preexisting relationships with
members of management of MigraTEC, were employees or members of management of
MigraTEC, and/or had access to relevant information pertaining to the operations
or contemplated operations of MigraTEC. Accordingly, such issuances were exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
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<PAGE> 91
Effective December 31, 1996, we issued 15,750 shares of common stock to an
executive level employee pursuant to the exercise of options previously granted
on July 31, 1996, we purchase up to an aggregate of 50,000 shares at $2.00 per
share exercisable through December 31, 1996. The employee was either an
accredited and/or sophisticated investor, had a preexisting relationship with
members of management of MigraTEC, was an employee or member of management of
MigraTEC, and/or had access to relevant information pertaining to the operations
or contemplated operations of MigraTEC. Accordingly, such issuance was exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
On October 30, 1996, we commenced a private offering of up to an aggregate of
$1,500,000 in 7% convertible subordinated debentures pursuant to Regulation S to
five individual investors. Each debenture was convertible at the option of the
holder any time after 40 days following the issuance thereof into shares of our
common stock at a conversion price of 50% of the prior five-day average closing
bid price per share of our common stock. The debentures were offered by Noble
Investment Company of Palm Beach, the placement agent, on a best efforts basis.
On December 31, 1996, we terminated the offering and received $456,750 of net
proceeds therefrom. All of the debentures were converted to a combined total of
10,291,534 shares of common stock between January 30, 1997, and February 4,
1997, at effective per share prices of $0.09125 and $0.04875. On December 31,
1996, the placement agent was entitled to receive a five-year warrant to
purchase 10% of the shares of common stock underlying the debentures sold in the
offering, or 204,878 shares at $0.25625 per share. In addition, on November 12,
1996, we entered into a financial consulting agreement with the placement agent
whereby we granted to the placement agent a five-year warrant to purchase
250,000 shares of our common stock at an exercise price of $1.00 per share.
Effective June 10, 1997, we agreed to grant an additional warrant to the
placement agent to purchase an additional 250,000 shares of our common stock,
thereby reducing the exercise price of the warrants from $1.00 to $0.50.
Subsequently thereto, the exercise price of the warrants was further reduced to
$0.40 per share. Each of the investors were either accredited and/or
sophisticated investors, had preexisting relationships with members of
management of MigraTEC, were employees or members of management of MigraTEC,
and/or had access to relevant information pertaining to the operations or
contemplated operations of MigraTEC. Accordingly, such issuance was exempt from
the registration requirements of the Act pursuant to Section 4(2) of the Act.
On September 3, 1997, we issued 60,000 shares of our common stock to the holder
of a short-term note pursuant to the exercise of a warrant previously granted on
December 15, 1996, to purchase shares at an exercise price of $0.01 per share.
The investor was either an accredited and/or sophisticated investor, had a
preexisting relationship with members of management of MigraTEC, was an employee
or member of management of MigraTEC, and/or had access to relevant information
pertaining to the operations or contemplated operations of MigraTEC.
Accordingly, such issuance was exempt from the registration requirements of the
Act pursuant to Section 4(2) of the Act.
On June 4, 1997, we granted a warrant, fully vested at date of grant, to
purchase 10,000 shares of our common stock at an exercise price of $0.35 per
share to the holder of a short-term note. The warrant is exercisable through
June 3, 2000. The investor was either an accredited and/or
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<PAGE> 92
sophisticated investor, had a preexisting relationship with members of
management of MigraTEC, was an employee or member of management of MigraTEC,
and/or had access to relevant information pertaining to the operations or
contemplated operations of MigraTEC. Accordingly, such issuance was exempt from
the registration requirements of the Act pursuant to Section 4(2) of the Act.
Between June 16, 1997, and November 30, 1997, and pursuant to Rule 506 of
Regulation D, we completed two private offerings of 44.5 units of our securities
consisting of (i) $1,112,500 aggregate principal amount of non-convertible 10%
senior secured promissory notes and (ii) warrants to purchase an aggregate of
2,225,000 shares of our common stock to 32 individual investors. The notes
mature July 1, 1999, and yield interest at a rate of 10% per annum. The warrants
are exercisable at the lesser of market value at the time of the final closing
or $0.50 per share. The warrants are exercisable through July 1, 2000. The
offerings were offered by Noble Investment Company of Palm Beach, the placement
agent, on a best efforts basis. The offerings yielded net proceeds to us of
$984,563. Effective October 31, 1997, the maximum exercise price of the warrants
was reduced from $0.50 to $0.35 per share, thereby increasing the number of
shares underlying the warrants from 2,225,000 to 3,178,591. Each of the
investors were either accredited and/or sophisticated investors, had preexisting
relationships with members of management of MigraTEC, were employees or members
of management of MigraTEC, and/or had access to relevant information pertaining
to the operations or contemplated operations of MigraTEC. Accordingly, such
issuances were exempt from the registration requirements of the Act pursuant to
Rule 506 under Section 4(2) of the Act.
We entered into an agreement with Jeffrey C. Manchester, then a Director of
MigraTEC, effective June 19, 1997, whereby we granted a warrant to purchase
25,000 shares of our common stock at an exercise price of $0.35 per share. The
warrant was vested 100% at grant date, and expires June 19, 2000. The individual
was either an accredited and/or sophisticated investor, had a preexisting
relationship with members of management of MigraTEC, was an employee or member
of management of MigraTEC, and/or had access to relevant information pertaining
to the operations or contemplated operations of MigraTEC. Accordingly, such
issuance was exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
On September 24, 1997, we granted warrants to a consultant to purchase 240,000
shares of our common stock at an exercise price of $0.70 per share. The warrants
vested 6.25% ninety days after grant date, and vest an additional 1/48 each
month thereafter. The warrants are exercisable upon vesting, and expire one year
after fully vested. The consultant was either an accredited and/or sophisticated
investor, had a preexisting relationship with members of management of MigraTEC,
was an employee or member of management of MigraTEC, and/or had access to
relevant information pertaining to the operations or contemplated operations of
MigraTEC. Accordingly, such issuance was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
On October 15, 1997, we issued 1,800,000 shares of our common stock to 11
individual investors at per share prices ranging from $0.25 to $0.30 under the
terms of a private offering for total net cash proceeds of $500,000. We issued
32,000 shares of common stock to Matthew
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<PAGE> 93
Campbell who acted as a finder in connection with the offering. Each of the
investors were either accredited and/or sophisticated investors, had preexisting
relationships with members of management of MigraTEC, were employees or members
of management of MigraTEC, and/or had access to relevant information pertaining
to the operations or contemplated operations of MigraTEC. Accordingly, such
issuances were exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
During the first quarter of 1998, we entered into several short term loan
agreements, with varying terms and maturities, totaling $704,000, with certain
investor groups. Pursuant to the terms and conditions of the loan agreements,
between February 2, 1998, and March 2, 1998, we granted warrants to seven
individual investors, fully vested at date of grant, to purchase up to an
aggregate of 1,810,000 shares of our common stock at exercise prices ranging
from $0.01 to $0.20 per share, exercisable through February 10, 2000. Each of
the investors were either accredited and/or sophisticated investors, had
preexisting relationships with members of management of MigraTEC, were employees
or members of management of MigraTEC, and/or had access to relevant information
pertaining to the operations or contemplated operations of MigraTEC.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
On February 3, 1998, we issued 125,000 shares of our common stock to one
individual at $0.20 per share under a private offering wherein we received net
cash proceeds of $25,000. The investor was either an accredited and/or
sophisticated investor, had a preexisting relationship with members of
management of MigraTEC, was an employee or member of management of MigraTEC,
and/or had access to relevant information pertaining to the operations or
contemplated operations of MigraTEC. Accordingly, such issuance was exempt from
the registration requirements of the Act pursuant to Section 4(2) of the Act.
Between March 9, 1998, and May 6, 1998, and pursuant to Rule 506 of Regulation
D, we completed two private placements, offered on a best efforts basis, for an
aggregate of 22,502,500 shares of our common stock to 82 individual investors
from which we received net proceeds of $4,500,500. As compensation to the
various individuals who acted as finders for the offerings, we granted warrants
to six individuals, Matthew Campbell, Tim Collins, Henry Gellis, Marcus R.
Rowan, a Director of MigraTEC, Benjamin Swirsky, Chairman of our Board and a
Director of MigraTEC, and Deane C. Watson, Jr., a Director of MigraTEC, to
purchase up to an aggregate of 2,147,750 shares of common stock at $0.20 per
share, exercisable through July 1, 2001. Each of the investors were either
accredited and/or sophisticated investors, had preexisting relationships with
members of management of MigraTEC, were employees or members of management of
MigraTEC, and/or had access to relevant information pertaining to the operations
or contemplated operations of MigraTEC. Accordingly, such issuances were exempt
from the registration requirements of the Act pursuant to Rule 506 under Section
4(2) of the Act.
On March 25, 1998, we granted to Mr. Richard G. Dews a transferable warrant to
purchase up to 600,000 shares of common stock at $0.25 per share. The warrant
expires March 25, 2000, pursuant to the terms of a settlement agreement between
us and Mr. Dews. In connection with the preparation of the settlement agreement,
in partial payment of the related legal fees incurred,
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<PAGE> 94
we issued to our two attorneys 390,454 shares of common stock. Each of the
individuals were either accredited and/or sophisticated investors, had
preexisting relationships with members of management of MigraTEC, were employees
or members of management of MigraTEC, and/or had access to relevant information
pertaining to the operations or contemplated operations of MigraTEC.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
Pursuant to provisions of our employment agreement with Mark C. Myers, our Chief
Financial Officer, we granted options to purchase 900,000 shares of our common
stock at an exercise price of $0.20 per share. The options vest at the rate of
1/24 each month beginning April 1, 1998, and are exercisable at vesting at any
time during employment. The officer was either an accredited and/or
sophisticated investor, had a preexisting relationship with members of
management of MigraTEC, was an employee or member of management of MigraTEC,
and/or had access to relevant information pertaining to the operations or
contemplated operations of MigraTEC. Accordingly, such issuance was exempt from
the registration requirements of the Act pursuant to Section 4(2) of the Act.
On May 1, 1998, we granted options to purchase an aggregate of 8,700,000 shares
of common stock to three executive officers of MigraTEC, W. Curtis Overstreet,
President and CEO, Rick J. Johnson, COO, and Joseph B. Meredith, Vice President
of Business Development, at an exercise price of $0.20 per share. The options
were 50% vested on the date of grant, and vest an additional 1/24 each month
thereafter. The options are exercisable at anytime during employment. Each of
the officers were either accredited and/or sophisticated investors, had
preexisting relationships with members of management of MigraTEC, were employees
or members of management of MIGRATEC, and/or had access to relevant information
pertaining to the operations or contemplated operations of MigraTEC.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
On May 1, 1998, we granted options to purchase an aggregate of 4,300,000 shares
of common stock to four directors of MigraTEC, Benjamin Swirsky, Chairman of our
Board, Deane C. Watson, Jr., Marcus R. Rowan, and Richard A. Gray, Jr., at an
exercise price of $0.20 per share. The options vest 1/24 each month beginning
May 31, 1998. The options are exercisable through May 31, 2002. Each of the
directors were either accredited and/or sophisticated investors, had preexisting
relationships with members of management of MigraTEC, were employees or members
of management of MigraTEC, and/or had access to relevant information pertaining
to the operations or contemplated operations of MigraTEC. Accordingly, such
issuances were exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
Between August 26, 1998, and September 22, 1998, we issued 1,537,500 shares of
our common stock to 14 individual investors at a price of $0.20 per share under
the terms of a private offering for total net cash proceeds of $307,500. In
addition, pursuant to the terms and conditions of the private placement, we
granted warrants to purchase up to an aggregate of 1,000,000 shares of our
common stock to five of the individual investors at an exercise price of $0.10
per share. The warrants were fully vested at grant date, and are exercisable
through September 9, 2001. Each of the investors were either accredited and/or
sophisticated investors, had preexisting relationships
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with members of management of MigraTEC, were employees or members of management
of MigraTEC, and/or had access to relevant information pertaining to the
operations or contemplated operations of MigraTEC. Accordingly, such issuances
were exempt from the registration requirements of the Act pursuant to Section
4(2) of the Act.
On October 5, 1998, we granted warrants to two consultants to purchase up to an
aggregate of 200,000 shares of our common stock at an exercise price of $0.12
per share. The warrants were fully vested at the date of grant, and are
exercisable on or before November 19, 2000. Each of the consultants were either
accredited and/or sophisticated investors, had a preexisting relationship with
members of management of MigraTEC, were employees or members of management of
MigraTEC, and/or had access to relevant information pertaining to the operations
or contemplated operations of MigraTEC. Accordingly, such issuance was exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
Between November 25, 1998, and March 19, 1999, we entered into several
short-term loan agreements, with varying terms and maturities, totaling
$627,500, with certain investor groups, including one director and one officer.
Pursuant to the terms and conditions of the loan agreements, we granted two-year
warrants to the 12 individual investors, fully vested at date of grant, to
purchase up to an aggregate of 671,000 shares of common stock at an exercise
price of $0.01 per share. Each of the investors were either accredited and/or
sophisticated investors, had preexisting relationships with members of
management of MigraTEC, were employees or members of management of MigraTEC,
and/or had access to relevant information pertaining to the operations or
contemplated operations of MigraTEC. Accordingly, such issuances were exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
Between March 9, 1999, and July 16, 1999, we issued 6,330,500 shares of our
common stock to 14 individual investors, including one officer, at $0.125 per
share under terms of a private offering for total net cash proceeds of $791,313.
In addition, pursuant to terms and conditions of the private placement, we
granted warrants to purchase up to an aggregate of 1,266,100 shares of our
common stock to the 14 individual investors at an exercise price of $0.20 per
share. The warrants were fully vested at grant date, and are exercisable through
July 16, 2001. Each of the investors were either accredited and/or sophisticated
investors, had preexisting relationships with members of management of MigraTEC,
were employees or members of management of MigraTEC, and/or had access to
relevant information pertaining to the operations or contemplated operations of
MigraTEC. Accordingly, such issuances were exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
On July 1, 1999, we granted warrants to a consultant to purchase 180,000 shares
of our common stock at an exercise price of $0.20 per share. The warrants vest
1/24 each month beginning July 31, 1999. The warrants are exercisable upon
vesting, and expire two years after fully vested. The consultant was either an
accredited and/or sophisticated investor, had a preexisting relationship with
members of management of MigraTEC, was an employee or member of management of
MigraTEC, and/or had access to relevant information pertaining to the operations
or contemplated operations of MigraTEC. Accordingly, such issuance was exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
II-8
<PAGE> 96
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Page
- ------- ----
<S> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 By-Laws (1)
4.1 Form of Common Stock Certificate (1)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. (1)
10.1 Agreement for the Exchange of Common Stock between New York
Acquisitions Inc. and MIGRATEC Inc. (formerly One Up Corporation)
dated February 29, 1996 (1)
10.2 Commercial Lease Agreement between the Company and TDC Dallas Partners
No. 2 Ltd. dated April 7, 1997 (1)
10.3 Employment Agreement between the Company and W. Curtis Overstreet
dated April 10, 1997 (1)
10.4 Employment Agreement between the Company and Joseph B. Meredith
dated June 1, 1997 (1)
10.5 Employment Agreement between the Company and Rick J. Johnson
dated July 1, 1997 (1)
10.6 Employment Agreement between the Company and Mark C. Myers
dated April 1, 1998 (1)
10.7 Settlement Agreement between the Company and Richard G. Dews
dated March 25, 1998 (1)
10.8 Strategic Product Assessment Report prepared for the Company by
Deloitte & Touche Consulting Group dated April 6, 1998 (1)
10.9 Agreement between the Company and Reasoning Inc. dated
August 4, 1998 (1)
10.10 Agreement between the Company and Electronic Data Systems Corporation
dated September 1, 1998 (1)
23.1 Consent of King Griffin & Adamson P.C. (2)
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. [contained in such
firm's opinion filed as Exhibit 5.1] (1)
24.1 Power of Attorney relating to the signing of amendments hereto is
incorporated in the signature pages of this Registration Statement (2)
27.1 Financial Data Schedule (2)
27.2 Financial Data Schedule (2)
</TABLE>
(1) Previously filed
(2) Filed herewith
II-9
<PAGE> 97
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information set forth in the Registration
Statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities Act of
1933, as amended, treat each post-effective amendment as a new
registration statement relating to the securities offered, and
the offering of the securities at that time to be the initial
bona fide offering.
(3) To file a post-effective amendment to remove any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-10
<PAGE> 98
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Post Effective Amendment No. 2 to Form SB-2
and authorized this Registration Statement to be signed on its behalf by the
undersigned, in the city of Dallas, State of Texas, on August 3, 1999.
MIGRATEC, INC.
By: /s/ W. CURTIS OVERSTREET
-----------------------------------
W. Curtis Overstreet, President and
Principal Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below
constitutes and appoints W. Curtis Overstreet and Benjamin Swirsky or either of
them, such person's true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities (including such person's capacity as
a director and/or officer of MigraTEC, Inc.) to sign any and all amendments
(including post-effective amendments pursuant to Rule 462(b) or otherwise) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------------------------------------------------
<S> <C> <C>
President, Principal Executive
/s/ W. CURTIS OVERSTREET Officer and Director August 3, 1999
- --------------------------- --------------
W. Curtis Overstreet
Chairman of the Board and
/s/ BENJAMIN SWIRSKY Director August 3, 1999
- --------------------------- --------------
Benjamin Swirsky
Principal Financial Officer and
/s/ MARK C. MYERS Secretary August 3, 1999
- --------------------------- --------------
Mark C. Myers
/s/ CYNTHIA K. ALDERMAN Principal Accounting Officer August 3, 1999
- --------------------------- --------------
Cynthia K. Alderman
/s/ DEANE C. WATSON, JR. Director August 3, 1999
- --------------------------- --------------
Deane C. Watson, Jr.
Vice Chairman of the Board
/s/ MARCUS R. ROWAN and Director August 3, 1999
- --------------------------- --------------
Marcus R. Rowan
/s/ RICHARD A. GRAY, JR. Director August 3, 1999
- --------------------------- --------------
Richard A. Gray, Jr.
</TABLE>
II-11
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
23.1 Consent of King Griffin & Adamson P.C.
24.1 Power of Attorney relating to the signing of amendments hereto is
incorporated in the signature pages of this Registration Statement
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT FOR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in Post Effective Amendment No. 2 to Form SB-2,
Registration Statement under the Securities Act of 1933, of Migratec, Inc. and
Subsidiary of our report dated April 19, 1999, on the financial statements of
Migratec, Inc. and Subsidiary as of December 31, 1998 and 1997, accompanying the
financial statements contained in Post Effective Amendment No. 2 to Form SB-2,
and to use our name and the statements with respect to us as appearing under the
heading "Experts" in Post Effective Amendment No. 2 to Form SB-2.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
August 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997, FILED AS PART OF FORM 10-KSB ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB ANNUAL
REPORT FOR THE YEAR ENDED DECEMBER 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 17,389
<SECURITIES> 0
<RECEIVABLES> 289,268
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 340,047
<PP&E> 829,437
<DEPRECIATION> 630,735
<TOTAL-ASSETS> 594,091
<CURRENT-LIABILITIES> 1,831,047
<BONDS> 0
0
0
<COMMON> 7,041,890
<OTHER-SE> (8,345,542)
<TOTAL-LIABILITY-AND-EQUITY> 594,091
<SALES> 0
<TOTAL-REVENUES> 1,454,150
<CGS> 0
<TOTAL-COSTS> 4,741,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 374,317
<INCOME-PRETAX> (3,741,074)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,741,074)
<DISCONTINUED> 0
<EXTRAORDINARY> 282,999
<CHANGES> 0
<NET-INCOME> (3,458,075)
<EPS-BASIC> (0.086)
<EPS-DILUTED> (0.086)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1999, FILED AS
PART OF FORM 10-QSB QUARTERLY REPORT FOR THE THREE MONTHS ENDED MARCH 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB QUARTERLY
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 96,678
<SECURITIES> 0
<RECEIVABLES> 245,759
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 366,422
<PP&E> 833,131
<DEPRECIATION> (664,336)
<TOTAL-ASSETS> 574,567
<CURRENT-LIABILITIES> 2,214,021
<BONDS> 0
0
0
<COMMON> 7,306,475
<OTHER-SE> (8,997,050)
<TOTAL-LIABILITY-AND-EQUITY> 574,567
<SALES> 0
<TOTAL-REVENUES> 335,576
<CGS> 0
<TOTAL-COSTS> 914,146
<OTHER-EXPENSES> 131,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,109
<INCOME-PRETAX> (782,808)
<INCOME-TAX> 0
<INCOME-CONTINUING> (782,808)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (782,808)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
