U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......... to ...............
Commission File No. 33-42904
INTELLIGENT DECISION SYSTEMS, INC.
(Successor to Resource Finance Group, Ltd.)
(Name of small business issuer in its charter)
DELAWARE 38-3286394
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Weyhill Building, Suite 400
2025 East Beltline Avenue, S.E.
Grand Rapids, Michigan 49546 616-285-5830
(Address of principal executive offices) (Issuer's Telephone No.)
Securities registered under Section 12(b) of the Exchange Act:
Securities registered
pursuant to Section 12(g) of the Exchange Act: Common Stock, $.001 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days: Yes [x]
No [ ].
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $635,994.
As of September 17, 1996, a total of 12,821,218 shares of common stock were
outstanding. The aggregate market value of the shares of common stock of the
registrant held by non-affiliates, (based upon the bid price of the registrants
common stock on September 17, 1996 of $1.6875 per share) was approximately
$17,886,908.
Transitional Small Business Disclosure Format: Yes [ ] No [x]
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PART I
Item 1. - Description of Business
Background
IDSI is a holding corporation formed under the laws of Delaware in June,
1995 in connection with the merger between Digital Sciences, Inc. ("DSI" and
Resource Finance Group, Ltd.("RFG"). DSI Acquisition Corp. was also formed as a
Delaware corporation in June, 1995. On April 1, 1996, RFG merged with and into
IDSI and IDSI issued 7,314,636 shares of common stock in exchange for all of
DSI's outstanding common shares, which were registered via an S-4 Registration
Statement that was declared effective in February, 1996. On April 1, 1996,
Digital Sciences, Inc. (a Nevada corporation) merged with and into DSI
Acquisition Corp. and wholly owned subsidiary of the Company. DSI Acquisition
Corp. subsequently changed its name to Digital Sciences, Inc.
Resource Finance Group, Ltd. ("RFG" or "RFGP") was incorporated August 12,
1991, under the laws of the State of Colorado. From inception until April 15,
1993, RFG attempted to engage in the business of financing equipment for
operators of South American mines, which efforts ceased April, 1993.
On June 30, 1993, RFG acquired all of the assets of Digital Video Graphics,
Inc., a Michigan corporation then doing business as ONYX Systems, Ltd. ("ONYX"),
owned by Joseph J. Walsh and James M. Keller, Jr. The assets involved included
equipment, inventory, customer relationships and other business intangibles. The
acquired company possessed relationships with established customers and vendors
in the commodity computer hardware business. The purchase was financed by
promissory notes totaling $26,500 issued to the previous owners and the
assumption of the acquired company's liabilities which were $315,153. The
acquisition was effected, to, among other things, leverage ONYX's relationships
with other computer and hardware suppliers and similar networks.
In 1993, RFG entered into a supply agreement with Crutchfield Corporation,
a large electronics catalogue company, which called for sales of RFG's Onyx
personal computer under the Crutchfield name. Approximately $3 million of these
sales were made during fiscal 1994, accounting for 43% of RFG's revenues during
fiscal 1994. Early in fiscal 1995, the RFG permitted the agreement lapse, by its
terms due to increasing losses.
During fiscal 1994, RFG attempted to sell its multimedia line of computers
through the establishment of a telemarketing and customer service operation. RFG
discontinued these efforts in December, 1994. Then, RFG briefly entered the
wholesale computer component business, incurred losses, and ceased its efforts
later in fiscal 1994. In fiscal 1994, RFG opened a retail computer store named
"Floppy Joe's" in Grand Rapids, Michigan, and closed the operation in January,
1995 after experiencing losses.
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In May, 1994, RFG entered into an agreement with DSI to acquire DSI's
intellectual property ("Screenware") for 1 million shares of RFG's common stock.
Under this agreement, RFG retained voting rights over those shares for a two
year period. RFG then licensed Screenware to DSI for 99 years, but retained the
right to 30% of all revenues from projects performed using Screenware that are
arranged by RFG, and 5% of all revenues derived from any other use of
Screenware.
Additional infusions of equity occurred during fiscal 1994 via a series of
private placements. Gross proceeds from these offerings were in excess of $2
million in equity capital, which had been substantially disbursed as of December
31, 1994.
In August, 1994, RFG entered into an agreement (the "Consortium Agreement")
with DSI and National Purchasing Corporation ("NPC") that provided for the
development and distribution of computerized business systems designed
specifically for the long term health care industry. Nursing homes form the
greater part of this market segment.
In April, 1995, RFG agreed to provide DSI with software programming,
accounting and other administrative services in return for funding of these
services.
In August, 1995, RFG and DSI entered into a Joint Operating Agreement
pursuant to which RFG and DSI would cooperate in sharing the costs of certain
operational matters. Under the Joint Operating Agreement, RFG provided DSI with
accounting, financial reporting, payroll and administrative services and
programmers on a subcontracted basis and DSI provided RFG with funds adequate to
cover the costs of maintaining RFG's corporate, legal, financial, accounting and
administrative capabilities. The Joint Operating Agreement was terminated as of
April 1, 1996, effective the date of the merger(the "Merger") of DSI with RFG's
successor corporation, IDSI.
On June 28, 1996, IDSI purchased substantially all the assets of The
Neptune Group, Inc. ("TNG") and those of its subsidiaries. The assets purchased
consisted of primarily cash, accounts receivable and notes receivable, the total
value of which is approximately $1.73 million. IDSI issued 750,000 restricted
shares of common stock to TNG for those assets and assumed certain liabilities,
which totaled approximately $0.25 million. IDSI agreed to file a registration
statement covering the stock issued to TNG by September 30, 1996, and TNG agreed
not to sell those shares for a period of one year plus one day after the closing
date of the transaction.
On June 28, 1996, IDSI privately placed 1,631 shares of its Series A
Convertible Preferred Stock at a per share price of $1,000 for net proceeds of
$1,500,520. The preferred shares are convertible into common shares of IDSI
after the following dates: one-third on or after August 17, 1996, an additional
one-third on or after September 11, 1996 and the final one-third on or after
October 6, 1996. These shares are convertible at 78% of the average market price
of IDSI common stock for the five days immediately prior to conversion.
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Products and Services
IDSI is engaged in the development, through its wholly owned subsidiary,
DSI, of the Vision computer system ("Vision") in conjunction with NPC. Effective
July 13, 1994, DSI, RFG and NPC entered into a 12 year agreement to jointly
develop, market and license an interactive, multimedia computerized business
computer system for long term healthcare facilities, specifically nursing homes.
Under this agreement, the software developed is owned by HPSI Online, Inc., a
California corporation and a wholly owned subsidiary of NPC (also referred to as
"HPSI"). NPC and IDSI each have equal representation on the Board for HPSI
Online, Inc. The agreement states that the system is to be capable of electronic
order processing through an on-line network between HPSI, HPSI members and
vendors/suppliers as well as multimedia cataloging and advertising of
vendor/supplier products. The agreement requires IDSI, as successor to RFG and
DSI, to assemble the computer hardware and multimedia applications and to
produce the software. HPSI is required to market and license the system. The
agreement requires that certain revenues from the sales of the computer systems
and software will be divided equally between IDSI and HPSI on a 2/3:1/3 basis,
respectively. The software development necessary for the introduction of the
Vision system for HPSI's long-term care facility clients is complete and has
been available for sale/lease since November, 1996, on a limited basis.
There are over 20,000 long term health care facilities operating in the
United States. Of these, more than one-third are not yet computerized to any
significant degree. Electronic data gathering and reporting have been mandated
by the Health Care Financing Administration, a governmental agency responsible
for the oversight of Medicare and Medicaid payments. This mandate has created
demand for sophisticated computing systems for the industry. Additionally, the
growing influence of managed care and other forms of cost containment has
increased demand for products that help long term care facilities increase the
productivity of their resources in general. Productivity enhancements include
more complete billing of resources, better planning and, hence, better
utilization of resources , better control loops to spot problems and better
training of employees to improve the quality and efficiency of care.
IDSI also provides lease financing to medical equipment and computer users
in the health care industry through its wholly owned subsidiary, TNG. TNG owns
lease agreements for its own account and also performs lease brokering for large
financing companies. TNG has written 26 leases resulting from installations of
Vision systems in the long term care segment of the heath care industry.
Distribution
Under the terms of the Consortium agreement, NPC, acting is responsible for
the selling and distribution of the Vision system. HPSI purports to be one of
largest buying cooperatives in the United States doing business with the long
term non-acute health care providers, representing approximately 3,000 long term
care facilities and hospitals, among others. HPSI employs approximately 40 sales
representative across the United States and has represented to IDSI that it
enjoys long standing relationships with state and regional health care
associations and organizations.
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Competition
The table below lists the companies that compete directly with IDSI with
information systems products for the long term care segment. Each percentage
point of market share equals approximately 207 installed systems.
Competitors and Estimated Market Share
Market Share Related
Company % Employment
Care Computer Systems 11.1 120
Achieve Healthcare Information Systems 9.2 100
Medical Communications Software 6.8 40
American Healthtech 5.8 75
Accu-Med Services 5.3 55
Add-On Health Systems 3.9 30
Health Outcomes Management 3.9 35
Keane * 3.6 130
Others 9.8 unaval.
No Computer Systems Functioning 40.6 n/a
TOTAL 100.0
* Keane employs 5,338 employees overall, with 130 involved in software
development related to health care software.
In the rapidly changing health care environment, companies are competing on
the basis of their installed base, the adaptability and "openness" of their
product and on the simplicity of its use, including the effectiveness of their
training and technical support, and their financial resources. Given elements of
product suitability are conformance with HCFA, state and local data gathering
and reporting requirements, affordability and availability.
Sources of Raw Materials
Computer components, including personal computer hardware and operating
systems software, represent a majority of the Company's source materials.
Relative to its anticipated needs, supplies of these components are plentiful
and historically inexpensive. Many established distributors make available the
components included in the Company's bundled computer systems.
Major Customers
Although many large nursing home chains exist, most long term care
facilities are owned by organizations comprised of less than 50 facilities. One
dominant chain owns over 700 such homes, and the top five chains operate 7.6% of
long term care facilities nationwide. No one customer is using more than 10% of
the 30 Vision system units currently in operation.
HPSI Online will be the corporation responsible for collecting ancillary
revenues from the Vision project and for disbursing these revenues to the
Consortium members. As such, it will likely be a major customer of the Company.
The ultimate users of the Vision systems are expected to be less concentrated.
While the Company does not own any share of HPSI Online, by contract it has the
right to choose one-half of the Board of Directors of HPSI Online and share in
its revenues.
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Trademarks, Licenses and Similar Agreements
The Company has a perpetual, non-exclusive, and nontransferable right and
license (except to grant sublicenses) to the Vision system described above. The
license shall be exclusive to HPSI's customer class and the Company has no
license to the Vision system with respect to HPSI's customer class.
The Company has an exclusive license to purchase from Visual Information
Services Corp. and utilize the electronic set top converter box created by
Visual Information Services Corp. which allows a user to interact with
programming transmitted to a television set using the electronic set top
converter box operating system. The use of the licensed product shall be solely
within the health care industry in the United States and Canada. The term of the
license began on January 1, 1995 and expires ten years from that date unless
renewed by the parties.
Employees and Consultants
The Company employed 34 people at June 30, 1996 of which 4 were located in
Grand Rapids, Michigan, 28 in Sandy, Utah, 1 in Stamford, Connecticut and 1 in
North Canton, Ohio. Five more employees were added subsequently on July 1, 1996
and are also located in Stamford, Connecticut. The Company also has contractual
relationships with 7 consultants.
Item 2. Description of Property
The Company's corporate headquarters are located in Grand Rapids, Michigan.
The location is used to facilitate the general corporate, administrative,
accounting and legal activities of the Company. The 2,768 sq. ft. facility is
leased by the Company at an annual base rent of $34,212 and the initial lease
term expires March 31, 1998.
The Company's subsidiary, DSI, leases space in Draper, Utah. This location
is used to facilitate software programming, computer integration, customer
services and administrative activities. The 9,180 sq. ft. facility is leased by
the Company at an annual base rent $68,134 and the initial lease term expires
October 31, 2000.
The Company's subsidiary, The Neptune Group, Inc., will occupy leased
premises in Wilton, Connecticut. This location is used to facilitate the leasing
business and administrative functions of the subsidiary. General leasing and
administrative functions are performed there. The facility, which will be
leased, contains 7,138 square feet. The annual base rent for the current lease
is $101,717 and the current lease term expires August 31, 2001.
Facilities' rent expense totaled $60,820 for the year ended June 30, 1996
which includes the Digital Sciences, Inc. rent from and after April 1, 1996 and
does not include the Neptune Group, Inc. rents as no rents were incurred prior
to June 30, 1996. Rents through the year ended June 30, 1996 for the Michigan
location were $36,433, for the Utah location from April 1, 1994 were $24,387,
and for the Connecticut location were $0.00.
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Item 3. Legal Proceedings
The Neptune Group, Inc. vs. MKT, Inc. The Neptune Group, Inc., ("New
Neptune") (a Michigan corporation) was formed and became a subsidiary of the
Company in July of 1996 through an asset purchase with The Neptune Group, Inc.
(a Delaware corporation - "Old Neptune"). Intelligent Decision Systems, Inc.
assumed the defense and potential liability from the lawsuit described below
pursuant to the terms of the June 1996 asset purchase agreement with Old
Neptune. The potential liability accrued prior to the Company's purchase of Old
Neptune's assets. Old Neptune is presently involved in litigation with MKT, Inc.
("MKT"), which served as Old Neptune's sales agent between 1989 and 1993 for the
leasing of computer equipment manufactured by Cray Research, Inc. ("Cray"). On
April 8, 1994, Old Neptune filed suit in the United States District Court for
the District of Connecticut, seeking to enforce MKT's contractual obligation to
act solely on Old Neptune's behalf in all Cray- related matters. Old Neptune
also sought damages for any breaches and a declaratory judgment that it has
fully paid all amounts to which MKT was entitled. The following week, MKT
brought suit in Arizona claiming Old Neptune owed it an additional $744,897 in
commissions, plus interest. Old Neptune moved to dismiss that action in
deference to the Connecticut proceeding. The Arizona court granted Old Neptune's
motion on March 17 1995 and, on June 6, 1996, dismissed the action. The
Connecticut proceeding is currently pending.
On March 29, 1996, Old Neptune amended its Connecticut complaint to include
claims for breach of fiduciary duty, fraud, and unfair trade practices, as well
as for breach of contract based on deposition admissions of Mr. Tress (an
officer of MKT) and other evidence. The amended complaint asserts that MKT
misappropriated to itself certain profitable business with Telenet
Communications Corporation, refused to bring to Old Neptune potential Cray
transactions that would have been profitable to Old Neptune, restructured one
transaction between Cray and Old Neptune solely for its own benefit, contacted
Cray on several occasions voicing dissatisfaction with Old Neptune, and
concealed its breaches and intention not to honor its agreements from Old
Neptune. In addition to a declaratory judgment, the amended complaint seeks
compensatory damages (including lost profits and the commissions it paid to
MKT), punitive damages, and attorney fees.
On April 10, 1996, MKT served its answer, along with counterclaims for
breach of contract, breach of the implied covenant of good faith and fair
dealing, and unfair trade practices. MKT also named Concord Asset Management,
Inc. ("Concord") as a counterclaim defendant on claims of unfair trade practices
and interference with business relationship. MKT asserts that Old Neptune
breached its contract with MKT in meeting with Cray and Concord without Mr.
Tress being present. The counterclaims seek monetary damages (including
additional commissions of $753,419.50), statutory interest, punitive damages,
and attorney's fees.
Without further discovery from MKT and third parties, the Company has no
basis to estimate the possible damages on Old Neptune's claims. The Company also
expresses no opinion on the likely outcome with respect to MKT's counterclaims.
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Management does not believe that this legal action, when ultimately
concluded and determined, will have a material adverse effect upon IDSI's
financial condition, results of operations or liquidity.
Management is aware that the Company is the subject of an investigation by
the Staff of the Securities and Exchange Commission. Management believes that
this investigation primarily concerns certain stock offerings to overseas
investors made by the Company in reliance upon Regulation S under the Securities
Act, but may relate to other operational matters as well. The management of the
Company believes that the Company has not engaged in any wrongdoing and intends
to cooperate fully with such investigation.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter ended June 30,
1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Market Information
The Company's outstanding Common Shares are quoted (symbol IDSI previously
RFGP) on the OTC (Over-The-Counter) Electronic Bulletin Board operated by the
National Association of Securities Dealers, Inc. The table below sets forth the
high and low bid quotations for the common stock for the last two fiscal years.
High Low
July 1 - Sept. 30, 1994 21* 12*
Oct. 1 - Dec. 31, 1994 22* 12*
Jan. 1 - Mar 31, 1991 5-1/2* 12*
Apr. 1 - June 30, 1995 15* 8*
July 1 - Sept. 30, 1995 6-1/2* 0*
Oct. 1 - Dec. 31, 1995 3* 0*
Jan. 1 - Mar 31, 1996 1/2* 0*
Apr. 1 - June 30, 1996 3-15/16** 2**
These prices are based on the Company's research and reflect only
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
*The above prices represent historical prices for Resource Finance Group,
Ltd. (RFGP) Common Stock which have been adjusted to reflect the exchange ratio
used in the merger of RFG into IDS whereby each four shares of RFGP Common Stock
became one share of IDSI Common Stock.
**The above prices are for IDSI Common Stock. IDSI Common Stock began
trading on April 1, 1996.
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Holders
The Company had approximately 1,574 holders of record as of September 17,
1996, which number does not include shareholders whose shares are held in street
or nominee names.
Dividends
The Company does not expect to pay a cash dividend upon its capital stock
in the foreseeable future. Payment of dividends in the future will depend on the
Company's earnings (if any) and its cash requirements at that time.
Item 6. Management's Discussion and Analysis.
Upon consummation of the Merger, previous DSI shareholders held
approximately 85% of the stock of IDSI. As a result, DSI is deemed to be the
successor for purposes of accounting and financial reporting. Accordingly, the
results of operations for RFG are included for the period commencing April 1,
1996 only. The results from operations of TNG are included for the period
commencing June 28, 1996. The fiscal year adopted for the surviving accounting
entity continues to end on June 30 of each year.
The Company's principle focus will continue to be the development of a
large installed base of Vision and Vision-related computing systems concentrated
in the long-term health care industry. A significant number of long-term care
facilities are "nursing homes" and are referred to as such herein. There are
20,738 such facilities in the United States according to industry data
compilations. Over 40% of these facilities are not using any form of
computerized information processing despite governmental mandates that now
require electronically gathered and reported patient/resident information.
The Vision system for nursing homes was developed pursuant to an agreement
with HPSI. HPSI negotiates supply contracts and provides other services to
approximately 3,000 nursing homes. A subsidiary of HPSI, "HPSI On-line", is the
owner of the Vision system. IDSI receives all of the revenues derived fromt he
provision of computer hardware, hardware maintenance, software support and
software maintenance. IDSI has the right to designate one-half of the director
positions of the Board of HPSI On-line and to receive 67% of other revenues that
may be generated by HPSI On-line, in particular, possible future transactions
fees for the use of the planned Vision Intranet.
Under the terms of the Agreement, DSI is responsible for the installation
of Vision Systems and for training users of the system. HPSI is responsible for
the marketing and sale of Vision systems pursuant to agreements signed in 1994.
HPSI receives a sales commission for each system installed. HPSI is often
involved in training activities also and receives a fee for those activities as
well.
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A majority of HPSI's members involved in nursing homes are smaller and
mid-sized nursing home chains (consisting of 10 to 40 nursing homes). The
largest nursing home chain, Beverly Enterprises, which is not currently a member
of HPSI, operates 746 facilities nationally and the top five chains together
operate 1,585 homes or about 8% of the total market. The top twenty chains
operate 13% of the total market, however, the most rapidly growing segment of
the industry is comprised of nursing home chains operating between 10 and 40
homes, with and for whom HPSI is most active.
The Vision system is designed to be one of the most comprehensive
information processing products for nursing homes in the market. Most
competitive products focus on accounting or clinical or dietary aspects of
nursing home activities but do not provide integrated modules addressing each
aspect. A significant trend in the generalized heath care industry with respect
to information systems involves patient centered records. Information systems
providers are being called upon to design systems that record and report all
significant events that occur surrounding the patient in one seamless database.
The need for a high degree of interconnectivity between these databases used by
hospitals, physicians, pharmacists and nursing homes is now almost universally
recognized.
Operating losses, incurred in connection with the development of the Vision
system, total approximately $7.5 million since the Company's inception in 1993.
Implementation of the Company's marketing and sales plan, which is critically
dependent on HPSI, has begun, but is almost two years behind the Company's
original plan. However, the functionality of the Vision system has become
increasingly more comprehensive and powerful throughout its development and more
so than originally planned so as to meet the rapidly developing needs of an
industry that very recently was slow to seek and use computerized information
products.
During 1996, the Company negotiated an installation and maintenance
contract with International Business Machines ("IBM") that provides for a much
needed national presence and capability. The IBM agreement has enabled the
Company to concentrate on the completion of the development of all basic
software modules and the related training program. Because of the comprehensive
scope of the Vision product, effective training has been identified as a key
success factor for the system. The development of an effective training program
is scheduled for completion in early calendar 1997.
Currently, the top four information system providers to the nursing home
industry service approximately 33% of the facilities in the total potential
market and approximately 55% of those already using computerized information
products. Of these, Care Computer Systems is the largest with 11.1% of the total
potential market. Most of these company's were started in the late 1980's and
some as recently as 1994. Most employ sizeable direct sales forces. If HPSI can
distribute the Vision system effectively, the Company could enjoy a significant
cost advantage over those that must maintain a dedicated sales presence. The
Company's objective is to provide a technologically superior product and
distribute through an existing channel, thereby allowing the Company to allocate
more of its resources to development, relative to the competition. The Company's
primary competitive disadvantage is the sizeable installed bases enjoyed by the
market share leaders.
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Because the development of the Vision system has taken longer than
originally planned, installations of the systems are significantly behind
planned levels as well. Consequently, continuing operating losses resulted in
the Company seeking additional obtain new funds in 1996 and 1995, primarily
through the private placement of equity securities. Additionally, the Company
has had to issue approximately 5 million options and warrants for its stock in
order to obtain necessary financial and operational consulting services. The
resulting dilution may make it more difficult to obtain equity financing on
acceptable terms in the future.
Vision system users generally sign a 48 month lease for use of the system,
thereby allowing them to conserve their cash and to match their expenditures
with their monthly receipts. All of these leases that were provided to users
with acceptable credit ratings were written by The Neptune Group, Inc. This type
of financing arrangement is a key part of the marketability of the Vision system
package. In most cases, TNG sells the lease payment streams to third parties,
collects a financing and finders fee, and remits cash equivalent to the cash
price of the system to DSI, thereby providing DSI, and hence IDSI, with
immediate cash flow from the installation of systems. In order to secure this
advantage for potential future users and for the Company, in 1996 IDSI purchased
substantially all of the assets of The Neptune Group, Inc. by issuing 750,000
shares of common stock and assuming certain liabilities totaling $0.25 million.
Cash of $1.3 million was the most significant asset at the time of the purchase.
Liquidity and Capital Resources
During 1995, the Company experienced operating losses of $4.26 million,
$1.94 million of which related to a non-cash write off an investment in RFG. The
Company financed the net shortfall of $2.32 million by the private placement of
debt, principal amount $1.47 million, with approximately 40 qualified investors
raising net proceeds of $1.38 million and by issuing 3.87 million shares of
common stock for cash totaling $1.61 million. The Company, which was then
Digital Sciences, Inc., had $0.6 million in cash on hand on June 30, 1995.
During 1996, the Company had a net loss of $4.49 million, of which $0.77
million was a non-cash charge for stock issued for services, $0.38 million
resulted from a non-cash charge from further impairment of its investment in RFG
prior to the merger of DSI and RFG. Other non-cash charges included depreciation
and amortization of $0.39 million. The shortfall in internally generated funds
was more than offset by the private placement of of common stock totaling 1.57
million shares, which netted $1.14 million in cash proceeds, and other actions
taken as described below. The Company also retired $1.49 million of private
placement debt in 1996 as all holders of that debt exchanged the debt in lieu of
the cash required for the exercise of Series A stock purchase warrants. The
former debt holders received a total of 0.88 million shares of common stock in
exchange for the debt.
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The Company collected $0.66 million of related party receivables and also
obtained $1.3 million in cash from its acquisition of TNG. At the same time, the
Company issued 1,631 shares of its Series A Preferred Stock for $1,000 per share
yieding net cash proceeds of $1.5 million. These preferred shares are
convertible in common stock at prices equal to 78% of the market price of the
stock at conversion. One third of these shares may be converted 50 days after
the issue date, which was June 27, 1996, one third after 75 days and one third
after 100 days. As of September 26, 1996, 150 shares, representing $0.15 million
of face value, has been converted into 121,466 common shares at an average
conversion price of $1.23. Under the terms of the Preferred Stock Investment
Agreement, for the first 100 days, the Company must maintain total assets of at
least $4 million, net assets of at least $2 million and also maintain assets in
its wholly owned subsidiary, TNG, equal to the face amount of the unconverted
preferred stock. Should those covenants not be maintained for the requisite 100
days after original issue, the holder of the preferred stock could, at its
option, convert the remaining unconverted preferred stock into a demand note
equal to the face value of the remaining unconverted preferred stock. Management
believes these covenants have been maintained and will be fully maintained for
the remainder of the required term.
IDSI, through its wholly owned subsidiary DSI, must sell approximately 25
systems per month to fully fund its current operations from internally generated
sources. The most systems sold in any month to date has been four.
Results of Operations
The main activity of the Company has been the development of the Vision
system. In 1996, the Company installed 18 of these systems and received orders
and credit applications for 9 more, which have been installed subsequent to the
end of the 1996 fiscal year. Although the systems are leased, the term of the
standard leasing arrangement runs for more than 75% of the estimated useful life
of the system, resulting in sales type lease accounting for these installations.
For that reason, the Company speaks in terms of "sales of Vision systems". Sales
of Vision systems totaled $636,994 during 1996. There were no units sold in
1995, and revenues for that period were $50,346, consisting mainly of hardware
sales and rents associated with the five DSI/Med computer systems which were
installed in 1994 and 1995. No installations of this system for physicians'
offices were installed in 1996.
Although a total of 27 systems are currently in operation with users, HPSI
considers these systems to be in final testing phase and plans to begin full
implementation of its marketing and sales plan in late calendar 1996.
Costs of goods sold increased to $362,204 in 1996 from $58,487 as a result
of the introduction of the Vision system to a limited sample of HPSI's
clientele. Development costs totaled $1,529,347 during 1996, an increase of 462%
over the $330,980 expended in 1995. Total employment increased to 34 at June 30,
1996 from 4 at June 30, 1995. Administrative expenses increased to $2,170,141 in
1996 from $1,914,490 in 1995, which was reflective of the cost of legal and
accounting services associated with the Company's S-4 registration statement
that was declared effective on February 9, 1996, the various stock issuances and
expenses related to the actual merger of DSI and RFG, and expenses attributable
to evaluation of potential acquisition candidates, and the purchase of The
Neptune Group, Inc.
12
<PAGE>
Depreciation and amortization increased in 1996 to $391,031 from $75,622 in
1995 relating to the acquisition of intellectual property via the merger with
RFG.
Interest expense increased to $247,694 in 1996 from $85,793 in 1995 due to
the private placement of debt totaling $1,470,000 in early calendar 1995. The
debt carried an interest rate of 15% per annum, payable quarterly. The debt was
retired in June, 1996 as all debt holders tendered the debt as payment for
common stock issued pursuant to the exercise of warrants provided as a unit with
the original debt issuance.
Losses from impairment of DSI's investment in RFG, consisting of 1 million
shares, were $375,000 in 1996 and $1,937,000 in 1995. The stock of RFG was
received in 1994 in exchange for DSI's proprietary software application
generator, "Screenware". The value of RFG's restricted stock was appraised and
recorded at $2.5 million at the time of the exchange. Subsequently, the market
value of RFG's restricted stock, representing a 50% discount from the low bid
quotation of RFG stock on the Nasdaq Over-The-Counter Electronic Bulletin Board,
steadily declined throughout 1995 and 1996.
The net loss for 1996 was $4,488,756 and the net loss for 1995 was
$4,255,394. The cumulative loss from inception was $7,503,182. The net loss per
share for 1996 was $0.53 and the net loss per share was $0.93 for 1995. Weighted
average outstanding shares was 8,521,991 for 1996 and was 4,558,776 for 1996.
Management's Plan for Viability
Despite the continuing operating losses experienced by the Company since
inception, cash reserves of $2.98 million were on hand at June 30, 1996. This
cash on hand represents approximately ten months of operating capital should
there be no revenues realized during that time.
Sales of Vision systems resulted in additions to cash of $273,000 in 1996
and are expected to exceed that amount in 1997. The combination of beginning
cash reserves, Vision system sales, leasing profits (independent of Vision
system leasing) from the newly acquired leasing subsidiary, and careful
management of the Company's cash resources are expected to, in the belief of
management, provide sufficient liquidity and capital for the continuation of
operations during 1997.
Item 7. Financial Statements.
The financial statements listed in the index found in Item 13(c) are
included in this Report, beginning on Page F-1.
13
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The present directors and executive officers of the Company, their ages,
positions held in the Company and duration as such, are listed below. IDSI's
Board of Directors is comprised of five members. IDSI's Certificate of
Incorporation provides that, as such time as the Board of Directors is comprised
of three or more members, the Board of Directors will be divided into three
classes of directors, each serving staggered three-year terms. As a result,
approximately one-third of the directors will be elected at each annual meeting
of stockholders or until their respective successors have been elected and duly
qualified, and at least two annual meetings of stockholders may be required for
the stockholders to change a majority of the directors, regardless of whether a
change in the Board of Directors would be beneficial to IDSI and its
stockholders or a majority of IDSI's stockholders believes that such a change
would be desirable.
Officers hold office at the pleasure of the Board Of Directors, absent any
employment agreement, of which three currently exist. There is no arrangement
between any such person or the Company and any third person pursuant to which
such third person was or is to be selected as a director or officer of the
Company. There are no family relationships between any director or executive
officer.
The following individuals are the directors and executive officers of IDSI:
The following individuals are the directors and executive officers of IDSI:
Name Age Position In Office Since
Mark A. Babin 42 President, Chief 1/12/95
Executive Officer,
Chief Financial
Officer and Director
Raymond F. Blue 66 Director 4/1/96
David A. Horowitz 53 Chairman of the Board 4/1/96
and Director
Robert B. Hyte 51 Director 4/1/96
James M. Keller, Jr. 37 Secretary, Treasurer 4/15/93
and Director
14
<PAGE>
The following is a brief account of the business experience during at least
the past five years of each director and executive officer named above,
indicating the principal occupation and employment during that period, and the
name and principal business of the organization in which such occupation and
employment were carried out. Of such persons, only Mark A. Babin, David A.
Horowitz and Robert B. Hyte devote full time to the Company's business. James M.
Keller and Raymond F. Blue devote only such time to the Company's business as is
asked of them from time to time.
Mark A. Babin has served as a director of the Company since January 12,
1995. Mr. Babin has served as President, Chief Executive Officer, Chief
Financial Officer and Director of RFG since January 15, 1995, and served as a
consultant to assist RFG's Chief Financial Officer from June 1994 to January 15,
1995. From 1988 to 1994, Mr. Babin was President of Babin & Company, P.C., a
consulting firm assisting development stage companies in various industries.
From 1983-1988, Mr. Babin served in a number of top financial positions with
Airgas, Inc. an $800 million NYSE listed manufacturing and distribution company.
Mr. Babin is a certified public accountant and a member of the American
Institute of Certified Public Accountants as well as a member of the Michigan
Association of Certified Public Accountants.
David A. Horowitz has served as President, Chief Executive Officer,
Treasurer and a Director of DSI since January 1993. From 1989 until 1990, Mr.
Horowitz served as founder and president of International Diagnostic
Technologies ("IDT"), a development stage company involved with immunodiagnostic
and toxicology tests. In December 1990, IDT merged with and into Eubix
Technologies, Inc. ("Eubix"). Mr. Horowitz served as President, CEO and a
Director of Eubix until June 1992. Mr. Horowitz was a founder and, from 1987 to
1989, served as President and CEO of Calypte Biomedical Company in Berkeley,
California. Calypte is a developer, manufacturer and marketer of medical urine
based immunodiagnostic tests. From 1985 to 1987, Mr. Horowitz served as
Executive Vice President and a Director of ShareData, Inc. in Chandler, Arizona.
ShareData was in the entertainment/business software business. Mr. Horowitz was
the founder and President of the Electric Book Company of Westport, Connecticut
from 1983 to 1985. Mr. Horowitz filed Chapter 11 personal bankruptcy on October
15, 1992.
Robert B. Hyte has served as Executive Vice President, Secretary, Chief
Science Officer and a Director of DSI since January 1993. Mr. Hyte is the author
of Screenware, a 4th generation computer programming language used to simplify
the development of computer programs written for the Pick operating system. From
1990 to 1992, Mr. Hyte was Vice President, Product Development for Partner
Systems, Inc., a computer software company located in Provo, Utah. From 1988 to
1990, Mr. Hyte served as Pick product manager for Rexon Business Machines, a
computer hardware and software company located in Los Angeles, California. From
1986 to 1988, Mr. Hyte served as President of Integrated Medical Systems, a
company located in Washington, D.C. which produced health care software. From
1980 to 1986, Mr. Hyte served as Vice President and General Manager of the
Health Care Systems division of Management Systems Corp., a time sharing company
in Salt Lake City, Utah.
15
<PAGE>
James M. Keller, Jr., has served as Secretary, Treasurer and Director of
RFG since April 15, 1993. Mr. Keller has an undergraduate degree from the
University of Michigan and a law degree from Wayne State University. He is a
partner in the law firm of DeGroot, Keller & Vincent, Grand Rapids, Michigan,
with which he became associated in 1986.
Disclosure of Delinquent Filers in response to Item 405 of Regulation S-B.
One report on Form 4 reporting activity in February of 1996 was filed by
Mark A. Babin and was received by the Securities and Exchange Commission on
March 12, 1996. The filing of the Form 4 was late by two days. Clerical error is
cited for the delay in filing.
One report on Form 4 reporting activity in April of 1996 was filed by James
M. Keller and was received by the Securities and Exchange Commission on May 15,
1996. The filing of the Form 4 was late by five days. Clerical error is cited
for the delay in filing.
One report on Form 4 reporting activity in April of 1996 was filed by Mark
A. Babin and was received by the Securities and Exchange Commission on May 14,
1996. The filing of the Form 4 was late by four days. Clerical error is cited
for the delay in filing.
Item 10. Executive Compensation
Set forth below is information as to the salary paid to the named executive
officer's for each of the registrant's last three completed fiscal years.
Salary Bonus
Name Principal Position Year Compensation Compensation
Mark A. Babin CEO, President, 7/01/95 to $110,000 $5,000(1)
and CFO of IDSI 6/30/96
Mark A. Babin CEO, President, 1/15/95 to $48,000
and CFO of RFG 6/30/95
Joseph J. Walsh Previous CEO 7/01/94 to $46,300
and President 1/11/95
of RFG
Joseph J. Walsh Previous CEO 7/01/93 to $86,000
and President 6/30/94
of RFG
David A. Horowitz President, CEO, 4/01/96 to $32,083(2)
and Treasurer of 6/30/96
IDS's Subsidiary-DSI
Chairman of IDSI
Robert B. Hyte Executive Vice 4/01/96 to $32,083(2)
President CSO and 6/30/96
Secretary of IDS's
Subsidiary - DSI
Chairman of DSI
16
<PAGE>
- --------------------------
(1) Mr. Babin's bonus compensation was valued from a non-cash award of
5,000 shares of RFG Common stock valued at $1.00 per share from RFG's Employee
Stock Compensation Plan. The share amount and price represent historical prices
for Resource Finance Group, Ltd. (RFGP) Common Stock which have been adjusted to
reflect the exchange ratio used in the merger of RFG into IDS whereby each four
shares of RFGP Common Stock became one share of IDSI Common Stock.
(2) Includes compensation from April 1, 1996 to July 30, 1996. The base
annual salary for both individuals is currently set at $110,000.
- ----------------------------
The Company has an employment agreement with Mr. Babin pursuant to which he
is to be employed as the Company's President and CEO until July 1, 2000. The
agreement provides Mr. Babin with an annual salary of $110,000 with annual
increases of at least $20,000 a company car, and discretionary bonuses. The
employment agreement requires payments to the executive in the event of
employment termination, resignation or death which could exceed $100,000.
The Company has an employment agreement Mr. Horowitz pursuant to which he
is to be employed as DSI's President, CEO and Treasurer until January 1, 200.
The agreement provides Mr. Horowitz with an annual salary of $110,000 with
annual increases of at least $20,000, a company car and discretionary bonuses.
The employment agreement requires payments to the executive in the event of
employment termination, resignation or death which could exceed $100,000.
The Company has an employment agreement Mr. Hyte pursuant to which he is to
be employed as DSI's Executive Vice President, Chief Science Officer and
Secretary until January 1, 2000. The agreement provides Mr. Hyte with an annual
salary of $110,000 with annual increases of at least $20,000 a company car,
incentive compensation and discretionary bonuses. The employment agreement
requires payments to the executive in the event of employment termination,
resignation or death which could exceed $100,000.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
(a)(b) Security Ownership. The following table sets forth as of September
17, 1996, the names of persons who own of record, or were known by the Company
to own beneficially, more than five percent of its total issued and outstanding
common stock and the beneficial ownership of all such stock as of that date by
officers and directors of the Company and all such officers and directors as a
group. Except as otherwise noted, each person listed below is the sole
beneficial owner of the shares and has sole investment and voting power of such
shares. No person listed below has any option, warrant or other right to acquire
additional securities of the company, except as may be otherwise noted.
17
<PAGE>
Name and Address Amount & Nature of Percent
of Beneficial Owner(1) Beneficial Owner(2) of Class(3)
Title of Class
Common Stock Mark A. Babin* 571,250(4) 4.3%
Common Stock David A. Horowitz* 905,167(5) 6.6%
Common Stock Robert B. Hyte* 1,091,335(6) 8.0%
Common Stock James M. Keller* 583,000(7) 4.4%
Common Stock Raymond J. Blue* 25,000 0.2%
Common Stock Mid America Venture 1,575,607(8) 11.7%
Capital Fund, Inc.
716 Norwest Midland Bldg.
Minneapolis, MN 55401
Common Stock Charles J. Newman 1,686,317(9) 13.2%
716 Norwest Midland Bldg.
Minneapolis, MN 55401
Common Stock National Purchasing Corp 900,000(10) 6.9%
1360 Reynolds Ave.,Ste. 101
Irvine CA 92714
Common Stock The Neptune Group, Inc. 750,000 5.9%
(Old Neptune)
1266 Main Street
Stamford, CT 06902
Common Stock Visys Capital Group, LLC 750,000(11) 5.5%
1266 Main Street
Stamford, CT 06902
Common Stock AMC Consumer Services, LLC 950,000(12) 7.0%
63 Wall Street, Ste. 2502
New York, NY 10005
Common Stock *All directors and/or 3,175,752(13) 20.3%
officers as group
(5 persons)
- -----------------------------------
(1) Unless otherwise indicated, the address is c/o IDS, 2025 East Beltline
Ave., SE, Suite 400, Grand Rapids, MI 49546.
(2) Includes shares subject to stock options or warrants to purchase IDSI
Common Stock.
18
<PAGE>
(3) Based on 12,821,218 shares of IDSI Common Stock.
(4) Consists of stock options to purchase 500,000 shares of IDSI Common Stock
exercisable at $1.00 per share and 50,000 IDSI shares at $20.00 per share.
(5) Includes stock options to purchase 862,500 shares of IDSI Common Stock,
112,500 of which are exercisable at $.50 per share and 750,000 of which
are exercisable at $1.00 per share.
(6) Includes stock options to purchase 878,000 shares of IDSI Common Stock,
128,000 of which are exercisable at $.50 per share and 750,000 of which
are exercisable at $1.00 per share.
(7) Includes stock options to purchase 500,000 shares of IDSI Common Stock at
$1.00 per share.
(8) Includes stock options to purchase 100,000 shares of IDSI Common Stock
exercisable at $.50 per share and warrants to purchase 500,000 shares of
IDSI Common Stock exercisable at $1.75 per share.
(9) Includes 975,607 shares, warrants to purchase 500,000 shares of IDSI
Common Stock and stock options to purchase 100,000 shares of IDSI Common
Stock held by Mid America Venture Capital Fund, Inc. and 100,000 shares of
IDSI Common Stock held by National Acceptance Corporation, companies in
which Mr. Newman is a controlling shareholder. Mr. Newman disclaims
beneficial ownership of such shares.
(10) Includes stock options to purchase 150,000 shares of IDSI Common Stock,
exercisable at $18.50 per share, and stock options to purchase 600,000
shares of IDSI Common Stock, exercisable at $4.00 per share.
(11) Includes stock options to purchase 750,000 shares of IDSI Common Stock,
exercisable at $4.00 per share.
(12) Includes a warrant to purchase 800,000 shares of IDSI Common Stock,
exercisable at $2.25 per share.
(13) Includes stock options to purchase up to 3,175,752 shares of IDSI Common
Stock.
Item 12. Certain Relationships and Related Transactions.
In March of 1996, DSI assigned 675,000 shares of RFG common stock with a
value of $135,000 to Mid America Venture Capital Fund, Inc. for consulting
services from April 1, 1996 to March 31, 1997. The 675,000 shares of RFG common
stock now amounts to 168,750 shares of IDSI common stock after adjustment to
reflect the exchange ratio used in the merger of RFG into IDS whereby each four
shares of RFGP Common Stock became one share of IDSI Common Stock. The foregoing
transaction which happened prior to the merger was between DSI and Mid America
Venture Capital Fund, Inc., but has been listed here to conform with the
disclosures as provided in the financial statements as DSI is deemed to be the
surviving entity for accounting purposes.
19
<PAGE>
The amount of $1,114,020 was paid to RFG by DSI for contracted programming
and administration services during the year ended June 30, 1996.
In March of 1996, RFG sold 187,500 shares of DSI common stock that RFG
owned to Mid America Venture Capital Fund, Inc. for $316,875 in exchange for
promissory notes from Mid America Venture Capital Fund, Inc.
There were no other transactions, or series of transactions, for the
fiscal year ended June 30, 1996, nor are there any currently proposed
transactions, or series of transactions, to which the Company is a party, in
which the amount exceeds $60,000.00, and in which to the knowledge of the
Company any director, executive officer, nominee, five percent or greater
shareholder, or any member of the immediate family of any of the foregoing
persons, have or will have any direct or indirect material interest.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits: The following exhibits marked with an asterisk (*) are filed with
this report. Other exhibits have previously been filed with the Securities and
Exchange Commission and are incorporated by reference to another report,
registration statement or form. As to any shareholder of record requesting a
copy of this report, the company will furnish any exhibit indicated in the list
below as filed with report upon payment to the Company if its expenses in
furnishing the information.
2.0 Plan of Acquisition/Merger
2.1 Agreement and Plan of Merger, dated as of April 15, 1995, by and between
the Intelligent Decision Systems, Inc. and the Company. A copy was filed
with the SEC on June 2, 1995 as an exhibit to the Company's Form S-4
Registration Statement.
2.2 Amended and Restated Agreement and Plan of Merger, dated as of July 14,
1995, by and among Digital Sciences, Inc., the Company and DSI Acquisition
Corp. A copy was filed with the SEC on August 14, 1995 as an exhibit to the
Company's amendment no. 1 to the Form S-4 Registration Statement.
3.0 Articles and Bylaws
3.1 Articles of Incorporation of RFG [1]
3.2 Bylaws of the RFG [1]
3.3 Articles of Incorporation of IDSI [2]
3.4 Bylaws of the IDSI [2]
4.0 Instruments Establishing Rights of Security Holders
20
<PAGE>
4.1 Warrant Agreement between RFG and Corporate Stock Transfer, Inc.
(includes specimen of warrant) [1]
4.2 Specimen common stock certificates of RFG [1]
4.3 Specimen common stock certificates of the Company [2]
10.1 1993 Employee Stock Compensation Plan
10.2 1993 Incentive Stock Option Plan
10.3 1993 Non-Statutory Stock Option Plan
10.4 Agreement between the Company and Crutchfield Corporation dated
July 1, 1993
10.5 Trade agreement between the Company and George Enrique Rossi dated
July 1, 1993
10.6 Digital Sciences, Inc. contracts
10.7 National Purchasing Corporation contract
10.8 Mark Babin consulting contract
10.9 River Capital, Inc. agreement with commitment letter
10.10 Amended and Restated Joint Operating Agreement. A copy was filed with the
SEC on August 14, 1995 as an exhibit to the Company's amendment no. 1 to
the Form S-4 Registration Statement.
10.11 DSI Stock Option Plan for Employees (assumed by IDSI pursuant to the terms
of the Agreement and Plan of Merger dated July 14, 1995) [2]
10.11 Agreement of Sale dated June 27, 1996 between the Company and The Neptune
Group, inc. A copy was filed with the SEC on July 11, 1996 as an exhibit
to the Company's Form 8-K.
10.12 Employment Agreement with Mark A. Babin*
10.13 Employment Agreement with David A. Horowitz*
10.14 Employment Agreement with Robert B. Hyte*
10.14 Employment Agreement with Eugene J. Feher*
10.14 Employment Agreement with Jonathan Preiser*
10.14 Employment Agreement with Scott J. Preiser*
21
<PAGE>
21.0 Subsidiaries of the Company*
27.0 Financial Data Schedule*
24.0 Consent of Experts and Counsel
- -------------------------------
[1] Incorporated by reference to Registration Statement on Form S-1 of
Resource Finance Group, Ltd., file no. 33-42904.
[2] Filed as an Exhibit to the Company's Registration Statement on Form S-4,
File No. 33-93058, which was declared effective by the Securities and
Exchange Commission on February 9, 1996 and incorporated herein by
reference.
- -------------------------------
(b) Reports on Form 8-K.
A report on Form 8-K was filed for an event reported April 1, 1996.
A report on Form 8K and 8-K/A was filed for an event reported June 28,
1996.
(c) Financial Statements Index:
INDEPENDENT AUDITORS REPORT ..................F-1
BALANCE SHEET.................................F-2
STATEMENTS OF STOCKHOLDERS' EQUITY............F-4
STATEMENTS OF OPERATIONS......................F-9
STATEMENTS OF CASH FLOWS......................F-10
NOTES TO FINANCIAL STATEMENTS.................F-12
d) Financial Statement Schedules: None.
22
<PAGE>
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Report on Form 10-KSB to be signed on its
behalf by the undersigned, thereto duly authorized individual.
Date: September 30, 1996 INTELLIGENT DECISION SYSTEMS, INC.
By /s/ Mark A. Babin
Mark A. Babin, President
In accordance with the Securities Exchange Act of 1934, this Form 10-KSB
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name
Date
Title
/s/ Mark A. Babin
Mark A. Babin, President
September 27, 1996
Chief Executive Officer
Chief Financial Officer
/s/ James M. Keller, Jr.
James M. Keller, Jr.
September 27, 1996
Secretary, Treasurer, Director
/s/ Robert B. Hyte
Robert B. Hyte
September 27, 1996
Director
/s/ Raymond F. Blue
Raymond F. Blue
September 27, 1996
Director
23
<PAGE>
Board of Directors
Intelligent Decision Systems, Inc.
Grand Rapids, Michigan
Independent Auditors' Report
We have audited the accompanying balance sheets of Intelligent Decision
Systems, Inc. (a Development Stage Company) as of June 30, 1996 and 1995 and the
related statements of operations, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of Digital
Sciences, Inc. (A Development Stage Company) from inception to December 31, 1993
were audited by other auditors whose report dated April 26, 1994 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Intelligent Decision
Systems, Inc., (a Development Stage Company) as of June 30, 1996 and 1995 and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/Wilber & Townshend
Jenison, Michigan
September 27, 1996
F-1
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
BALANCE SHEETS
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
ASSETS
1996 1995
----------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 3,064,329 $ 620,992
Accounts Receivable
Trade, net of allowance for doubtful
accounts of $8,000 and $848 53,253 12,368
Related parties 0 490,068
Net investment in sales-type leases 143,394 0
Federal income tax refund receivable 0 7,000
Inventories 146,940 61,399
Contractual rights 251,250 0
Prepaid expenses 16,766 22,861
--------- ---------
TOTAL CURRENT ASSETS 3,675,932 1,214,688
PROPERTY AND EQUIPMENT, NET 399,584 119,265
OTHER ASSETS
Contractual rights 194,445 0
Investments 0 562,500
Net investments in sales-type leases 105,590 0
Intellectual property - net of
amortization 1,726,191 0
Deferred financing costs - net of
amortization 0 143,551
Other - net of amortization 158,736 0
--------- ---------
$ 6,260,478 $ 2,152,804
========= =========
See accompanying notes to financial statements
F-2
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
BALANCE SHEETS
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- ------------
CURRENT LIABILITIES
Bank overdraft $ 81,044 $ 0
Current portion- long term debt 44,534 5,254
Notes payable 9,000 0
Accounts payable 470,946 22,351
Payroll and sales taxes payable 5,311 5,493
Accrued compensation 263,435 24,697
Accrued interest 168,341 76,705
Accrued expenses 137,946 0
--------- ---------
TOTAL CURRENT LIABILITIES $ 1,180,557 134,500
LONG-TERM DEBT 136,758 1,480,751
COMMITMENTS AND CONTINGENCIES 0 0
STOCKHOLDERS' EQUITY
Preferred stock; $.001 par value;
1,000,000 and 3,000,000 shares
authorized; 1,631 and 0 shares
issued and outstanding 2 0
Additional paid-in capital 1,500,518 0
Common stock; $.001 and $.002 par value;
30,000,000 and 11,000,000 shares
authorized; 12,323,332 and 7,314,636
shares issued and outstanding 12,323 14,629
Additional paid in capital 10,942,801 3,537,349
Deficit accumulated during the
development stage (7,512,481) (3,014,425)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 4,943,163 537,553
--------- ---------
$ 6,260,478 $ 2,152,804
========= =========
F-3
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period January 19, 1993 (Date of Inception) to June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock Deficit
Accumulated
Additional Additional Less During the Total
Paid-in Paid-in Unearned Development Stockholders'
Shares Amount Capital Shares Amount Capital Compensation Stage Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Date of inception
January 19, 1993 0 $ 0 $ 0 0 $ 0 $ 0 $ 0 $ 0 $ 0
Shares issued for
for equipment
and services 351,000 702 2,392 3,094
Shares issued for cash 210,600 421 64,579 65,000
Shares issued for
technology 202,800 406 4,594 5,000
Stock option granted 4,648 (4,648) 0
Net loss (468,007) (468,007)
------- ----- ------ - - - ----- ------- -------
Balance, June 30, 1993 764,400 $ 1,529 $ 76,213 0 $ 0 $ 0 $(4,648) $ (468,007) $ (394,913)
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period January 19, 1993 (Date of Inception) to June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock Deficit
Accumulated
Additional Additional Less During the Total
Paid-in Paid-in Unearned Development Stockholders'
Shares Amount Capital Shares Amount Capital Compensation Stage Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 764,400 $ 1,529 $ 76,213 0 $ 0 $ 0 $(4,648) $ (468,007) $ (394,913)
Shares issued for
for equipment
and services 291,942 584 145,387 145,971
Shares issued for cash 50,000 100 24,900 25,000
Capital contribution
of equipment and
services 35,000 35,000
Public offering 400,000 800 173,200 174,000
Stock option grant 24,050 24,050
Cancellation of
stock option ( 4,648) 4,648 0
Shares issued for cash 190,977 382 79,618 80,000
Shares issued for
licensing agreement 290,000 580 489,520 490,100
Net income 1,708,968 1,708,968
--------- ----- --------- - - - ----- --------- ---------
Balance, June 30, 1994 1,987,319 $ 3,975 $1,043,240 0 $ 0 $ 0 $ 0 $ 1,240,961 $2,288,176
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period January 19, 1993 (Date of Inception) to June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock Deficit
Accumulated
Additional Additional Less During the Total
Paid-in Paid-in Unearned Development Stockholders'
Shares Amount Capital Shares Amount Capital Compensation Stage Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 1,987,319 $ 3,975 $1,043,240 0 $ 0 $ 0 $ 0 $ 1,240,961 $2,288,176
Shares issued for cash 879,166 1,758 407,092 408,850
Shares issued for
services 723,371 1,447 360,241 361,688
Shares issued for
retirement of debt 124,250 249 41,726 41,975
Shares issued for cash 714,285 1,429 248,571 250,000
Shares issued for
services 148,500 297 73,953 74,250
Shares issued for cash 1,228,572 2,457 427,543 430,000
Shares issued for
contractual rights 250,000 500 124,500 125,000
Shares issued for
retirement of debt 59,173 117 212,883 213,000
Shares issued for cash 1,050,000 2,100 522,900 525,000
Shares issued for
services 150,000 300 74,700 75,000
Net loss (4,255,386) (4,255,386)
--------- ------ --------- - - - - --------- ---------
Balance, June 30, 1995 7,314,636 $14,629 $3,537,349 0 $ 0 $ 0 $ 0 $(3,014,425) $ 537,553
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period January 19, 1993 (Date of Inception) to June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock Deficit
Accumulated
Additional Additional Less During the Total
Paid-in Paid-in Unearned Development Stockholders'
Shares Amount Capital Shares Amount Capital Compensation Stage Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 7,314,636 $ 14,629 $ 3,537,349 0 $ 0 $ 0 $ 0 $(3,014,425) $ 537,553
Shares issued for cash 1,428,572 2,857 997,143 1,000,000
Stock options
exercised 138,760 139 138,621 138,760
Shares issued for
purchase of Resource
Finance Group, Ltd. 1,590,850 1,591 2,266,836 2,268,427
Reclassification
of par value ( 8,744) 8,744 0
Shares issued for
services 220,860 221 542,469 542,690
Shares issued for
retirement of debt 881,654 882 1,442,718 1,443,600
Shares issued for
purchase of net
assets of Neptune
Group, Inc. 750,000 750 1,480,235 1,480,985
</TABLE>
(Continued on next page)
F-7
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period January 19, 1993 (Date of Inception) to June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock Deficit
Accumulated
Additional Additional Less During the Total
Paid-in Paid-in Unearned Development Stockholders'
Shares Amount Capital Shares Amount Capital Compensation Stage Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock issued
for cash 1,631 2 1,500,518 1,500,520
Dissenting shares
cancelled ( 2,000) ( 2) ( 2,860) ( 2,862)
Stock options granted 531,546 531,546
Unrealized loss
on marketable
securities ( 9,300) ( 9,300)
Net loss (4,488,756) (4,488,756)
---------- ------ ---------- ----- - --------- - --------- ---------
Balance, June 30,
1996 12,323,332 12,323 $10,942,801 1,631 $ 2 $ 1,500,518 $ 0 $(7,512,481) $4,943,163
========== ====== ========== ===== = ========= = ========= =========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1996 and 1995
and Cumulative Amounts from
January 19, 1993 (Date of Inception) through June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
Cumulative
Amounts from
1996 1995 Inception
----------- ------------ -------------
<S> <C> <C> <C>
NET REVENUES $ 635,994 $ 50,346 $ 1,064,785
Costs and expenses
Cost of goods sold 362,204 58,487 548,445
Selling, general and
administrative expenses 3,793,790 2,168,300 7,446,944
Depreciation and amortization 391,031 77,169 489,724
Interest expense 247,694 85,793 333,935
--------- --------- ---------
4,794,719 2,389,749 8,819,048
--------- --------- ---------
OPERATING LOSS (4,158,725) (2,339,403) (7,754,263)
OTHER INCOME (EXPENSE)
Miscellaneous income 43,464 21,517 63,743
Loss from impairment of investment ( 375,000) (1,937,500) (2,312,500)
Gain on sale of intellectual property 0 0 2,498,334
Gain on sale of assets 1,505 0 1,505
--------- --------- ---------
NET LOSS BEFORE TAXES (4,488,756) (4,255,386) (7,503,181)
Provision for (recoverable) income taxes 0 0 0
--------- --------- ---------
NET (LOSS) $(4,488,756) $(4,255,386) $(7,503,181)
========= ========= =========
Earnings per common share
Net (loss) $(0.53) $(0.93)
==== ====
Weighted Average Shares 8,521,991 4,558,776
========= =========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1996 and 1995
and Cumulative Amounts from
January 19, 1993 (Date of Inception) through June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Amounts from
1996 1995 Inception
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net (Loss) $(4,488,756) $(4,255,386) $(7,503,181)
Non-cash items included in net income (loss):
Depreciation 158,048 33,385 210,914
Amortization of intangible assets 232,983 43,783 278,810
Amortization of service contracts 58,750 0 58,750
Compensation from stock option grants 0 0 24,050
Gain on sale of assets (14,005) 0 (14,005)
Legal settlement obligation 0 18,175 18,715
Services contributed as paid in capital 0 0 22,346
Stock issued for license agreement 0 0 490,100
Stock issued as payment for services 774,236 510,938 1,425,564
Gain on sale of intellectual property 0 0 (2,498,334)
Loss on impairment of investments 375,000 1,937,500 2,312,500
Changes in operating assets and liabilities:
(Increase) decrease in receivables (5,957) 18,929 (18,325)
(Increase) decrease in related party receivables 490,068 (471,637) 0
(Increase) decrease in taxes receivable 7,000 (7,000) 0
(Increase) in inventories (110,152) (29,398) (146,940)
Decrease in prepaid expenses 22,861 6,134 0
Increase in deferred financing costs 0 (170,750) 0
Increase (decrease) in bank overdraft 81,044 (46,230) 81,044
(Increase) in deposits (11,310) 0 (11,310)
Increase (decrease) in accounts payable 85,565 (5,927) 107,916
Increase (decrease) in payroll and sales tax payable (182) 385 5,311
Increase in accrued compensation 192,283 17,982 216,980
Increase (decrease) in accrued expenses 134,677 (1,319) 134,677
Increase in accrued interest 84,525 76,705 161,230
--------- --------- ---------
Net cash used in operating activities $(1,933,322) $(2,323,731) (4,643,188)
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1996 and 1995
and Cumulative Amounts from
January 19, 1993 (Date of Inception) through June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Amounts from
1996 1995 Inception
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from investing activities
Investment in sales-type lease (147,614) 0 (147,614)
Acquisition of property and equipment (228,777) (136,958) (362,082)
Proceeds from sale of assets 3,512 0 3,512
--------- --------- --------
Net cash used in investing activities (372,879) (136,958) (506,184)
Cash flows from financing activities
Proceeds from related party short-term borrowings 559,658 0 692,158
Proceeds from private placement debt 20,000 1,470,000 1,490,000
Proceeds from capital leases 189,912 0 189,912
Payments for related party short-term borrowings 0 0 (93,500)
Payments on long-term debt (5,253) (2,170) ( 7,963)
Payments on capital leases (19,372) 0 (19,372)
Proceeds from issuance of stock 4,004,593 1,613,851 5,988,466
Payments related to issuance of stock 0 0 (26,000)
--------- --------- ---------
Net cash provided by financing activities 4,749,538 3,081,681 8,213,701
--------- --------- ---------
Net increase in cash and cash equivalents 2,443,337 620,992 3,064,329
Cash at beginning of year 620,992 0 0
--------- --------- ---------
Cash at end of year $3,064,329 $ 620,992 $3,064,329
========= ========= =========
SUPPLEMENTAL CASH FLOW DATA
Cash paid for interest $ 162,719 $ 2,225
Cash paid for income taxes 0 7,000
Supplemental schedule of non-cash investing and financing activities
Common stock issued for payment of accounts
and notes payable to affiliates $ 0 $ 254,975
Common stock issued for software license 0 125,000
Common stock issued for retirement of debt 1,443,600 41,975
Common stock issued for contractual rights 300,000 0
Transfers of inventory to property and equipment 24,611 0
Exchange of investments for contractual rights 135,000 0
Acquisitions of businesses
Fair value of assets acquired $4,134,476 $ 0
Fair value of liabilities assumed (385,064) 0
--------- ---------
Common stock issued $3,749,412 $ 0
========= =========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and operations
Intelligent Decision Systems, Inc. ("IDSI") is a development stage company,
incorporated June, 1995 under the laws of the State of Delaware, which succeeded
Resource Finance Group, Ltd. ("RFG", incorporated August, 12, 1991) via a
reincorporation merger on April 1, 1996. IDSI exchanged one share of its stock
for each four shares of RFG. IDSI then effected a merger with Digital Sciences,
Inc. ("DSI") by exchanging its common shares for DSI's outstanding common shares
on a one for one basis. As a result, DSI's former shareholders held
approximately 85% of IDSI's outstanding shares immediately after the merger. DSI
is deemed to be the surviving accounting entity. DSI adopted RFG/IDSI's fiscal
year end of June 30. The results from operations include those of RFG from the
time of the merger only, that is, from April 1, 1996.
Digital Sciences, Inc. ("DSI") was a development stage company which
incorporated on January 19, 1993 under the laws of the state of Nevada as Data
Sciences, Inc. in anticipation of the subsequent purchase of certain
intellectual property called "Screenware". On January 26, 1993, DSI entered into
an agreement with Mr. Robert Hyte (the "Seller") to purchase such property in
exchange for 202,800 shares of common stock of DSI. In May, 1994, DSI changed
its name to Digital Sciences, Inc.
Utilizing its proprietary software, Screenware, DSI developed its first product,
a "Physicians's Office Management System" (the "DSI/MED System") during 1993.
In May, 1994, DSI sold Screenware, a fourth generation level screen design tool
to Resource Finance Group, Ltd. ("RFG") in exchange for RFG stock and
concurrently entered into several other agreements with RFG, which had the
combined effect of encouraging closer cooperation between the two companies. In
July, 1994, DSI and RFG entered into an agreement with National Purchasing
Corporation, a privately held company doing business as HPSI, whereby each party
agreed to provide certain goods and services toward the development of a
proprietary business management system designed to serve a significant segment
of the health care industry (the "Vision System").
In January, 1995, DSI entered into an agreement with Visual Information Services
Corp. ("Viscorp"), where in exchange for 250,000 shares of its sole class of
common stock, DSI received an exclusive license to purchase and use Viscorp's
interface technology in systems applications used by the Health Care industry in
the United States and Canada for a period of ten years. DSI would also pay user
fees based on its revenues derived from the Viscorp product, the precise terms
of which have yet to be negotiated.
In August, 1995, DSI entered into a joint operating agreement with RFG, pursuant
to which RFG and DSI would cooperate in sharing the costs of certain operational
matters. Under the Joint Operating Agreement, RFG provided DSI with, among other
things, accounting, financial reporting, payroll and administrative services and
programmers on a subcontracted basis and DSI provided RFG with, among other
things, funds adequate to cover the costs of maintaining RFG's corporate, legal,
financial, accounting and administrative capabilities.
Pursuant to the aforementioned business combination, DSI and RFG filed a joint
S-4 Stock Registration Statement with the Securities & Exchange Commission,
which was declared effective on February 9, 1996. A special meeting of the
shareholders was held on March 22, 1996 and the proposed merger was approved.
The merger was consummated on April 1, 1996. Thereafter, DSI and RFG became
IDSI, with DSI becoming a wholly owned subsidiary of IDSI.
On June 28, 1996, IDSI issued shares and assumed liabilities in exchange for
substantially all of the assets of The Neptune Group, Inc. ("TNG"). TNG is a
leasing operation providing financing to purchasers of medical equipment and
computer systems.
F-12
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - continued
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents
The company considers all highly liquid investments with original maturities of
three months or less to be cash equilavents. Investments which do not meet the
definition of cash equivalents are classified as marketable securities.
Inventories
Inventories are stated at the lower of cost or market with cost being determined
under the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are carried at cost less depreciation. Depreciation is
provided using the straight-line method over the estimated useful lives of such
assets, generally from two to ten years.
Intangible assets and amortization
Intangible assets are amortized using the straight-line method over their
estimated useful lives. Asset lives are assigned in accordance with the
following schedule:
Software-internal use 2 to 5 years Intellectual property 7 years
Goodwill 15 years Organization costs 5 years
The intellectual property acquired by the Company is used to create new software
products, and is designed to increase the pace of such development. It can also
be resold as a separate unit of software. The intellectual property attained
technological feasibility prior to its purchase, and has been used to develop
other software products that also have attained technological feasibility which
have been sold to independent users.
As of each balance sheet date, management assesses the recoverability of
intangible assets by comparing the amount of estimated future revenues to be
generated from the assets acquired or, in the case of goodwill, the business
acquired, less the related future costs of maintenance and customer support, to
the unamortized costs for each intangible asset to determine whether any
impairment has occurred, and if so, unamortized costs are written down to their
net realizeable value and the resulting adjustment is charged to amortization
expense for the period presented. Once an impairment has been recorded, its
recorded unamortized balance is not increased.
Income taxes
The provision for income taxes is based on earnings reported in the financial
statements. Deferred income taxes are recognized for all temporary differences
between tax and financial reporting.
F-13
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - continued
Earnings Per Share
Earnings per share amounts are based on the weighted average number of shares
outstanding exclusive of warrants and options in view of the fact that these
items would be anti-dilutive. Earnings per share is retroactively adjusted for
stock splits and dividends.
Revenue Recognition
Revenues from the sale of Vision computer systems are recorded upon
acknowledgement of acceptance of the system by the customer and costs of goods
sold for the hardware included are recorded as specifically identified. Revenue
from the sale of all other computer systems and software are recorded upon
shipment. Related future maintenance and support costs are estimated and charged
to expense when the related revenue is recognized.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
Stock-Based Compensation
In 1995, the FASB issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). Under the provisions of
SFAS 123, companies can elect to account for stock-based compensation plans
using a fair- value-based method or continue measuring compensation expense for
those plans using the intrinsic value method prescribed in APB 25. SFAS 123
requires that companies electing to continue using the intrinsic value method
must make pro forma disclosures of net income and earnings per share as if the
fair-value-based method of accounting had been applied. As provided in SFAS 123
The Company has elected to forego early adoption of the pro forma disclosures
requested by SFAS 123.
As the Company anticipates continuing to account for stock-based compensation
using the intrinsic value method, SFAS 123 will not have an impact on the
Company's results of operations or financial position.
Changes in Accounting Principles
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" (SFAS
121), was adopted as of July 1, 1994. SFAS 121 standardizes the accounting
practices for the recognition and measurement of impairment losses on certain
long-lived assets. The adoption of SFAS 121 had no impact upon earnings for the
year ended June 30, 1995.
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments In Debt and Equity Securities" (SFAS 115), was adopted as of July 1,
1994. SFAS 115 requires that the carrying value of certain investments be
adjusted to their fair value.
F-14
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 2 - NET INVESTMENTS IN SALES TYPE LEASES
The company's leasing operations consist of leasing Vision Systems to the end
users. Although significant portions of most leases are sold, certain leases are
retained and certain leases are in the process of being sold. These leases are
reported as net investment in sales type leases. The following lists the
components of net investment in sales type leases as of June 30,1996.
Total minimum lease payments to be received $ 193,525
Estimated residual values of lease property 9,132
Less unearned income (50,817)
--------
Net invested in sales type leases 151,840
Net investment in leases to be sold 97,144
--------
Total net investment in sales type leases $ 248,984
========
NOTE 3 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The company is a party to off-balance sheet risk is the normal course of
business by entering into sales type leases for Vision Systems with its
customers and by selling the leases to third party financing services with
recourse. The Company's policy is to retain collateral rights to the Vision
System including the right to remarket the system and collect user fees for
hardware, software and maintenance.
During 1996 the Company sold contracts aggregating $290,000. The lease contracts
are generally payable over thirty six months at interest rates ranging from
7.75% to 11.5% per annum. These contracts have a recourse balance of $267,000 at
June 30, 1996.
Revenues are recognized based upon the net present value of the sales contract
with the user of the system. Imputed interest rates on these contracts for 1996
range from 16.9% to 18.7%.
NOTE 4 - INVENTORIES
Inventories consist of purchased computer hardware components for use in the
construction of Vision computer systems. These systems are assembled and shipped
to order and, as such, there are no finished goods or work in process.
NOTE 5 - CONTRACTUAL RIGHTS
In February 1995, DSI issued 250,000 shares of restricted common stock at $.50
per share to Visual Information Services, Corporation (Viscorp) in exchange for
an exclusive license to purchase and use certain technology in the United States
and Canada for a period of ten years. The cost is being amortized over 36 months
and the net book value is included in contractual rights. Management expects to
recover the unamortized balance as part of future Vision System sales. On March
27, 1996 DSI entered into an agreement with a related party to exchange one year
of consulting services at $135,000 for 675,000 shares of stock in Resource
Finance Group, Ltd. The unexpired portion of the contract is reflected in the
balance sheet as contractual rights. On May 5, 1996 IDSI entered into an
agreement with a consultant for services to be performed over a 24 month period
at a value of $300,000 payable by the issuance of 150,000 shares of stock. The
unexpired portion of the contract is reflected in the balance sheet as
contractual rights. A summary of contractual rights is as follows:
1996 1995
---- ----
License from Viscorp $ 69,445 $112,800
Agreement with related party 101,250 0
Agreement with consultant 275,000 0
------- -------
$445,695 $112,800
======= =======
Current asset 251,250 0
Other asset 194,445 112,800
------- -------
$445,695 $112,800
======= =======
F-15
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment comprised of the following at June 30, 1996 and 1995:
Capital lease Other Total
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
Leasehold improvements $ 2,888 $ 0 $ 5,850 $ 0 $ 8,738 $ 0
Furniture and fixtures 94,571 0 32,717 22,490 127,288 22,490
Office equipment 55,947 0 24,350 9,485 80,297 9,485
Production equipment 0 0 2,082 0 2,082 0
Computer Equipment 171,730 0 234,528 140,156 406,258 140,156
------- --- ------- ------- ------- -------
$325,136 0 $299,527 172,131 624,663 172,131
Less accumulated
depreciation (49,069) 0 (176,010) (52,866) (225,079) (52,866)
------- --- ------- ------- ------- -------
$276,067 $ 0 $123,517 $119,265 $399,584 $119,265
======= === ======= ======= ======= =======
Depreciation expense for 1996 and 1995 was $158,049 and $33,386, respectively.
NOTE 7 - INVESTMENTS
In 1996, the Company sold 1,000,000 shares of RFG stock to a related party.
675,000 shares were payment for a consulting agreement with the related party
dated March 27, 1996 valued at $.20 per share. 375,000 shares were transferred
in exchange for a $65,000 note receivable from the related party. The note
receivable was repaid by June 30, 1996.
The Company owns 500,000 shares of restricted common stock of Med-Search, Inc.,
a California-based company. The shares were received from Med-Search pursuant to
an agreement for the sale of distribution rights to Med-Search to market the
Company's software product in California. Pursuant to the rules for recording
non-monetary transactions, neither the shares of common stock received nor the
corresponding sale were recorded by the Company due to the uncertainty of the
valuation. The stock is likewise held at no value as of June 30, 1996 and 1995
as the value is deemed not readily determinable.
The Company also owns 46,500 shares of Falcon Group Ltd. stock which were deemed
to be of no value at June 30, 1996 and 1995.
Equity securities are classified as available for sale and carried at fair
value. Equity securities are written down (as realized losses) for other than
temporary declines in value. Unrealized gains and losses related to such
securities, are reported as components of stockholders' equity.
NOTE 8 - INTELLECTUAL PROPERTY, AMORTIZATION AND IMPAIRMENT
Intellectual property represents the amortized balance of "Screenware," a
proprietary programming tool for use in developing the Vision System and future
applications. Amortization expense for 1996 and 1995 is $89,286 and $0
respectively. No impairment expense was recorded in either year.
NOTE 9 - NOTE PAYABLE
The unsecured note is payable on demand to an individual and bears interest at
the rate of 20% per annum.
NOTE 10 - LONG-TERM DEBT AND DEFERRED FINANCING COSTS
Private placement notes - During 1995 DSI issued unsecured debt obligations
totaling $1,470,000. In addition to interest payable semiannually at the rate of
15% per annum, series A and B warrants were issued to purchase 745,000 shares
each at $2 and $4 per share respectively.
The debt was paid in 1996 through exercising the "A" warrants. Costs of
obtaining the debt proceeds totaling $170,750 were capitalized and charged
against earnings using the bonds outstanding method. Such charges totaled
$97,191 in 1996 and $27,199
F-16
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 10 - LONG-TERM DEBT AND DEFERRED FINANCING COSTS - continued
in 1995. The remaining $46,400 was netted against the proceeds from the
warrants. A summary of long-term debt is as follows:
1996 1995
---- ----
Private Placement Debt - as described above $ 0 $ 1,470,000
Settlement obligations payable in monthly
installments of $786 including interest at
an effective rate of 22.7% per annum until
October, 1997. 10,752 16,005
Obligations Under Capital Lease-During 1996
the Company entered into various capital
leases with monthly payments aggregating
$5,395 including interest at effective
rates ranging from 15.8% to 21.8%. The
lease obligations are secured by the
specific equipment under each lease. 170,540
------- ---------
181,292 1,486,005
Less current portion (44,534) (5,254)
------- ---------
$136,758 $ 1,480,751
======== =========
Debt reduction payments by year: 1997 44,534
1998 49,036
1999 51,368
2000 30,773
2001 5,581
NOTE 11 - RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and for 1996 and 1995
were $854,372 and $330,980 respectively.
NOTE 12 - INCOME TAXES
The provision for income taxes charged to continuing operation is as follows:
1996 1999
---- ----
Current $ 0 $ 0
Deferred (1,699,500) (635,991)
Deferred tax asset valuation adjustment 1,699,500 635,991
--------- -------
Total provision $ 0 $ 0
========= =======
F-17
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES - continued
As of June 30, 1996 and 1995 the Company's deferred tax asset account consisted
of the following:
Deferred Tax Liabilities:
Depreciation $ 0 $ 1,544
Amortization 350,700 266,015
Deferred Tax Assets:
Depreciation (32,500) 0
--------- --------
Loss Carryforwards (3,592,700) (903,550)
$(3,274,500) $ (635,991)
Deferred Tax Asset Valuation
Allowance 3,274,500 635,991
--------- -------
Net Deferred Tax Asset $ 0 $ 0
========= =======
Current Portion $ 0 $ 0
Less current valuation allowance 0 0
Long-term portion (3,274,500) (635,991)
Less non-current valuation allowance 3,274,500 635,991
--------- -------
$ 0 $ 0
========= =======
The net change in total valuation allowance is an increase of $1,699,500.
Since the Company had no previous earnings, the current net operation loss
represents a potential carry forward to be applied to future earnings. Although
management believes that the tax benefit of the loss carryforward will
ultimately be realized, a valuation allowance is established in the amount of
the estimated benefit as historical operations have not been profitable.
The net operating loss carryforward is $8,647,044 and expires as follows:
2007 $ 10,225
2008 52,857
2009 930,659
2010 4,028,560
2011 3,624,743
NOTE 13 - COMMITMENTS
Employment and consulting agreements - During 1996 the Company entered into
employment agreements with several of its key executives to continue their
employment through all or a portion of the year 2001. Additionally the Company
entered into an agreement with the major stockholders of The Neptune Group, Inc.
to provide consulting services over a similar period of time. Commitments from
these agreements are summarized as follows:
Employees Consultants Total
--------- ----------- -----
1997 $ 630,000 $ 275,000 $ 905,000
1998 630,000 275,000 905,000
1999 630,000 275,000 905,000
2000 630,000 275,000 905,000
2001 465,000 135,000 600,000
--------- --------- ---------
$2,985,000 $1,235,000 $4,220,000
========= ========= =========
In addition to the above there is a commitment to pay the consultants a fee of
$1,000 per Vision System sold.
F-18
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 13 -COMMITMENTS - continued
Leases - The Company leases its office space, company vehicles, and equipment
under non-cancelable lease agreements. The Company has the option to acquire the
lease vehicles at the end of the respective terms of the leases at fair market
value. Expenses under lease agreements for 1996 and 1995 were $121,190 and
$77,284, respectively. Future minimum lease obligations are:
June 30 Facilities Vehicles Equipment Total
---------- -------- --------- -----
1997 $ 102,604 $25,999 $ 4,875 $133,478
1998 94,567 22,254 3,384 120,205
1999 68,134 15,957 2,302 86,393
2000 68,134 7,128 -- 75,262
2001 34,067 7,128 -- 41,195
------- ------ ------ -------
$367,506 $78,466 $10,561 $465,533
======= ====== ====== =======
NOTE 14 - STOCKHOLDERS' EQUITY
Reverse stock split
On May 2, 1994, DSI effected a one-for-two reverse stock split of its
outstanding common stock. All references in the financial statements to shares
issued, average number of shares outstanding and related prices and per share
data in the accompanying financial statements have been restated to reflect this
reverse stock split.
Preferred stock
The Articles of Incorporation of DSI authorized 3,000,000 of $.001 par value
preferred stock. The Board of Directors of DSI was empowered to establish and to
designate each class or special preferences of the preferred shares and to set
the terms of such shares (including terms with respect to dividends, liquidation
preferences, conversion, redemption, voting rights and preferences). There were
no shares of preferred stock issued or outstanding as of June 30, 1995.
The articles of Incorporation for IDSI authorized 1,000,000 shares of $.001 par
value preferred stock. On June 27, 1996 the Company issued 1,631 shares of
Series A convertible preferred stock for $1,000 per share less offering costs of
$130,480. The preferred shares are convertible into common shares at various
dates up to 100 days from the date of the offering.
Common stock transactions
During 1993, DSI issued an aggregate of 1,106,342 shares of common stock to
various individuals and consultants for services performed, equipment and
technology or for cash investments. In all instances, except for the initial
capitalization of 764,400 shares, the restricted shares of common stock were
issued at $.50 per share and $303,115 was credited to stockholders' equity in
the accompanying balance sheet. For those shares of common stock issued for
services, a corresponding offset was charged to earnings as consulting expenses.
On February 2, 1993, the Board of Directors approved an offering of common stock
of DSI pursuant to Rule 504 of Regulation D (the "Offering"). The Offering
provided by Rule 504 is exempt from registration with the Securities and
Exchange Commission. Under the Offering, a minimum of 100,000 shares and a
maximum of 400,000 shares of common stock were offered at $.50 per share. The
shares of common stock were registered with the Securities Division of the State
of Nevada and were offered in a Prospectus prepared for this purpose. The
maximum of 400,000 shares of common stock offered under this Offering was sold
and net proceeds of approximately $174,000 ($200,000 less selling commissions of
7.5% and offering expenses of approximately $1,000), were received by DSI in
July, 1993.
In July, 1994, DSI issued 150,000 shares for cash at $.19 per share. In
September, 1994, DSI issued 207,143 shares for cash at $.70 per share. In
October, 1994, DSI issued 188,000 shares for cash at $.70 per share. In
December, 1994, DSI issued 525,000 shares at $.35 per share.
F-19
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 14 - STOCKHOLDERS' EQUITY -continued
Also in December, 1994, DSI issued 723,371 shares at $.50 per share for the
conversion of outstanding accounts payable and management services rendered,
100,000 shares at $.25 per share to cancel a convertible note for $25,000,
$24,250 shares at $.70 to satisfy a $14,000 note plus accrued interest. In each
case, shares issued in 1994 were valued giving consideration to the negotiated
value at the amount of the proceeds received.
In February and March, 1995, DSI issued 1,228,572 shares for cash at $.35 per
share, 250,000 shares for contractual rights at $.50 per share, 150,000 shares
for services at $.50 per share, and 1,050,000 shares at for cash $.50 per share.
These shares issued in 1995 were valued giving consideration to the negotiated
value of the services received, except for those issued cash, which were valued
at the amount of the proceeds received. Also in February, 1995, DSI issued
59,173 shares in satisfaction of a payable to an affiliate, Resource Finance
Group, Ltd. as part of a three party agreement involving a significant
stockholder, Mid America Venture Capital, Inc. Pursuant to that agreement, the
value set per share was $3.60.
In January and February 1996, DSI sold 1,428,572 shares at $.70 per share for
cash. On April 1, the shareholders Resource Finance Group Ltd. received
1,590,850 shares for their net assets of $2,268,428 or $1.43 per share. In May
1996, 150,000 shares were issued as payment for services at $2 per share. In
June 1996, 138,760 shares were issued from exercising of warrants at $1 per
share. In June 1996, shares were issued for services as follows: 14,000 shares
at average price of $2.87 for employment services, 56,860 shares at $3.5625 per
share for bonus compensation. In June, 881,654 shares were issued to retire
private placement debt as warrant holders exercised Series A warrants for $1.69
per share. In June, 750,000 shares were issued in exchange for certain net
assets of The Neptune Group, Inc. At $1.97 per share. In June 2000, dissenting
shares were purchased for $1.43 per share.
NOTE 15 - STOCK COMPENSATION AND STOCK OPTION PLANS
The ISO Plan, adopted and effective April 1, 1996, covers employees as
determined by the Company's board of directors and grants options to purchase
shares of the Company Common Stock at fair market value at the time of the
grant. The ISO Plan is intended to qualify as an "incentive stock option" plan
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
In addition to the requirement that options be granted at exercise prices at
least equal to the fair market value of the Common Stock on the respective dates
of grant and subject to the limitations provided by the Code, employees who own
more than 10% of the outstanding shares of the Company or a subsidiary will have
an exercise price which on the date granted will be at least 110% of the fair
value of the Company Common Stock. The company has reserved a maximum of 500,000
Common Shares to be issued upon exercise of the options granted under the ISO
Plan. Common Stock options granted generally have a term of six (6) years from
the date of the grant or in the case of a 10% Stockholder as calculated under
Internal Revenue Code Section 422(b)(6), five years from the date of grant. One
third (1/3) of the Shares subject to the option granted under the ISO Plan vests
and is exercisable with respect to such number of Shares, on each of the first
three annual anniversaries of the date of the grant. Further information
relating to options under the ISO Plan is as follows:
Weighted
Number Average Price
- -------------------------------------------------------------------------------
Outstanding, April 1, 1996 (effective date) -- --
Granted 85,460 $ 2.125
Exercised/Forfeited -- --
Outstanding, June 30, 1996 85,460 $ 2.125
Exercisable, June 30, 1996 -- --
No options were granted with exercise prices different than the market price at
the grant date. All options outstanding at June 30, 1996 are exercisable at
$2.125 per share representing the range and weighted average exercise price. The
weighted average remaining life of the options is 5.75 years.
F-20
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 15 - STOCK COMPENSATION AND STOCK OPTION PLANS -continued
The NSO Plans cover full-time and part-time employees (as determined by the
Company Board of Directors), officers and directors of the Company or Affiliated
Corporation, and any attorney, consultant or other adviser to the Company or
Affiliated Corporation. Additionally, the Company Board of Directors is
empowered to grant stock options and warrants to others in the normal course of
business. The NSO Plans do not require a maximum term for options and warrants,
but no options or warrants have been granted for a period extending beyond five
years. Vesting is generally immediate, although this is not a matter of Board of
Directors policy. Further information relating to the options is as follows:
Weighted
Number Average Price
- -------------------------------------------------------------------------------
Outstanding, July 1, 1994 290,500 $3.86
Granted 6,457,994 $.87
Exercised -- --
Forfeited/Expired
- -------------------------------------------------------------------------------
Outstanding, June 30, 1995 6,748,494 $1.96
Granted 4,292,084 $2.85
Exercised 886,654 $1.69
Forfeited/Expired -- --
- -------------------------------------------------------------------------------
Outstanding, June 30, 1996 10,153,924 $2.36
- -------------------------------------------------------------------------------
Exercisable, June 30,1996 10,153,924 $2.36
- -------------------------------------------------------------------------------
Range of exercise prices $.5 - $20.00
Weighted average exercise price $2.36
Weighted average remaining life 3.2 years
The Company has accounted for all Plans under the provisions of Accounting
Principles Board, Accounting for Stock Issued to Employees ("APB 25"), as
provide by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based compensation ("SFAS 123"). Compensation recorded with issuance of
Common Stock, options and warrants has been recognized based on the difference
between the quoted market price of the stock and the amount the employee must
pay to acquire the stock.
The stock, option and warrant prices are approved by the Board of Directors and
are recorded for employees and consultants under the provisions of APB 25 as
noted above, and for non-employee consultants at the fair market value of the
goods and services received if reasonably determinable, and using the
Black/Scholes Options Pricing Model if not reasonably determinable. Where the
Black/Scholes Model is used, the prevailing 30-day Treasury Bill yield
percentage is used as the risk-free interest rate assumption, an expected option
life equal to the remaining life of the option, expected volatility computed
using month end stock prices (for Digital Science, Inc. prior to the merger of
Digital Science, Inc. and the Company), and expected dividends of $0 per year.
The Company granted options in two instances where the exercise price was below
the market price at the grant date, one grant for 300,000 options at $1.00 per
share for services and another for 10,000 warrants at $2.00 per share for
services relating to private placement of debt. Additionally, an employee
received 14,000 shares at a weighted average price of $2.86 during the year
ended June 30, 1996.
As previously reported, the Company has continued measuring compensation expense
under APB 25 as provided by SFAS 123. Additionally, the Company has elected to
forego the early adoption of the pro forma disclosures required by SFAS 123 for
fiscal years beginning after December 15, 1995.
F-21
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 16 - RELATED PARTY BALANCES AND TRANSACTIONS
The 1995 and 1994 financial statements contain the following related party
transactions not disclosed elsewhere:
1996 1995
---- ----
Net investment in sales-type leases $ 76,962 $ 0
Deposit 500 0
Equipment purchased from a related party 0 6,281
Investment in stock related party 0 562,500
Accounts payable trade 95,659 0
Accrued interest 249 0
Costs and expenses paid or payable in cash 1,232,131 524,276
Gain on sale of affiliate stock to related party 12,500 0
NOTE 17 - ACQUISITIONS
On April 1, 1996 DSI was deemed to acquire, for accounting purposes, Resource
Finance Group, LTD. ("RFG") for $2,406,200 ($137,800 in assumed liabilities and
1,590,850 shares of the Company's common stock valued at $2,268,400) for all of
the outstanding capital stock of Resource Finance Group, LTD. ("RFG"), a company
primarily engaged in the development and distribution of computerized business
systems designed specifically for the long-term (non-acute) health care
industry. RFG then effected a merger with Digital Sciences, Inc. ("DSI") by
exchanging its common stock for DSI's outstanding stock on a one for one basis.
As a result, DSI's former shareholders hold approximately 85% of the company's
outstanding shares and DSI is deemed to be the surviving entity. DSI has adopted
RFG's fiscal year end of June 30.
On June 28, 1996, the Company acquired substantially all the assets of The
Neptune Group, Inc., a leasing operation providing financing to purchasers of
medical equipment and computer systems, for $1,728,203 ($247,219 in assumed
liabilities and 750,000 shares of the Company's common stock valued at
$1,480,984).
The acquisitions were accounted for by the purchase method and accordingly the
results of operations have been included in the accompanying financial
statements from the effective dates of the agreements.
NOTE 18 - CONCENTRATIONS OF CREDIT RISK
The Company invests its excess cash with financial institutions and does not
believe it is exposed to any significant credit risk.
The Company's revenues are generated from the sale of a single product, the
Vision System, through sales type lease transactions. National Purchasing
Corporation, dba HPSI, has the exclusive right to market the Vision System to
certain customer classes,
including Vision's main class of users, nursing homes.
Virtually all of the sales type leases were sold to The Neptune Group, Inc., a
leasing operation providing financing to purchasers of medical equipment and
computer systems, who packaged and sold the leases principally to a sole lender
with recourse to the Company. In June of 1996, the Company acquired
substantially all of the assets of The Neptune Group, Inc. and entered into a
consulting, management and non-competition agreements with a limited liability
company established by the principal stockholders of The Neptune Group, Inc. The
terms of the agreement are such that it is expected that the concentration of
financing through this source will be uninterrupted.
F-22
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC. AND SUBSIDIARIES
(Successor to Resource Finance Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 19 - CONTINGENCIES
In June 1996, the Company agreed to assume liability for a lawsuit with a former
sales agent and has also acquired the rights to a countersuit against the same
agent. The outcome of the suits are not determinable at June 30, 1996 and
accordingly no assets or liabilities are reflected in the financial statements.
Management believes that the ultimate resolution of these matters will not
materially affect the Company's financial position, liquidity or results of
operations.
On June 27, 1996 the Company issued 1,631 shares of convertible preferred
stock and received cash of $1,631,000. Under the terms of the agreement to sell
the preferred stock, the preferred stock may be converted to a senior demand
note secured by the assets of The Neptune Group, Inc. purchased by the Company
June 28, 1996 (see Note 17 ). The conversion feature may only be exercised
within one hundred (100)days of issuance if certain conditions occur. Management
does not anticipate that the conditions that would allow for the option to
convert the preferred stock into a demand note will exist during the 100 day
period.
NOTE 20 - SUBSEQUENT EVENTS
Series B Warrants exercised after June 30, 1996 totaled 509,100 at $1.00 per
share. The remaining 235,900 warrants outstanding at June 30, 1996 expired July
31,1996.
The Company issued Convertible Preferred Stock June 27, 1996. Each share of
Convertible Preferred Stock is convertible one share of the Company's Common
Stock.
F-23
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 1st day of July, 1996, between INTELLIGENT
DECISION SYSTEMS, INC., a Delaware corporation (the "Company"), and Mark A.
Babin, of Hudsonville, Michigan (the "Executive").
WHEREAS, the Company desires to employ the Executive during the period
commencing on the date hereof and ending on the fourth anniversary of the last
day of the calendar month in which the Executive's employment commenced, unless
further extended or sooner terminated as hereinafter provided (the "Employment
Period"), and the Executive desires to be employed by the Company during the
Employment Period subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
SECTION 1
Employment of Executive; Duties and Responsibilities; Term of Employment.
1. Employment of the Executive. The Company agrees to employ the
Executive, and the Executive agrees to be employed by the Company during the
Employment Period, subject to the terms and conditions of this Agreement.
2. Duties and Responsibilities. During the Employment Period:
a. Except as otherwise mutually agreed upon by the Company and the
Executive, the Executive shall be the President and Chief Executive Officer of
the Company.
b. The Company shall cause the Executive to be elected to the Board
of the Directors of the Company.
c. If the Company shall (i) consolidate or merge with or into any
other entity, (ii) sell all or substantially all of its assets to any other
person or entity, or (iii) become a party to any other form of business
combination or corporate reorganization, or if any person or entity or group of
persons or entities acting in concert shall acquire control of the Company
pursuant to the acquisition of a controlling interest in the outstanding shares
of capital stock of the Company, then the Company shall (1) cause the surviving,
acquiring or successor person or entity, as the case may be, to assume all of
the Company's duties, obligations and liabilities, as the case may be, to the
Executive arising under this Agreement, and (2) use its best efforts to cause
the Executive to be appointed or to be elected on the effective date of any such
event, as the case may be, to the same or substantially the same offices and
positions as he is then holding on the date immediately preceding the effective
date of any such event.
d. The Executive shall perform such duties and responsibilities as
are required to be performed by him pursuant to the relevant terms of the Bylaws
of the Company, together with such other duties as the Board of Directors of the
Company shall reasonably assign to the Executive from time to time during the
Employment Period, it being understood that such duties and responsibilities
shall be the same as those customarily assigned to, and expected to be performed
by, a senior executive officer of institutions of similar size as the Company,
which duties and responsibilities shall be primarily those of general
1
<PAGE>
management and supervision of the business and activities of the Company. When
assigning such duties, the Board of Directors shall take into consideration the
age, past responsibilities, experience and seniority of the Executive and assign
such duties as are commensurate with those assigned to a senior executive of
similar organizations and of similar age, past responsibilities, experience and
seniority as the Executive. In no event shall Executive be assigned duties
inconsistent with his status as one of the most senior executive officers of the
Company.
e. The Executive agrees to devote his full attention to the business
and affairs of the Company during regular business hours, except as otherwise
agreed to among the parties hereto.
3. Place of Business. The Executive shall perform his duties and
responsibilities as required under this Agreement from an office which is
comparable to the offices provided to similar senior executives of the Company.
Such office shall be located in Kent County, Michigan.
SECTION 2
Compensation; Reimbursement; Indemnification; Benefits
1. Base Compensation. During the Employment Period, the Company shall pay
to the Executive an aggregate annual base salary of not less than $110,000, or
such greater amount as shall be authorized from time to time by the Board of
Directors of the Company, or a committee or committees thereof (such annual
salary payments being hereinafter collectively called the "Base Salary"). In the
event that the Company is acquired by a non-related company, the Base Salary of
the Executive for the remaining term of the Employment Period shall be
increased, commencing on the first day of the next succeeding fiscal quarter of
the Company, to a minimum of $135,000 during the Employment Period and shall be
increased on each one year anniversary commencing from the date hereof by an
amount of not less than $20,000. The Base Salary payable to the Executive by the
Company shall be paid to the Executive bi-weekly or in accordance with the
policy of the Company as in effect from time to time for the payment of salary
to members of the senior executive management of the Company.
Any other provision of this Section 2(1) to the contrary notwithstanding,
in the event that the Board of Directors of the Company has increased the
Executives Base Salary to an annual rate of compensation higher than $110,000,
then the Base Salary payable under this Agreement during the Employment Period
shall be not less than such higher amount.
2. Primary Incentive Compensation. In addition to the payment of the Base
Salary and the other benefits available to the Executive under the Employee
Benefit Plans, as hereinafter defined, the Board of Directors agrees to create
an Incentive Plan for the Executive (the "Primary Incentive Compensation").
Payment of the such bonus will be made to the Executive within forty-five days
after the end of the Company's fiscal year.
3. Reimbursement of Business Expenses. During the term of the Employment
Period, the Company shall: (i) reimburse the Executive for all travel expenses
and all other reasonable expenses incurred by him in connection with the
performance of his obligations and duties arising under this Agreement; (ii)
provide to the Executive an office and private secretarial assistance suitable
to his position as a senior executive officer of the Company, together with such
other assistants and accommodations as shall be deemed necessary by him to
enable him to satisfactorily perform his responsibilities and duties arising
under this Agreement in the same manner as are provided to other senior
executive officers of organizations of a comparable size to that of the Company;
(iii) provide a Company car and pay all associated automobile
2
<PAGE>
expenses including insurance; (iv) reimburse him for all medical fees incurred
by the Executive for an annual physical examination during each year of the
Employment Period.
4. Vacation. During each year of the Employment Period, the Executive
shall be entitled to receive a paid vacation of not less than four (4) weeks, to
be taken at the sole discretion of the Executive, which may be taken
consecutively in one (1) year, or in a series of shorter vacation periods during
the course of each such year, provided that any vacation not taken in any year
may be carried over to subsequent years.
5. Indemnification. During the term of the Employment Period, the
Executive shall be indemnified and held harmless by the Company to the maximum
extent Permitted by law for any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative or of a
different nature, arising out of the duties and responsibilities assigned to the
Executive under this Agreement. The right to be indemnified and held harmless
hereunder shall not be deemed exclusive of any other rights to which the
Executive may be entitled as a matter of law or any of the rights of indemnity
arising under any policy of insurance carried by either him, the Company or any
other person.
6. Employee Benefit Plans. During the Employment Period, the Employee
shall be entitled to participate in each thrift, stock option, employee
incentive and all other employee benefit plans which are in existence as of the
commencement date of the Employment Period and which are hereafter established
or maintained by the Company, and all group life insurance, pension, profit
sharing, medical, health, accident, disability, death benefit insurance and
other plans and all other employee benefit plans now or hereafter established by
the Company to no lesser extent than any other senior executive officer of the
Company. (All of the benefit plans and insurance policies referred to in this
Agreement are collectively called the "Employee Benefit Plans.")
7. Review and Adjustment of Compensation and Benefits. The annual rate of
the Executive's Base Salary and Primary incentive Compensation and the benefits
extended to him by the Company shall be reviewed annually by the Board of
Directors of the Company and shall be adjusted in a manner consistent with the
Company's practice of reviewing and increasing the salaries and benefits accrued
and payable to the other senior executives of the Company; provided, however,
that in no event will the Executive's Base Salary, Primary Incentive
Compensation or other benefits be reduced.
8. Benefits Payable to Executive Upon Disability or Death. If during the
Employment Period, the Executive dies or becomes permanently disabled (as such
term is hereafter defined), the Company shall have the obligation to pay to the
Executive, if he becomes permanently disabled, and upon his death, to his
Executor or other personal representatives, or heirs or other beneficiaries
which are designated in his Will, or to such other person or entity as the
Executive may have designated in writing to the Company, as the case may be,
seventy-five percent (75%) of the aggregate amount of the Base Salary and
Primary Incentive Compensation paid to him as of the date of such disability or
death, as the case may be, such payments to be made in equal monthly
installments during the remaining term of the Employment Period, as if it was
not terminated for death or permanent disability. If during the Employment
Period, the Executive is permanently disabled (i) he shall continue to
participate in all of the Employee Benefit Plans to the fullest extent permitted
under the terms and conditions thereof, and (ii) such termination shall not
result in the modification of, or adversely affect in any way, any of the
accrued rights of the Executive to receive any of the compensation or benefits
which he is entitled to receive pursuant to this Agreement, or any vested right
to any of the benefits payable to the Executive under any of the Employee
Benefit Plans established by the Company in which he is a participant, and all
such benefits payable to the Executive under all of the Employee Benefit Plans
shall continue in full force and effect, in accordance with the terms and
conditions thereof, and all sums payable to the Executive pursuant thereto shall
be paid in full to, or for the account of, the Executive or his beneficiary
3
<PAGE>
or beneficiaries, as the case may be, after the effective date of such
termination. For the purpose of this Section 2, the term "permanent disability"
shall mean the inability of the Executive to perform the duties and obligations
required of him under this Agreement for a period of one hundred eight (180)
consecutive days or more, as determined by the medical doctor or doctors, as the
case may be, then retained by the Executive.
SECTION 3
Termination of Employment
1. Termination by the Company for Cause. The employment of the Executive
by the Company may be terminated by the Company for cause at any time during the
term hereof upon thirty (30) days prior written notice to the Executive which
notice shall state the facts constituting such "cause", but only if the
Executive shall not have cured such "cause" within ten (10) days after receipt
by him of such notice. For the purpose of this Subsection 3(1), the definition
of the term "for cause" shall be limited to the gross negligence or willful
neglect of duty by the Executive, as determined in good faith by a majority vote
of the Board of Directors of the Company, or if the Executive has engaged in
conduct determined by a, court to constitute the commission of a felony.
Termination of this Agreement "for cause" shall not result in the modification
of, or adversely affect in any way, the obligation of the Company to pay to the
Executive during the term of the Employment Period remaining upon the date of
termination (as if no such termination had occurred), seventy-five percent (75%)
of the aggregate amount of the Base Salary and the Primary Incentive
Compensation payable the Executive at the rate payable during the fiscal year of
the Company in which such termination occurs, nor shall it adversely affect in
any way the right of the Executive to receive any of his accrued rights to
receive any of the compensation or benefits which he is entitled to receive
pursuant to this Agreement, or any vested right to any of the benefits payable
to him under any Employee Benefit Plan established by the Company in which he is
a participant, and all such benefits payable to the Executive under all of the
Employee Benefit Plans shall continue in full force and effect, in accordance
with the terms and conditions thereof, and all sums payable to the Executive
pursuant thereto shall be paid in full to, or for the account of, the Executive
or his beneficiary or beneficiaries as the case may be, after the effective date
of such termination.
3. Termination of Employment by the Executive.
a. The Executive shall have the right at any time, in his sole
discretion, to terminate his employment with the Company at any time during the
Employment Period, upon one (1) year prior written notice to the Company;
provided, however, that the termination of employment pursuant to this Section 3
shall not result in the modification of, or adversely affect in any way, any
accrued rights of the Executive to receive any of the compensation or benefits
which he is entitled to receive pursuant to this Agreement or any vested right
to any of the benefits payable to the Executive under any of the Employee
Benefit Plans established by the Company in which he is a participant, and all
such benefits payable to the Executive under all of the Employee Benefit Plans
shall continue in full force and effect, in accordance with the terms and
conditions thereof, and all sums payable to the Executive pursuant thereto shall
be paid in full to, or for the account of, and all insurance coverage provided
hereunder shall continue in effect for the benefit of the Executive or his
beneficiary or beneficiaries, as the case may be, after the effective date of
such termination for the full remaining term of the Employment Period (as if
such termination did not occur). Upon the effective date of termination of
employment, other than for cause, the Executive shall be entitled to receive
during the period commencing from the effective date of termination and ending
on the last day of the Employment Period, or such later date as the Employment
Period may have been extended to prior to such termination date, the full amount
of the Base Salary and the Primary Incentive Compensation and all of the
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benefits which he would have been entitled to receive during the remaining term
of the Employment Period (as if it had not been terminated); provided, however,
that the covenants agreed to by the Executive under Section 4 of this Agreement
shall be performed by him.
b. The Executive shall not be required to mitigate any damages which
he may incur under any of the terms of this Agreement upon a breach by the
Company of any of the terms or conditions of this Agreement. If such a breach
occurs, and he accepts other em employment, any damages hereunder shall not be
reduced by any compensation earned, or other benefits its received as a result
of such employment.
SECTION 4
Covenants of the Executive
1. Covenant Not to Compete. During the Employment Period, and for a period
of twelve (12) months thereafter, the Executive will not engage in, represent in
any way, be connected with, become employed by, affiliated with or have any
material interest in any business entity or activity which directly or
indirectly competes with the business of the Company as conducted as of the
effective date of termination of the Employment Period; provided, however, that
the foregoing shall not prevent the acquisition and continued ownership the
Executive of securities of, or an interest in, any business entity which at the
time of such acquisition was not competitive with the business of the Company,
nor shall the foregoing prevent the acquisition by the Executive of securities
of, or an interest in, any business entity which represents at the time of such
a acquisition (after taking into account any of such securities then held by
him) less than ten percent 10% of the outstanding securities of, or interest in,
any such business entity. During the term of the Employment Period, the
Executive shall not serve as a director on the Board of another company without
a resolution from the Company's Board of Directors allowing the same.
2. Secrecy Covenant. During the Employment Period and thereafter, the
Executive covenants and agrees that he will not divulge, furnish,
misappropriate, publish or use for his personal benefit or for the direct or
indirect benefit of any other person or business entity, other than the Company
or any of its respective subsidiaries or affiliates, any trade secrets or other
confidential or proprietary information which he has acquired during the
Employment Period which is not otherwise generally available to the public, and
which constitutes a trade secret or other proprietary or confidential
information of the Company or any of its subsidiaries as of the effective date
of termination of the Employment Period.
3. Ownership of Trade Secrets, Etc.
a. All written materials, records and documents made by the Executive
or coming into his possession during the Employment Period concerning the
business affairs of the Employer or any of its affiliates shall be the sole
property of the Employer and its affiliates, and, upon termination of the
Employment Period or upon the request of the Employer during the Employment
Period, the Executive shall promptly deliver the same to the Employer or to any
affiliate designated by it; provided, however that the Executive may retain
duplicate photocopies of any and all written materials, records and documents
made by the Executive or coming into his possession during the Employment Period
concerning non-confidential knowledge or information relating to the business or
affairs of the Employer and its Affiliates.
b. The Executive agrees that any trade secret, invention,
improvement, patent application or writing, and any program, system or novel
technique (whether or not capable of being trademarked, copyrighted or
patented), conceived, devised, developed, or otherwise obtained by him during
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the Employment Period relating to the business of the Employer or any of its
affiliates, shall be and become the property of the Employer, and the Employee
agrees to give the Employer prompt written notice of his conception, invention,
improvement, patent, application, writing, program, system or novel technique
and to execute such instruments of transfer, assignment, conveyance or
confirmation and such other documents and to do all appropriate lawful acts as
may be requested by the Employer to transfer, assign, confirm, and perfect in
the Employer all legally protectable rights in any such trade secret, invention,
improvement, patent, patent application, writing, program, system or novel
technique.
c. It is understood by the Executive and the Employer that the
covenants continued in this Section 4 are essential elements of this Agreement
and that, but for the agreement of the Executive to comply with such covenants,
the Employer would not have agreed to enter into this Agreement. The Executive
and the Employer have independently consulted with their respective counsel and
have been advised concerning the reasonableness and propriety of such covenants
with specific regard to the nature of the business conducted by the Employer.
The Employee hereby agrees that all covenants contained in this Section 4 are
reasonable and valid.
SECTION 5
Miscellaneous
1. Non-Assignability. Neither this Agreement nor any obligation, right or
interest hereunder shall be assignable by the Executive, his beneficiary or
legal representatives without the prior written consent of the Company;
provided, however that nothing in this Section 5 shall preclude the Executive
from designating in writing to the Company the name or names of a beneficiary or
beneficiaries to receive any compensation payable to him or any other benefit
receivable by him under this Agreement upon the death or incapacity of the
Executive, nor shall it preclude any executor, administrator or any other legal
representatives of the Executive or the Executive's Estate from assigning any
rights hereunder to a person or persons entitled thereto. Neither this Agreement
nor any right or obligation arising hereunder shall be assignable by the
Company, its successors, assigns, beneficiaries or legal representatives either
directly by assignment or by a merger, consolidation, sale of assets or other
form of business combination, or disposition, without the prior written consent
of the Executive.
2. Merger of Agreements. This Agreement contains the entire understanding
of all agreements among the parties hereto regarding the terms of employment of
the Execute by the Company, and supersedes all prior written or oral employment
agreements which existed between the Company and the Executive.
3. Binding Agreement. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective heirs, other legal
representatives and permitted successors and assigns, as the case may be.
4. Governing Law. This Agreement shall be governed by and construed under
the internal laws of the State of Michigan.
5. Notices. All notices or other communications to be given by the parties
among themselves pursuant to this Agreement shall be in writing, and all
payments to be made hereunder shall be deemed to have been duly made if mailed
by certified mail or hand delivered to either of the parties at the following
addresses:
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If to the Executive: with a copy to:
Mark A. Babin
If to the Company: with a copy to:
Intelligent Decision Systems, Inc.
2025 East Beltline Ave., SE, Suite 400
Grand Rapids, MI 49546
Any of the parties hereto may change their respective addresses upon written
notice to the other given in the manner provided in this Section.
6. Severability. If any of the terms or conditions of this Agreement shall
be declared void or unenforceable by any court or administrative body of
competent jurisdiction, such terms or conditions shall be deemed severable from
the remainder of this Agreement, and the Agreement shall continue in all
respects to be valid and enforceable. In the event that any term of Section 4 of
this Agreement shall be determined to be invalid or unenforceable by a court of
competent jurisdiction by reason of the geographic or business scope of the
duration thereof or for any other reason, such invalidity or unenforceability
shall apply only to the particular aspect of such term determined to be invalid
or unenforceable and shall not affect or render invalid or unenforceable any
other term of Section 4 of this Agreement or the enforcement of such term in
other circumstances, and, to the fullest extent permitted by law, Section 4 of
this Agreement shall be construed as if the geographic or business scope or the
duration of such term or other basis on which such term has been determined to
be invalid or unenforceable had been more narrowly drafted so as not to be
invalid or unenforceable.
7. Remedies. The Executive acknowledges that the Employer may have no
adequate remedy at law if the Executive violates any of the terms hereof. In
such event, the Employer shall have the right, in addition to any other rights
it may have, to obtain in any court of competent jurisdiction injunctive relief
to restrain any breach or threatened breach hereof or otherwise to specifically
enforce any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer, and the Executive has duly signed this
Agreement, all as at the date and year first above written.
INTELLIGENT DECISION SYSTEMS, INC. EXECUTIVE
By: /s/ Mark A. Babin /s/ Mark A. Babin
Mark A. Babin
Its: President
7
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 1st day of July, 1996, between DIGITAL SCIENCES,
INC., a Nevada corporation (the "Company"), and David A. Horowitz, of Westport,
Connecticut (the "Executive").
WHEREAS, the Company desires to employ the Executive during the period
commencing on the date hereof and ending on the fourth anniversary of the last
day of the calendar month in which the Executive's employment commenced, unless
further extended or sooner terminated as hereinafter provided (the "Employment
Period"), and the Executive desires to be employed by the Company during the
Employment Period subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
SECTION 1
Employment of Executive; Duties and Responsibilities; Term of Employment.
1. Employment of the Executive. The Company agrees to employ the
Executive, and the Executive agrees to be employed by the Company during the
Employment Period, subject to the terms and conditions of this Agreement.
2. Duties and Responsibilities. During the Employment Period:
a. Except as otherwise mutually agreed upon by the Company and the
Executive, the Executive shall be the President and Chief Executive Officer of
the Company.
b. The Company shall cause the Executive to be elected to the Board
of the Directors of the Company.
c. If the Company shall (i) consolidate or merge with or into any
other entity, (ii) sell all or substantially all of its assets to any other
person or entity, or (iii) become a party to any other form of business
combination or corporate reorganization, or if any person or entity or group of
persons or entities acting in concert shall acquire control of the Company
pursuant to the acquisition of a controlling interest in the outstanding shares
of capital stock of the Company, then the Company shall (1) cause the surviving,
acquiring or successor person or entity, as the case may be, to assume all of
the Company's duties, obligations and liabilities, as the case may be, to the
Executive arising under this Agreement, and (2) use its best efforts to cause
the Executive to be appointed or to be elected on the effective date of any such
event, as the case may be, to the same or substantially the same offices and
positions as he is then holding on the date immediately preceding the effective
date of any such event.
d. The Executive shall perform such duties and responsibilities as
are required to be performed by him pursuant to the relevant terms of the Bylaws
of the Company, together with such other duties as the Board of Directors of the
Company shall reasonably assign to the Executive from time to time during the
Employment Period, it being understood that such duties and responsibilities
shall be the same as those customarily assigned to, and expected to be performed
by, a senior executive officer of institutions of similar size as the Company,
which duties and responsibilities shall be primarily those of general management
and supervision of the business and activities of the Company. When assigning
such duties, the
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Board of Directors shall take into consideration the age, past responsibilities,
experience and seniority of the Executive and assign such duties as are
commensurate with those assigned to a senior executive of similar organizations
and of similar age, past responsibilities, experience and seniority as the
Executive. In no event shall Executive be assigned duties inconsistent with his
status as one of the most senior executive officers of the Company.
e. The Executive agrees to devote his full attention to the business
and affairs of the Company during regular business hours, except as otherwise
agreed to among the parties hereto.
3. Place of Business. The Executive shall perform his duties and
responsibilities as required under this Agreement from an office which is
comparable to the offices provided to similar senior executives of the Company.
Such office shall be located in Fairfield County, Connecticut.
SECTION 2
Compensation; Reimbursement; Indemnification; Benefits
1. Base Compensation. During the Employment Period, the Company shall pay
to the Executive an aggregate annual base salary of not less than $110,000, or
such greater amount as shall be authorized from time to time by the Board of
Directors of the Company, or a committee or committees thereof (such annual
salary payments being hereinafter collectively called the "Base Salary"). In the
event that the Company is acquired by a non-related company, the Base Salary of
the Executive for the remaining term of the Employment Period shall be
increased, commencing on the first day of the next succeeding fiscal quarter of
the Company, to a minimum of $135,000 during the Employment Period and shall be
increased on each one year anniversary commencing from the date hereof by an
amount of not less than $20,000. The Base Salary payable to the Executive by the
Company shall be paid to the Executive bi-weekly or in accordance with the
policy of the Company as in effect from time to time for the payment of salary
to members of the senior executive management of the Company.
Any other provision of this Section 2(1) to the contrary notwithstanding,
in the event that the Board of Directors of the Company has increased the
Executives Base Salary to an annual rate of compensation higher than $110,000,
then the Base Salary payable under this Agreement during the Employment Period
shall be not less than such higher amount.
2. Primary Incentive Compensation. In addition to the payment of the Base
Salary and the other benefits available to the Executive under the Employee
Benefit Plans, as hereinafter defined, the Board of Directors agrees to create
an Incentive Plan for the Executive (the "Primary Incentive Compensation").
Payment of the such bonus will be made to the Executive within forty-five days
after the end of the Company's fiscal year.
3. Reimbursement of Business Expenses. During the term of the Employment
Period, the Company shall: (i) reimburse the Executive for all travel expenses
and all other reasonable expenses incurred by him in connection with the
performance of his obligations and duties arising under this Agreement; (ii)
provide to the Executive an office and private secretarial assistance suitable
to his position as a senior executive officer of the Company, together with such
other assistants and accommodations as shall be deemed necessary by him to
enable him to satisfactorily perform his responsibilities and duties arising
under this Agreement in the same manner as are provided to other senior
executive officers of organizations of a comparable size to that of the Company;
(iii) provide a Company car and pay all associated automobile
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expenses including insurance; (iv) reimburse him for all medical fees incurred
by the Executive for an annual physical examination during each year of the
Employment Period.
4. Vacation. During each year of the Employment Period, the Executive
shall be entitled to receive a paid vacation of not less than four (4) weeks, to
be taken at the sole discretion of the Executive, which may be taken
consecutively in one (1) year, or in a series of shorter vacation periods during
the course of each such year, provided that any vacation not taken in any year
may be carried over to subsequent years.
5. Indemnification. During the term of the Employment Period, the
Executive shall be indemnified and held harmless by the Company to the maximum
extent Permitted by law for any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative or of a
different nature, arising out of the duties and responsibilities assigned to the
Executive under this Agreement. The right to be indemnified and held harmless
hereunder shall not be deemed exclusive of any other rights to which the
Executive may be entitled as a matter of law or any of the rights of indemnity
arising under any policy of insurance carried by either him, the Company or any
other person.
6. Employee Benefit Plans. During the Employment Period, the Employee
shall be entitled to participate in each thrift, stock option, employee
incentive and all other employee benefit plans which are in existence as of the
commencement date of the Employment Period and which are hereafter established
or maintained by the Company, and all group life insurance, pension, profit
sharing, medical, health, accident, disability, death benefit insurance and
other plans and all other employee benefit plans now or hereafter established by
the Company to no lesser extent than any other senior executive officer of the
Company. (All of the benefit plans and insurance policies referred to in this
Agreement are collectively called the "Employee Benefit Plans.")
7. Review and Adjustment of Compensation and Benefits. The annual rate of
the Executive's Base Salary and Primary incentive Compensation and the benefits
extended to him by the Company shall be reviewed annually by the Board of
Directors of the Company and shall be adjusted in a manner consistent with the
Company's practice of reviewing and increasing the salaries and benefits accrued
and payable to the other senior executives of the Company; provided, however,
that in no event will the Executive's Base Salary, Primary Incentive
Compensation or other benefits be reduced.
8. Benefits Payable to Executive Upon Disability or Death. If during the
Employment Period, the Executive dies or becomes permanently disabled (as such
term is hereafter defined), the Company shall have the obligation to pay to the
Executive, if he becomes permanently disabled, and upon his death, to his
Executor or other personal representatives, or heirs or other beneficiaries
which are designated in his Will, or to such other person or entity as the
Executive may have designated in writing to the Company, as the case may be,
seventy-five percent (75%) of the aggregate amount of the Base Salary and
Primary Incentive Compensation paid to him as of the date of such disability or
death, as the case may be, such payments to be made in equal monthly
installments during the remaining term of the Employment Period, as if it was
not terminated for death or permanent disability. If during the Employment
Period, the Executive is permanently disabled (i) he shall continue to
participate in all of the Employee Benefit Plans to the fullest extent permitted
under the terms and conditions thereof, and (ii) such termination shall not
result in the modification of, or adversely affect in any way, any of the
accrued rights of the Executive to receive any of the compensation or benefits
which he is entitled to receive pursuant to this Agreement, or any vested right
to any of the benefits payable to the Executive under any of the Employee
Benefit Plans established by the Company in which he is a participant, and all
such benefits payable to the Executive under all of the Employee Benefit Plans
shall continue in full force and effect, in accordance with the terms and
conditions thereof, and all sums payable to the Executive pursuant thereto shall
be paid in full to, or for the account of, the Executive or his beneficiary
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or beneficiaries, as the case may be, after the effective date of such
termination. For the purpose of this Section 2, the term "permanent disability"
shall mean the inability of the Executive to perform the duties and obligations
required of him under this Agreement for a period of one hundred eight (180)
consecutive days or more, as determined by the medical doctor or doctors, as the
case may be, then retained by the Executive.
SECTION 3
Termination of Employment
1. Termination by the Company for Cause. The employment of the Executive
by the Company may be terminated by the Company for cause at any time during the
term hereof upon thirty (30) days prior written notice to the Executive which
notice shall state the facts constituting such "cause", but only if the
Executive shall not have cured such "cause" within ten (10) days after receipt
by him of such notice. For the purpose of this Subsection 3(1), the definition
of the term "for cause" shall be limited to the gross negligence or willful
neglect of duty by the Executive, as determined in good faith by a majority vote
of the Board of Directors of the Company, or if the Executive has engaged in
conduct determined by a, court to constitute the commission of a felony.
Termination of this Agreement "for cause" shall not result in the modification
of, or adversely affect in any way, the obligation of the Company to pay to the
Executive during the term of the Employment Period remaining upon the date of
termination (as if no such termination had occurred), seventy-five percent (75%)
of the aggregate amount of the Base Salary and the Primary Incentive
Compensation payable the Executive at the rate payable during the fiscal year of
the Company in which such termination occurs, nor shall it adversely affect in
any way the right of the Executive to receive any of his accrued rights to
receive any of the compensation or benefits which he is entitled to receive
pursuant to this Agreement, or any vested right to any of the benefits payable
to him under any Employee Benefit Plan established by the Company in which he is
a participant, and all such benefits payable to the Executive under all of the
Employee Benefit Plans shall continue in full force and effect, in accordance
with the terms and conditions thereof, and all sums payable to the Executive
pursuant thereto shall be paid in full to, or for the account of, the Executive
or his beneficiary or beneficiaries as the case may be, after the effective date
of such termination.
3. Termination of Employment by the Executive.
a. The Executive shall have the right at any time, in his sole
discretion, to terminate his employment with the Company at any time during the
Employment Period, upon one (1) year prior written notice to the Company;
provided, however, that the termination of employment pursuant to this Section 3
shall not result in the modification of, or adversely affect in any way, any
accrued rights of the Executive to receive any of the compensation or benefits
which he is entitled to receive pursuant to this Agreement or any vested right
to any of the benefits payable to the Executive under any of the Employee
Benefit Plans established by the Company in which he is a participant, and all
such benefits payable to the Executive under all of the Employee Benefit Plans
shall continue in full force and effect, in accordance with the terms and
conditions thereof, and all sums payable to the Executive pursuant thereto shall
be paid in full to, or for the account of, and all insurance coverage provided
hereunder shall continue in effect for the benefit of the Executive or his
beneficiary or beneficiaries, as the case may be, after the effective date of
such termination for the full remaining term of the Employment Period (as if
such termination did not occur). Upon the effective date of termination of
employment, other than for cause, the Executive shall be entitled to receive
during the period commencing from the effective date of termination and ending
on the last day of the Employment Period, or such later date as the Employment
Period may have been extended to prior to such termination date, the full amount
of the Base Salary and the Primary Incentive Compensation and all of the
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benefits which he would have been entitled to receive during the remaining term
of the Employment Period (as if it had not been terminated); provided, however,
that the covenants agreed to by the Executive under Section 4 of this Agreement
shall be performed by him.
b. The Executive shall not be required to mitigate any damages which
he may incur under any of the terms of this Agreement upon a breach by the
Company of any of the terms or conditions of this Agreement. If such a breach
occurs, and he accepts other em employment, any damages hereunder shall not be
reduced by any compensation earned, or other benefits its received as a result
of such employment.
SECTION 4
Covenants of the Executive
1. Covenant Not to Compete. During the Employment Period, and for a period
of twelve (12) months thereafter, the Executive will not engage in, represent in
any way, be connected with, become employed by, affiliated with or have any
material interest in any business entity or activity which directly or
indirectly competes with the business of the Company as conducted as of the
effective date of termination of the Employment Period; provided, however, that
the foregoing shall not prevent the acquisition and continued ownership the
Executive of securities of, or an interest in, any business entity which at the
time of such acquisition was not competitive with the business of the Company,
nor shall the foregoing prevent the acquisition by the Executive of securities
of, or an interest in, any business entity which represents at the time of such
a acquisition (after taking into account any of such securities then held by
him) less than ten percent 10% of the outstanding securities of, or interest in,
any such business entity.
2. Secrecy Covenant. During the Employment Period and thereafter, the
Executive covenants and agrees that he will not divulge, furnish,
misappropriate, publish or use for his personal benefit or for the direct or
indirect benefit of any other person or business entity, other than the Company
or any of its respective subsidiaries or affiliates, any trade secrets or other
confidential or proprietary information which he has acquired during the
Employment Period which is not otherwise generally available to the public, and
which constitutes a trade secret or other proprietary or confidential
information of the Company or any of its subsidiaries as of the effective date
of termination of the Employment Period.
3. Ownership of Trade Secrets, Etc.
a. All written materials, records and documents made by the Executive
or coming into his possession during the Employment Period concerning the
business affairs of the Employer or any of its affiliates shall be the sole
property of the Employer and its affiliates, and, upon termination of the
Employment Period or upon the request of the Employer during the Employment
Period, the Executive shall promptly deliver the same to the Employer or to any
affiliate designated by it; provided, however that the Executive may retain
duplicate photocopies of any and all written materials, records and documents
made by the Executive or coming into his possession during the Employment Period
concerning non-confidential knowledge or information relating to the business or
affairs of the Employer and its Affiliates.
b. The Executive agrees that any trade secret, invention,
improvement, patent application or writing, and any program, system or novel
technique (whether or not capable of being trademarked, copyrighted or
patented), conceived, devised, developed, or otherwise obtained by him during
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the Employment Period relating to the business of the Employer or any of its
affiliates, shall be and become the property of the Employer, and the Employee
agrees to give the Employer prompt written notice of his conception, invention,
improvement, patent, application, writing, program, system or novel technique
and to execute such instruments of transfer, assignment, conveyance or
confirmation and such other documents and to do all appropriate lawful acts as
may be requested by the Employer to transfer, assign, confirm, and perfect in
the Employer all legally protectable rights in any such trade secret, invention,
improvement, patent, patent application, writing, program, system or novel
technique.
c. It is understood by the Executive and the Employer that the
covenants continued in this Section 4 are essential elements of this Agreement
and that, but for the agreement of the Executive to comply with such covenants,
the Employer would not have agreed to enter into this Agreement. The Executive
and the Employer have independently consulted with their respective counsel and
have been advised concerning the reasonableness and propriety of such covenants
with specific regard to the nature of the business conducted by the Employer.
The Employee hereby agrees that all covenants contained in this Section 4 are
reasonable and valid.
SECTION 5
Miscellaneous
1. Non-Assignability. Neither this Agreement nor any obligation, right or
interest hereunder shall be assignable by the Executive, his beneficiary or
legal representatives without the prior written consent of the Company;
provided, however that nothing in this Section 5 shall preclude the Executive
from designating in writing to the Company the name or names of a beneficiary or
beneficiaries to receive any compensation payable to him or any other benefit
receivable by him under this Agreement upon the death or incapacity of the
Executive, nor shall it preclude any executor, administrator or any other legal
representatives of the Executive or the Executive's Estate from assigning any
rights hereunder to a person or persons entitled thereto. Neither this Agreement
nor any right or obligation arising hereunder shall be assignable by the
Company, its successors, assigns, beneficiaries or legal representatives either
directly by assignment or by a merger, consolidation, sale of assets or other
form of business combination, or disposition, without the prior written consent
of the Executive.
2. Merger of Agreements. This Agreement contains the entire understanding
of all agreements among the parties hereto regarding the terms of employment of
the Execute by the Company, and supersedes all prior written or oral employment
agreements which existed between the Company and the Executive.
3. Binding Agreement. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective heirs, other legal
representatives and permitted successors and assigns, as the case may be.
4. Governing Law. This Agreement shall be governed by and construed under
the internal laws of the State of Nevada.
5. Notices. All notices or other communications to be given by the parties
among themselves pursuant to this Agreement shall be in writing, and all
payments to be made hereunder shall be deemed to have been duly made if mailed
by certified mail or hand delivered to either of the parties at the following
addresses:
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If to the Executive: with a copy to:
David A. Horowitz
If to the Company: with a copy to:
Digital Sciences, Inc.
7150 E. Camelback Road
Suite 190
Scottsdale, Arizona 85251
Any of the parties hereto may change their respective addresses upon written
notice to the other given in the manner provided in this Section.
6. Severability. If any of the terms or conditions of this Agreement shall
be declared void or unenforceable by any court or administrative body of
competent jurisdiction, such terms or conditions shall be deemed severable from
the remainder of this Agreement, and the Agreement shall continue in all
respects to be valid and enforceable. In the event that any term of Section 4 of
this Agreement shall be determined to be invalid or unenforceable by a court of
competent jurisdiction by reason of the geographic or business scope of the
duration thereof or for any other reason, such invalidity or unenforceability
shall apply only to the particular aspect of such term determined to be invalid
or unenforceable and shall not affect or render invalid or unenforceable any
other term of Section 4 of this Agreement or the enforcement of such term in
other circumstances, and, to the fullest extent permitted by law, Section 4 of
this Agreement shall be construed as if the geographic or business scope or the
duration of such term or other basis on which such term has been determined to
be invalid or unenforceable had been more narrowly drafted so as not to be
invalid or unenforceable.
7. Remedies. The Executive acknowledges that the Employer may have no
adequate remedy at law if the Executive violates any of the terms hereof. In
such event, the Employer shall have the right, in addition to any other rights
it may have, to obtain in any court of competent jurisdiction injunctive relief
to restrain any breach or threatened breach hereof or otherwise to specifically
enforce any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer, and the Executive has duly signed this
Agreement, all as at the date and year first above written.
DIGITAL SCIENCES, INC. EXECUTIVE
By: /s/ David A. Horowitz
David A. Horowitz
Its:
7
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 1st day of July, 1996, between DIGITAL SCIENCES,
INC., a Nevada corporation (the "Company"), and Robert Hyte, of Sandy, Utah (the
"Executive").
WHEREAS, the Company desires to employ the Executive during the period
commencing on the date hereof and ending on the fourth anniversary of the last
day of the calendar month in which the Executive's employment commenced, unless
further extended or sooner terminated as hereinafter provided (the "Employment
Period"), and the Executive desires to be employed by the Company during the
Employment Period subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
SECTION 1
Employment of Executive; Duties and Responsibilities; Term of Employment.
1. Employment of the Executive. The Company agrees to employ the
Executive, and the Executive agrees to be employed by the Company during the
Employment Period, subject to the terms and conditions of this Agreement.
2. Duties and Responsibilities. During the Employment Period:
a. Except as otherwise mutually agreed upon by the Company and the
Executive, the Executive shall be the Executive Vice President and Chief
Executive Officer of the Company.
b. If the Company shall (i) consolidate or merge with or into any
other entity, (ii) sell all or substantially all of its assets to any other
person or entity, or (iii) become a party to any other form of business
combination or corporate reorganization, or if any person or entity or group of
persons or entities acting in concert shall acquire control of the Company
pursuant to the acquisition of a controlling interest in the outstanding shares
of capital stock of the Company, then the Company shall (1) cause the surviving,
acquiring or successor person or entity, as the case may be, to assume all of
the Company's duties, obligations and liabilities, as the case may be, to the
Executive arising under this Agreement, and (2) use its best efforts to cause
the Executive to be appointed or to be elected on the effective date of any such
event, as the case may be, to the same or substantially the same offices and
positions as he is then holding on the date immediately preceding the effective
date of any such event.
c. The Executive shall perform such duties and responsibilities as
are required to be performed by him pursuant to the relevant terms of the Bylaws
of the Company, together with such other duties as the Board of Directors of the
Company shall reasonably assign to the Executive from time to time during the
Employment Period, it being understood that such duties and responsibilities
shall be the same as those customarily assigned to, and expected to be performed
by, a senior executive officer of institutions of similar size as the Company,
which duties and responsibilities shall be primarily those of general management
and supervision of the business and activities of the Company. When assigning
such duties, the Board of Directors shall take into consideration the age, past
responsibilities, experience and seniority of the Executive and assign such
duties as are commensurate with those assigned to a senior executive of similar
organizations and of similar age, past responsibilities, experience and
seniority as the Executive. In no event
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shall Executive be assigned duties inconsistent with his status as one of the
most senior executive officers of the Company.
d. The Executive agrees to devote his full attention to the business
and affairs of the Company during regular business hours, except as otherwise
agreed to among the parties hereto.
3. Place of Business. The Executive shall perform his duties and
responsibilities as required under this Agreement from an office which is
comparable to the offices provided to similar senior executives of the Company.
Such office shall be located in Fairfield County, Connecticut.
SECTION 2
Compensation; Reimbursement; Indemnification; Benefits
1. Base Compensation. During the Employment Period, the Company shall pay
to the Executive an aggregate annual base salary of not less than $110,000, or
such greater amount as shall be authorized from time to time by the Board of
Directors of the Company, or a committee or committees thereof (such annual
salary payments being hereinafter collectively called the "Base Salary"). When
the Company first realizes gross revenue of $1 million or more in any of its
fiscal quarters, as determined by the financial statements of the Company
prepared and presented by the Chief Financial Officer of the Company in
accordance with generally accepted accounting principles consistently applied,
the Base Salary of the Executive for the remaining term of the Employment Period
shall be increased, commencing on the first day of the next succeeding fiscal
quarter of the Company, to a minimum of $135,000 during the Employment Period.
The Base Salary payable to the Executive by the Company shall be paid to the
Executive bi-weekly or in accordance with the policy of the Company as in effect
from time to time for the payment of salary to members of the senior executive
management of the Company. Notwithstanding anything in this Agreement to the
contrary, the base salary of Executive shall be increased on each one year
anniversary commencing from the date hereof by an amount of not less than
$20,000.
Any other provision of this Section 2(1) to the contrary notwithstanding,
in the event that the Board of Directors of the Company has increased the
Executives Base Salary to an annual rate of compensation higher than $110,000,
then the Base Salary payable under this Agreement during the Employment Period
shall be not less than such higher amount.
2. Primary Incentive Compensation. In addition to the payment of the Base
Salary and the other benefits available to the Executive under the Employee
Benefit Plans, as hereinafter defined, the Company agrees to pay to the
executive during the Employment Period the following incentive compensation (
the " Primary incentive Compensation"). When the Company first recognizes
$1,000,000 or more in profits (EBIT) in any one of its fiscal year, as
determined in accordance with Generally Accepted Accounting Principles, applied
on a basis consistent with those used i n the immediately preceding fiscal year
of the Company, the Executive will be entitled to receive a bonus equal to 3% of
the net after tax operating profits recognized by the Company for each of such
fiscal years. Payment of the such bonus will be made to the Executive within
forty-five days after the end of the Company's fiscal year.
3. Reimbursement of Business Expenses. During the term of the Employment
Period, the Company shall: (i) reimburse the Executive for all travel expenses
and all other reasonable expenses incurred by him in connection with the
performance of his obligations and duties arising under this Agreement; (ii)
provide to the Executive an office and private secretarial assistance suitable
to his position as a senior executive officer of the Company, together with such
other assistants and accommodations as shall be
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deemed necessary by him to enable him to satisfactorily perform his
responsibilities and duties arising under this Agreement in the same manner as
are provided to other senior executive officers of organizations of a comparable
size to that of the Company; (iii) provide a Company car and pay all associated
automobile expenses including insurance; (iv) reimburse him for all medical fees
incurred by the Executive for an annual physical examination during each year of
the Employment Period.
4. Vacation. During each year of the Employment Period, the Executive
shall be entitled to receive a paid vacation of not less than four (4) weeks, to
be taken at the sole discretion of the Executive, which may be taken
consecutively in one (1) year, or in a series of shorter vacation periods during
the course of each such year, provided that any vacation not taken in any year
may be carried over to subsequent years.
5. Indemnification. During the term of the Employment Period, the
Executive shall be indemnified and held harmless by the Company to the maximum
extent Permitted by law for any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative or of a
different nature, arising out of the duties and responsibilities assigned to the
Executive under this Agreement. The right to be indemnified and held harmless
hereunder shall not be deemed exclusive of any other rights to which the
Executive may be entitled as a matter of law or any of the rights of indemnity
arising under any policy of insurance carried by either him, the Company or any
other person.
6. Employee Benefit Plans. During the Employment Period, the Employee
shall be entitled to participate in each thrift, stock option, employee
incentive and all other employee benefit plans which are in existence as of the
commencement date of the Employment Period and which are hereafter established
or maintained by the Company, and all group life insurance, pension, profit
sharing, medical, health, accident, disability, death benefit insurance and
other plans and all other employee benefit plans now or hereafter established by
the Company to no lesser extent than any other senior executive officer of the
Company. (All of the benefit plans and insurance policies referred to in this
Agreement are collectively called the "Employee Benefit Plans.")
7. Review and Adjustment of Compensation and Benefits. The annual rate of
the Executive's Base Salary and Primary incentive Compensation and the benefits
extended to him by the Company shall be reviewed annually by the Board of
Directors of the Company and shall be adjusted in a manner consistent with the
Company's practice of reviewing and increasing the salaries and benefits accrued
and payable to the other senior executives of the Company; provided, however,
that in no event will the Executive's Base Salary, Primary Incentive
Compensation or other benefits be reduced.
8. Benefits Payable to Executive Upon Disability or Death. If during the
Employment Period, the Executive dies or becomes permanently disabled (as such
term is hereafter defined), the Company shall have the obligation to pay to the
Executive, if he becomes permanently disabled, and upon his death, to his
Executor or other personal representatives, or heirs or other beneficiaries
which are designated in his Will, or to such other person or entity as the
Executive may have designated in writing to the Company, as the case may be,
seventy-five percent (75%) of the aggregate amount of the Base Salary and
Primary Incentive Compensation paid to him as of the date of such disability or
death, as the case may be, such payments to be made in equal monthly
installments during the remaining term of the Employment Period, as if it was
not terminated for death or permanent disability. If during the Employment
Period, the Executive is permanently disabled (i) he shall continue to
participate in all of the Employee Benefit Plans to the fullest extent permitted
under the terms and conditions thereof, and (ii) such termination shall not
result in the modification of, or adversely affect in any way, any of the
accrued rights of the Executive to receive any of the compensation or benefits
which he is entitled to receive pursuant to this Agreement, or any vested right
to any of the benefits payable to the Executive under any of the Employee
Benefit Plans established by the Company in which he is
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a participant, and all such benefits payable to the Executive under all of the
Employee Benefit Plans shall continue in full force and effect, in accordance
with the terms and conditions thereof, and all sums payable to the Executive
pursuant thereto shall be paid in full to, or for the account of, the Executive
or his beneficiary or beneficiaries, as the case may be, after the effective
date of such termination. For the purpose of this Section 2, the term "permanent
disability" shall mean the inability of the Executive to perform the duties and
obligations required of him under this Agreement for a period of one hundred
eight (180) consecutive days or more, as determined by the medical doctor or
doctors, as the case may be, then retained by the Executive.
SECTION 3
Termination of Employment
1. Termination by the Company for Cause. The employment of the Executive
by the Company may be terminated by the Company for cause at any time during the
term hereof upon thirty (30) days prior written notice to the Executive which
notice shall state the facts constituting such "cause", but only if the
Executive shall not have cured such "cause" within ten (10) days after receipt
by him of such notice. For the purpose of this Subsection 3(1), the definition
of the term "for cause" shall be limited to the gross negligence or willful
neglect of duty by the Executive, as determined in good faith by a majority vote
of the Board of Directors of the Company, or if the Executive has engaged in
conduct determined by a, court to constitute the commission of a felony.
Termination of this Agreement "for cause" shall not result in the modification
of, or adversely affect in any way, the obligation of the Company to pay to the
Executive during the term of the Employment Period remaining upon the date of
termination (as if no such termination had occurred), seventy-five percent (75%)
of the aggregate amount of the Base Salary and the Primary Incentive
Compensation payable the Executive at the rate payable during the fiscal year of
the Company in which such termination occurs, nor shall it adversely affect in
any way the right of the Executive to receive any of his accrued rights to
receive any of the compensation or benefits which he is entitled to receive
pursuant to this Agreement, or any vested right to any of the benefits payable
to him under any Employee Benefit Plan established by the Company in which he is
a participant, and all such benefits payable to the Executive under all of the
Employee Benefit Plans shall continue in full force and effect, in accordance
with the terms and conditions thereof, and all sums payable to the Executive
pursuant thereto shall be paid in full to, or for the account of, the Executive
or his beneficiary or beneficiaries as the case may be, after the effective date
of such termination.
3. Termination of Employment by the Executive.
a. The Executive shall have the right at any time, in his sole
discretion, to terminate his employment with the Company at any time during the
Employment Period, upon five (5) years prior written notice to the Company;
provided, however, that the termination of employment pursuant to this Section 3
shall not result in the modification of, or adversely affect in any way, any
accrued rights of the Executive to receive any of the compensation or benefits
which he is entitled to receive pursuant to this Agreement or any vested right
to any of the benefits payable to the Executive under any of the Employee
Benefit Plans established by the Company in which he is a participant, and all
such benefits payable to the Executive under all of the Employee Benefit Plans
shall continue in full force and effect, in accordance with the terms and
conditions thereof, and all sums payable to the Executive pursuant thereto shall
be paid in full to, or for the account of, and all insurance coverage provided
hereunder shall continue in effect for the benefit of the Executive or his
beneficiary or beneficiaries, as the case may be, after the effective date of
such termination for the full remaining term of the Employment Period (as if
such termination did not occur). Upon the effective date of termination of
employment, other than for cause, the Executive shall be entitled to receive
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during the period commencing from the effective date of termination and ending
on the last day of the Employment Period, or such later date as the Employment
Period may have been extended to prior to such termination date, the full amount
of the Base Salary and the Primary Incentive Compensation and all of the
benefits which he would have been entitled to receive during the remaining term
of the Employment Period (as if it had not been terminated); provided, however,
that the covenants agreed to by the Executive under Section 4 of this Agreement
shall be performed by him.
b. The Executive shall not be required to mitigate any damages which
he may incur under any of the terms of this Agreement upon a breach by the
Company of any of the terms or conditions of this Agreement. If such a breach
occurs, and he accepts other em employment, any damages hereunder shall not be
reduced by any compensation earned, or other benefits its received as a result
of such employment.
SECTION 4
Covenants of the Executive
1. Covenant Not to Compete. During the Employment Period, and for a period
of twenty-four (24) months thereafter, the Executive will not engage in,
represent in any way, be connected with, become employed by, affiliated with or
have any material interest in any business entity or activity which directly or
indirectly competes with the business of the Company as conducted as of the
effective date of termination of the Employment Period; provided, however, that
the foregoing shall not prevent the acquisition and continued ownership the
Executive of securities of, or an interest in, any business entity which at the
time of such acquisition was not competitive with the business of the Company,
nor shall the foregoing prevent the acquisition by the Executive of securities
of, or an interest in, any business entity which represents at the time of such
a acquisition (after taking into account any of such securities then held by
him) less than ten percent 10% of the outstanding securities of, or interest in,
any such business entity. During the term of the Employment Period, the
Executive shall not serve as a director on the Board of another company without
a resolution from the Company's Board of Directors allowing the same.
2. Secrecy Covenant. During the Employment Period and thereafter, the
Executive covenants and agrees that he will not divulge, furnish,
misappropriate, publish or use for his personal benefit or for the direct or
indirect benefit of any other person or business entity, other than the Company
or any of its respective subsidiaries or affiliates, any trade secrets or other
confidential or proprietary information which he has acquired during the
Employment Period which is not otherwise generally available to the public, and
which constitutes a trade secret or other proprietary or confidential
information of the Company or any of its subsidiaries as of the effective date
of termination of the Employment Period.
3. Ownership of Trade Secrets, Etc.
a. All written materials, records and documents made by the Executive
or coming into his possession during the Employment Period concerning the
business affairs of the Employer or any of its affiliates shall be the sole
property of the Employer and its affiliates, and, upon termination of the
Employment Period or upon the request of the Employer during the Employment
Period, the Executive shall promptly deliver the same to the Employer or to any
affiliate designated by it; provided, however that the Executive may retain
duplicate photocopies of any and all written materials, records and documents
made by the Executive or coming into his possession during the Employment Period
concerning non-confidential knowledge or information relating to the business or
affairs of the Employer and its Affiliates.
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b. The Executive agrees that any trade secret, invention,
improvement, patent application or writing, and any program, system or novel
technique (whether or not capable of being trademarked, copyrighted or
patented), conceived, devised, developed, or otherwise obtained by him during
the Employment Period relating to the business of the Employer or any of its
affiliates, shall be and become the property of the Employer, and the Employee
agrees to give the Employer prompt written notice of his conception, invention,
improvement, patent, application, writing, program, system or novel technique
and to execute such instruments of transfer, assignment, conveyance or
confirmation and such other documents and to do all appropriate lawful acts as
may be requested by the Employer to transfer, assign, confirm, and perfect in
the Employer all legally protectable rights in any such trade secret, invention,
improvement, patent, patent application, writing, program, system or novel
technique.
c. It is understood by the Executive and the Employer that the
covenants continued in this Section 4 are essential elements of this Agreement
and that, but for the agreement of the Executive to comply with such covenants,
the Employer would not have agreed to enter into this Agreement. The Executive
and the Employer have independently consulted with their respective counsel and
have been advised concerning the reasonableness and propriety of such covenants
with specific regard to the nature of the business conducted by the Employer.
The Employee hereby agrees that all covenants contained in this Section 4 are
reasonable and valid.
SECTION 5
Miscellaneous
1. Non-Assignability. Neither this Agreement nor any obligation, right or
interest hereunder shall be assignable by the Executive, his beneficiary or
legal representatives without the prior written consent of the Company;
provided, however that nothing in this Section 5 shall preclude the Executive
from designating in writing to the Company the name or names of a beneficiary or
beneficiaries to receive any compensation payable to him or any other benefit
receivable by him under this Agreement upon the death or incapacity of the
Executive, nor shall it preclude any executor, administrator or any other legal
representatives of the Executive or the Executive's Estate from assigning any
rights hereunder to a person or persons entitled thereto. Neither this Agreement
nor any right or obligation arising hereunder shall be assignable by the
Company, its successors, assigns, beneficiaries or legal representatives either
directly by assignment or by a merger, consolidation, sale of assets or other
form of business combination, or disposition, without the prior written consent
of the Executive.
2. Merger of Agreements. This Agreement contains the entire understanding
of all agreements among the parties hereto regarding the terms of employment of
the Execute by the Company, and supersedes all prior written or oral employment
agreements which existed between the Company and the Executive.
3. Binding Agreement. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective heirs, other legal
representatives and permitted successors and assigns, as the case may be.
4. Governing Law. This Agreement shall be governed by and construed under
the internal laws of the State of Nevada.
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5. Notices. All notices or other communications to be given by the parties
among themselves pursuant to this Agreement shall be in writing, and all
payments to be made hereunder shall be deemed to have been duly made if mailed
by certified mail or hand delivered to either of the parties at the following
addresses:
If to the Executive: with a copy to:
Robert Hyte
If to the Company: with a copy to:
Digital Sciences, Inc.
7150 E. Camelback Road
Suite 190
Scottsdale, Arizona 85251
Any of the parties hereto may change their respective addresses upon written
notice to the other given in the manner provided in this Section.
6. Severability. If any of the terms or conditions of this Agreement shall
be declared void or unenforceable by any court or administrative body of
competent jurisdiction, such terms or conditions shall be deemed severable from
the remainder of this Agreement, and the Agreement shall continue in all
respects to be valid and enforceable. In the event that any term of Section 4 of
this Agreement shall be determined to be invalid or unenforceable by a court of
competent jurisdiction by reason of the geographic or business scope of the
duration thereof or for any other reason, such invalidity or unenforceability
shall apply only to the particular aspect of such term determined to be invalid
or unenforceable and shall not affect or render invalid or unenforceable any
other term of Section 4 of this Agreement or the enforcement of such term in
other circumstances, and, to the fullest extent permitted by law, Section 4 of
this Agreement shall be construed as if the geographic or business scope or the
duration of such term or other basis on which such term has been determined to
be invalid or unenforceable had been more narrowly drafted so as not to be
invalid or unenforceable.
7. Remedies. The Executive acknowledges that the Employer may have no
adequate remedy at law if the Executive violates any of the terms hereof. In
such event, the Employer shall have the right, in addition to any other rights
it may have, to obtain in any court of competent jurisdiction injunctive relief
to restrain any breach or threatened breach hereof or otherwise to specifically
enforce any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer, and the Executive has duly signed this
Agreement, all as at the date and year first above written.
DIGITAL SCIENCES, INC. EXECUTIVE
By: /s/ David Horowitz /s/ Robert Hyte
Robert Hyte
Its: President
7
EXECUTIVE EMPLOYMENT AND MANAGEMENT
AGREEMENT
AGREEMENT dated June 28, 1996, between Intelligent Decision Systems, Inc. a
Delaware corporation (the "Company" or "IDS"), and Eugene J. Feher (the
"Executive").
1. Employment and Duties:
The Company hereby employs the Executive, and the Executive accepts
employment, in an executive capacity for the Company and its subsidiaries to
perform such duties consistent with his position as may be assigned to him from
time to time by the Company's President. (He shall report directly to the
President of IDS). The Executive shall also serve without additional
compensation as an officer of the Company's Subsidiary, The Neptune Group, Inc.
The Executive shall devote his best efforts and his entire business time to
advancing the interests of the Company and its subsidiaries. He shall be
entitled to three (3) weeks vacation per year which must be used during the year
earned.
2. Term; Termination:
(a) This Agreement shall be effective as of July 1, 1996 and the term
hereof shall continue until June 30, 2001 (and shall be automatically renewed
for successive one year periods thereafter unless, at least 90 days before the
end of the initial term or any subsequent renewal period, either party gives
written notice to the other of his to its desire to terminate this Agreement, in
which case it shall terminate as of the end of such term period).
(b) This Agreement shall terminate upon the Executive's death and may
be terminated at the option of the Company if, as a result of any physical or
mental disability, the Executive is unable to perform his major duties hereunder
for a continuous period of 40 work days or at least 40 days in any consecutive
period of 180 days. The Executive shall continue to receive his full salary for
60 days under Section 3 hereof regardless of any illness or incapacity, unless
this Agreement is terminated. If the Executive's employment is terminated
pursuant to this Section 2(b), the Executive (or his personal representative, in
the case of death) shall be entitled to receive his full salary through the
effective date of termination and 60 days, thereafter; however, said amount
shall be reduced by any life or disability insurance proceeds the executive may
receive.
(c) This Agreement may also be terminated by the Company at any time
for "cause". "Cause" shall be defined as (i) the commission by the Executive of
an act of fraud or embezzlement, (ii) a felony conviction to a guilty plea by
the Executive with respect to a felony, (iii) willful misconduct by the
Executive as an employee of the Company or (iv) the substantial failure by the
Executive to render effective services to the Company in accordance with this
Agreement.
3. Compensation; Expenses; Benefits:
(a) As compensation for his services hereunder in whatever capacity
rendered, the Company shall pay the Executive a salary, payable in equal
semi-monthly installments at such times during the month as is customary with
the Company with respect to its Executives, at a rate of $100,000 per year. Such
salary shall be adjusted annually on July 1st of each year as agreed upon by the
Company's Board of Directors. Notwithstanding the foregoing, the salary for any
year shall not be less than the preceding year). In addition, the Executive
shall be entitled to such increases, bonuses or other
<PAGE>
payments as may be determined from time to time by the Board of Directors in its
discretion and, consistent with benefits provided for other executives, shall be
eligible to participate in any pension, profit sharing, incentive, retirement,
401-K or other employee benefit plans now or hereafter in effect for executives
for the Company. Additionally, the Executive shall receive term life insurance
in the amount of $50,000.
(b) The Executive shall also receive a sign-on bonus, stock warrants,
incentive bonus plan and stock option plan, during the term of this agreement,
as further described on attachment "A" attached hereto and made a part hereof.
(c) The Executive shall be entitled to reimbursement for his ordinary
and necessary business expenses incurred in the performance of his duties
hereunder provided that his claims therefor are supported by the documentation
required by the Company in accordance with its usual practice.
4. Covenants:
(a) The Executive shall not, during the term of his employment or at
any time thereafter, directly or indirectly, publish or disclose to any person,
firm or corporation or other entity, whether or not a competitor of the Company
or its subsidiaries, any confidential information concerning the assets,
business or affairs of the Company or its subsidiaries including, without
limitation, any trade secrets, sources of supply costs, pricing practices,
customer lists, financial data, employee information as to organizational
structure.
(b) During the term of his employment, the Executive shall not,
directly or indirectly, engage in or be interested in (as owner, partner,
shareholder, employee, director, officer, agent, consultant or otherwise), with
or without compensation, any business which is competitive with the business
being conducted by the Company (on the date hereof and at any time during the
term of the Executive's employment and extending for six months after the
termination of this agreement).
(c) During the term of his employment (and for one (1) year
thereafter), the Executive shall not, directly or indirectly, solicit or
contract any employee of the Company with a view toward inducing or encouraging
such employee to leave the employ of the Company for the purpose of being hired
by the Executive, an employer affiliated with the Executive or any competitor of
the Company.
(d) Any claims, actions, demands, or proceedings with respect to
compensation, benefits, ownership or other remuneration which the executive may
have or have had against its former employer, The Neptune Group, Inc. ("TNG") (a
Delaware Corporation), any of TNG's subsidiaries, Steve Chaleff and/or Fred
Wiener are hereby released and discharged during the term of the Executive's
employment with the Company or its subsidiary; provided however, in the event
that the Executive's employment with the Company or its subsidiary is five (5)
years or more, any claims, actions, demands, or proceedings with respect to
compensation, benefits, ownership or other remuneration which the executive may
have or have had against its former employer, The Neptune Group, Inc. ("TNG") (a
Delaware Corporation), any of TNG's subsidiaries, Steve Chaleff and/or Fred
Wiener are hereby released and forever discharged.
(e) The Executive acknowledges that the provisions of this Section 4 are
reasonable and necessary for the protection of the Company and that the Company
will be irrevocably damaged if such covenants are not specifically enforced.
Accordingly, the Executive agrees that, in addition to any other relief to which
the Company may be entitled in the form of actual or punitive damages, the
Company
<PAGE>
shall be entitled to seek and obtain injunctive relief from a court of competent
jurisdiction for the purposes of restraining the Executive from any actual or
threatened breach of such covenants.
5. Miscellaneous:
(a) Governing Law: This Agreement shall be governed by and
constructed in accordance with the laws of the State of Michigan.
(b) Notices: Any notice or other communication under this Agreement
shall be in writing and shall be considered given when delivered personally or
three (3) business days after mailing by U.S. registered mail, return receipt
requested, to the parties at the following addresses or at such other address as
a party may specify by notice to the other.
If to the Executive:
Eugene J. Feher
IDS' President:
Intelligent Decision Systems, Inc.
2025 Beltline Ave., SE., Suite 400
Grand Rapids, MI 49546
(c) Entire Agreement Amendment: This Agreement, when it becomes
effective shall supersede all existing agreements between the Executive and the
Company relating to the terms of his employment. It may not be amended by a
written agreement signed by both parties.
(d) Waiver: The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
(e) Assignment: Subject to the limitations below, this Agreement shall
inure to the benefits of and be binding upon the parties hereto and their
respective heirs, representatives, successors and assigns. This Agreement shall
not be assignable by the Executive, and shall be assignable by the Company only
to any corporation resulting from the reorganization, merger or consolidation of
the Company with any other corporation or any other corporation which the
Company may sell all or substantially all of its assets, and it must be so
assigned by the Company to, and accepted as binding upon it by such other
corporation, in connection with any such reorganization, merger, consolidation
or sale.
INTELLIGENT DECISION SYSTEMS, INC.
By: /s/ Mark A. Babin EXECUTIVE:
Title: President By: /s/ Eugene J. Feher
<PAGE>
Attachment "A"
Compensation per person for five year Employment/Management contracts:
1. Sign-on Bonus $50,000 cash and 14,275 shares of IDS common stock
2. Stock Warrants: 90,000 warrants to purchase IDS common stock at a
strike price of $3.50 for a term of five years from
the effective date of this Agreement.
3. Incentive Bonus Plan: 5% of pre-tax income (net of operating expenses) of
which 50% is to be paid quarterly and the balance
is to be paid annually after the first $1,000,000 in
income is realized (this is calculated prior to Steve
and Fred's per Vision System compensation,
consultant's fees and any other extraordinary
income or expenses created by or inherited from the
sale of the Company and/or its assets or liabilities).
4. Stock Option Plan: During the first fiscal year, 25,000 options to
purchase IDS common stock at an exercise price of
$3.50 (issuable immediately) and 25,000 options to
purchase common stock of IDS common stock (at market
when the option is issued) to be earned for each
1,000,000 generated in income, (this is calculated
prior to Steve and Fred's per Vision System
compensation, consultant's fees and any other
extraordinary income or expenses) (or a pro rata
amount after the first $1 Million is met) in Neptune.
At the end of each fiscal year following the first
fiscal year 50,000 options to purchase IDS common
stock would be earned for each $1,000,000 generated
in income, (this is calculated prior to Steve and
Fred's per Vision System compensation, consultant's
fees and any other extraordinary income or expenses)
(or a pro rata amount after the first $1 Million is
met) in Neptune. The exercise price for these options
will be set at the market price of IDS common stock
when the option is issued.
EXECUTIVE EMPLOYMENT AND MANAGEMENT
AGREEMENT
AGREEMENT dated June 28, 1996, between Intelligent Decision Systems, Inc. a
Delaware corporation (the "Company" or "IDS"), and Jonathan Preiser (the
"Executive").
1. Employment and Duties:
The Company hereby employs the Executive, and the Executive accepts
employment, in an executive capacity for the Company and its subsidiaries to
perform such duties consistent with his position as may be assigned to him from
time to time by the Company's President. (He shall report directly to the
President of IDS). The Executive shall also serve without additional
compensation as an officer of the Company's Subsidiary, The Neptune Group, Inc.
The Executive shall devote his best efforts and his entire business time to
advancing the interests of the Company and its subsidiaries. He shall be
entitled to three (3) weeks vacation per year which must be used during the year
earned.
2. Term; Termination:
(a) This Agreement shall be effective as of July 1, 1996 and the term
hereof shall continue until June 30, 2001 (and shall be automatically renewed
for successive one year periods thereafter unless, at least 90 days before the
end of the initial term or any subsequent renewal period, either party gives
written notice to the other of his to its desire to terminate this Agreement, in
which case it shall terminate as of the end of such term period).
(b) This Agreement shall terminate upon the Executive's death and may
be terminated at the option of the Company if, as a result of any physical or
mental disability, the Executive is unable to perform his major duties hereunder
for a continuous period of 40 work days or at least 40 days in any consecutive
period of 180 days. The Executive shall continue to receive his full salary for
60 days under Section 3 hereof regardless of any illness or incapacity, unless
this Agreement is terminated. If the Executive's employment is terminated
pursuant to this Section 2(b), the Executive (or his personal representative, in
the case of death) shall be entitled to receive his full salary through the
effective date of termination and 60 days, thereafter; however, said amount
shall be reduced by any life or disability insurance proceeds the executive may
receive.
(c) This Agreement may also be terminated by the Company at any time
for "cause". "Cause" shall be defined as (i) the commission by the Executive of
an act of fraud or embezzlement, (ii) a felony conviction to a guilty plea by
the Executive with respect to a felony, (iii) willful misconduct by the
Executive as an employee of the Company or (iv) the substantial failure by the
Executive to render effective services to the Company in accordance with this
Agreement.
3. Compensation; Expenses; Benefits:
(a) As compensation for his services hereunder in whatever capacity
rendered, the Company shall pay the Executive a salary, payable in equal
semi-monthly installments at such times during the month as is customary with
the Company with respect to its Executives, at a rate of $100,000 per year. Such
salary shall be adjusted annually on July 1st of each year as agreed upon by the
Company's Board of Directors. Notwithstanding the foregoing, the salary for any
year shall not be less than the preceding year). In addition, the Executive
shall be entitled to such increases, bonuses or other
<PAGE>
payments as may be determined from time to time by the Board of Directors in its
discretion and, consistent with benefits provided for other executives, shall be
eligible to participate in any pension, profit sharing, incentive, retirement,
401-K or other employee benefit plans now or hereafter in effect for executives
for the Company. Additionally, the Executive shall receive term life insurance
in the amount of $50,000.
(b) The Executive shall also receive a sign-on bonus, stock warrants,
incentive bonus plan and stock option plan, during the term of this agreement,
as further described on attachment "A" attached hereto and made a part hereof.
(c) The Executive shall be entitled to reimbursement for his ordinary
and necessary business expenses incurred in the performance of his duties
hereunder provided that his claims therefor are supported by the documentation
required by the Company in accordance with its usual practice.
4. Covenants:
(a) The Executive shall not, during the term of his employment or at
any time thereafter, directly or indirectly, publish or disclose to any person,
firm or corporation or other entity, whether or not a competitor of the Company
or its subsidiaries, any confidential information concerning the assets,
business or affairs of the Company or its subsidiaries including, without
limitation, any trade secrets, sources of supply costs, pricing practices,
customer lists, financial data, employee information as to organizational
structure.
(b) During the term of his employment, the Executive shall not,
directly or indirectly, engage in or be interested in (as owner, partner,
shareholder, employee, director, officer, agent, consultant or otherwise), with
or without compensation, any business which is competitive with the business
being conducted by the Company (on the date hereof and at any time during the
term of the Executive's employment and extending for six months after the
termination of this agreement).
(c) During the term of his employment (and for one (1) year
thereafter), the Executive shall not, directly or indirectly, solicit or
contract any employee of the Company with a view toward inducing or encouraging
such employee to leave the employ of the Company for the purpose of being hired
by the Executive, an employer affiliated with the Executive or any competitor of
the Company.
(d) Any claims, actions, demands, or proceedings with respect to
compensation, benefits, ownership or other remuneration which the executive may
have or have had against its former employer, The Neptune Group, Inc. ("TNG") (a
Delaware Corporation), any of TNG's subsidiaries, Steve Chaleff and/or Fred
Wiener are hereby released and discharged during the term of the Executive's
employment with the Company or its subsidiary; provided however, in the event
that the Executive's employment with the Company or its subsidiary is five (5)
years or more, any claims, actions, demands, or proceedings with respect to
compensation, benefits, ownership or other remuneration which the executive may
have or have had against its former employer, The Neptune Group, Inc. ("TNG") (a
Delaware Corporation), any of TNG's subsidiaries, Steve Chaleff and/or Fred
Wiener are hereby released and forever discharged.
(e) The Executive acknowledges that the provisions of this Section 4 are
reasonable and necessary for the protection of the Company and that the Company
will be irrevocably damaged if such covenants are not specifically enforced.
Accordingly, the Executive agrees that, in addition to any other relief to which
the Company may be entitled in the form of actual or punitive damages, the
Company
<PAGE>
shall be entitled to seek and obtain injunctive relief from a court of competent
jurisdiction for the purposes of restraining the Executive from any actual or
threatened breach of such covenants.
5. Miscellaneous:
(a) Governing Law: This Agreement shall be governed by and
constructed in accordance with the laws of the State of Michigan.
(b) Notices: Any notice or other communication under this Agreement
shall be in writing and shall be considered given when delivered personally or
three (3) business days after mailing by U.S. registered mail, return receipt
requested, to the parties at the following addresses or at such other address as
a party may specify by notice to the other.
If to the Executive:
Jonathan Preiser
IDS' President:
Intelligent Decision Systems, Inc.
2025 Beltline Ave., SE., Suite 400
Grand Rapids, MI 49546
(c) Entire Agreement Amendment: This Agreement, when it becomes
effective shall supersede all existing agreements between the Executive and the
Company relating to the terms of his employment. It may not be amended by a
written agreement signed by both parties.
(d) Waiver: The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
(e) Assignment: Subject to the limitations below, this Agreement shall
inure to the benefits of and be binding upon the parties hereto and their
respective heirs, representatives, successors and assigns. This Agreement shall
not be assignable by the Executive, and shall be assignable by the Company only
to any corporation resulting from the reorganization, merger or consolidation of
the Company with any other corporation or any other corporation which the
Company may sell all or substantially all of its assets, and it must be so
assigned by the Company to, and accepted as binding upon it by such other
corporation, in connection with any such reorganization, merger, consolidation
or sale.
INTELLIGENT DECISION SYSTEMS, INC.
By: /s/ Mark A. Babin EXECUTIVE:
Title: President By: /s/ Jonathan Preiser
<PAGE>
Attachment "A"
Compensation per person for five year Employment/Management contracts:
1. Sign-on Bonus $50,000 cash and 14,275 shares of IDS common stock
2. Stock Warrants: 90,000 warrants to purchase IDS common stock at a
strike price of $3.50 for a term of five years from
the effective date of this Agreement.
3. Incentive Bonus Plan: 5% of pre-tax income (net of operating expenses) of
which 50% is to be paid quarterly and the balance
is to be paid annually after the first $1,000,000 in
income is realized (this is calculated prior to Steve
and Fred's per Vision System compensation,
consultant's fees and any other extraordinary
income or expenses created by or inherited from the
sale of the Company and/or its assets or liabilities).
4. Stock Option Plan: During the first fiscal year, 25,000 options to
purchase IDS common stock at an exercise price of
$3.50 (issuable immediately) and 25,000 options to
purchase common stock of IDS common stock (at market
when the option is issued) to be earned for each
1,000,000 generated in income, (this is calculated
prior to Steve and Fred's per Vision System
compensation, consultant's fees and any other
extraordinary income or expenses) (or a pro rata
amount after the first $1 Million is met) in Neptune.
At the end of each fiscal year following the first
fiscal year 50,000 options to purchase IDS common
stock would be earned for each $1,000,000 generated
in income, (this is calculated prior to Steve and
Fred's per Vision System compensation, consultant's
fees and any other extraordinary income or expenses)
(or a pro rata amount after the first $1 Million is
met) in Neptune. The exercise price for these options
will be set at the market price of IDS common stock
when the option is issued.
EXECUTIVE EMPLOYMENT AND MANAGEMENT
AGREEMENT
AGREEMENT dated June 28, 1996, between Intelligent Decision Systems, Inc. a
Delaware corporation (the "Company" or "IDS"), and Scott J. Preiser
"Executive").
1. Employment and Duties:
The Company hereby employs the Executive, and the Executive accepts
employment, in an executive capacity for the Company and its subsidiaries to
perform such duties consistent with his position as may be assigned to him from
time to time by the Company's President. (He shall report directly to the
President of IDS). The Executive shall also serve without additional
compensation as an officer of the Company's Subsidiary, The Neptune Group, Inc.
The Executive shall devote his best efforts and his entire business time to
advancing the interests of the Company and its subsidiaries. He shall be
entitled to three (3) weeks vacation per year which must be used during the year
earned.
2. Term; Termination:
(a) This Agreement shall be effective as of July 1, 1996 and the term
hereof shall continue until June 30, 2001 (and shall be automatically renewed
for successive one year periods thereafter unless, at least 90 days before the
end of the initial term or any subsequent renewal period, either party gives
written notice to the other of his to its desire to terminate this Agreement, in
which case it shall terminate as of the end of such term period).
(b) This Agreement shall terminate upon the Executive's death and may
be terminated at the option of the Company if, as a result of any physical or
mental disability, the Executive is unable to perform his major duties hereunder
for a continuous period of 40 work days or at least 40 days in any consecutive
period of 180 days. The Executive shall continue to receive his full salary for
60 days under Section 3 hereof regardless of any illness or incapacity, unless
this Agreement is terminated. If the Executive's employment is terminated
pursuant to this Section 2(b), the Executive (or his personal representative, in
the case of death) shall be entitled to receive his full salary through the
effective date of termination and 60 days, thereafter; however, said amount
shall be reduced by any life or disability insurance proceeds the executive may
receive.
(c) This Agreement may also be terminated by the Company at any time
for "cause". "Cause" shall be defined as (i) the commission by the Executive of
an act of fraud or embezzlement, (ii) a felony conviction to a guilty plea by
the Executive with respect to a felony, (iii) willful misconduct by the
Executive as an employee of the Company or (iv) the substantial failure by the
Executive to render effective services to the Company in accordance with this
Agreement.
3. Compensation; Expenses; Benefits:
(a) As compensation for his services hereunder in whatever capacity
rendered, the Company shall pay the Executive a salary, payable in equal
semi-monthly installments at such times during the month as is customary with
the Company with respect to its Executives, at a rate of $100,000 per year. Such
salary shall be adjusted annually on July 1st of each year as agreed upon by the
Company's Board of Directors. Notwithstanding the foregoing, the salary for any
year shall not be less than the preceding year). In addition, the Executive
shall be entitled to such increases, bonuses or other
<PAGE>
payments as may be determined from time to time by the Board of Directors in its
discretion and, consistent with benefits provided for other executives, shall be
eligible to participate in any pension, profit sharing, incentive, retirement,
401-K or other employee benefit plans now or hereafter in effect for executives
for the Company. Additionally, the Executive shall receive term life insurance
in the amount of $50,000.
(b) The Executive shall also receive a sign-on bonus, stock warrants,
incentive bonus plan and stock option plan, during the term of this agreement,
as further described on attachment "A" attached hereto and made a part hereof.
(c) The Executive shall be entitled to reimbursement for his ordinary
and necessary business expenses incurred in the performance of his duties
hereunder provided that his claims therefor are supported by the documentation
required by the Company in accordance with its usual practice.
4. Covenants:
(a) The Executive shall not, during the term of his employment or at
any time thereafter, directly or indirectly, publish or disclose to any person,
firm or corporation or other entity, whether or not a competitor of the Company
or its subsidiaries, any confidential information concerning the assets,
business or affairs of the Company or its subsidiaries including, without
limitation, any trade secrets, sources of supply costs, pricing practices,
customer lists, financial data, employee information as to organizational
structure.
(b) During the term of his employment, the Executive shall not,
directly or indirectly, engage in or be interested in (as owner, partner,
shareholder, employee, director, officer, agent, consultant or otherwise), with
or without compensation, any business which is competitive with the business
being conducted by the Company (on the date hereof and at any time during the
term of the Executive's employment and extending for six months after the
termination of this agreement).
(c) During the term of his employment (and for one (1) year
thereafter), the Executive shall not, directly or indirectly, solicit or
contract any employee of the Company with a view toward inducing or encouraging
such employee to leave the employ of the Company for the purpose of being hired
by the Executive, an employer affiliated with the Executive or any competitor of
the Company.
(d) Any claims, actions, demands, or proceedings with respect to
compensation, benefits, ownership or other remuneration which the executive may
have or have had against its former employer, The Neptune Group, Inc. ("TNG") (a
Delaware Corporation), any of TNG's subsidiaries, Steve Chaleff and/or Fred
Wiener are hereby released and discharged during the term of the Executive's
employment with the Company or its subsidiary; provided however, in the event
that the Executive's employment with the Company or its subsidiary is five (5)
years or more, any claims, actions, demands, or proceedings with respect to
compensation, benefits, ownership or other remuneration which the executive may
have or have had against its former employer, The Neptune Group, Inc. ("TNG") (a
Delaware Corporation), any of TNG's subsidiaries, Steve Chaleff and/or Fred
Wiener are hereby released and forever discharged.
(e) The Executive acknowledges that the provisions of this Section 4 are
reasonable and necessary for the protection of the Company and that the Company
will be irrevocably damaged if such covenants are not specifically enforced.
Accordingly, the Executive agrees that, in addition to any other relief to which
the Company may be entitled in the form of actual or punitive damages, the
Company
<PAGE>
shall be entitled to seek and obtain injunctive relief from a court of competent
jurisdiction for the purposes of restraining the Executive from any actual or
threatened breach of such covenants.
5. Miscellaneous:
(a) Governing Law: This Agreement shall be governed by and
constructed in accordance with the laws of the State of Michigan.
(b) Notices: Any notice or other communication under this Agreement
shall be in writing and shall be considered given when delivered personally or
three (3) business days after mailing by U.S. registered mail, return receipt
requested, to the parties at the following addresses or at such other address as
a party may specify by notice to the other.
If to the Executive:
Scott J. Preiser
IDS' President:
Intelligent Decision Systems, Inc.
2025 Beltline Ave., SE., Suite 400
Grand Rapids, MI 49546
(c) Entire Agreement Amendment: This Agreement, when it becomes
effective shall supersede all existing agreements between the Executive and the
Company relating to the terms of his employment. It may not be amended by a
written agreement signed by both parties.
(d) Waiver: The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
(e) Assignment: Subject to the limitations below, this Agreement shall
inure to the benefits of and be binding upon the parties hereto and their
respective heirs, representatives, successors and assigns. This Agreement shall
not be assignable by the Executive, and shall be assignable by the Company only
to any corporation resulting from the reorganization, merger or consolidation of
the Company with any other corporation or any other corporation which the
Company may sell all or substantially all of its assets, and it must be so
assigned by the Company to, and accepted as binding upon it by such other
corporation, in connection with any such reorganization, merger, consolidation
or sale.
INTELLIGENT DECISION SYSTEMS, INC.
By: /s/ Mark A. Babin EXECUTIVE:
Title: President By: /s/ Scott J. Preiser
<PAGE>
Attachment "A"
Compensation per person for five year Employment/Management contracts:
1. Sign-on Bonus $50,000 cash and 14,275 shares of IDS common stock
2. Stock Warrants: 90,000 warrants to purchase IDS common stock at a
strike price of $3.50 for a term of five years from
the effective date of this Agreement.
3. Incentive Bonus Plan: 5% of pre-tax income (net of operating expenses) of
which 50% is to be paid quarterly and the balance
is to be paid annually after the first $1,000,000 in
income is realized (this is calculated prior to Steve
and Fred's per Vision System compensation,
consultant's fees and any other extraordinary
income or expenses created by or inherited from the
sale of the Company and/or its assets or liabilities).
4. Stock Option Plan: During the first fiscal year, 25,000 options to
purchase IDS common stock at an exercise price of
$3.50 (issuable immediately) and 25,000 options to
purchase common stock of IDS common stock (at market
when the option is issued) to be earned for each
1,000,000 generated in income, (this is calculated
prior to Steve and Fred's per Vision System
compensation, consultant's fees and any other
extraordinary income or expenses) (or a pro rata
amount after the first $1 Million is met) in Neptune.
At the end of each fiscal year following the first
fiscal year 50,000 options to purchase IDS common
stock would be earned for each $1,000,000 generated
in income, (this is calculated prior to Steve and
Fred's per Vision System compensation, consultant's
fees and any other extraordinary income or expenses)
(or a pro rata amount after the first $1 Million is
met) in Neptune. The exercise price for these options
will be set at the market price of IDS common stock
when the option is issued.
The following is a list of the Intelligent Decision Systems, Inc.'s
subsidiaries:
1. Digital Sciences, Inc.
Digital Sciences, Inc. is a Delaware corporation that was
incorporated on June 1, 1995 and does business under the name
of Digital Sciences, Inc.
2. The Neptune Group, Inc.
The Neptune Group, Inc. is a Michigan corporation that was
incorporated on July 2, 1996 (after the Company's 6/30/96 fiscal
year end) and does business under the name of The Neptune Group,
Inc. and Neptune Technology Leasing Corp.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 879500
<NAME> Intelligent Decision Systems, Inc.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 3,064,329
<SECURITIES> 0
<RECEIVABLES> 61,253
<ALLOWANCES> 8,000
<INVENTORY> 146,940
<CURRENT-ASSETS> 3,675,932
<PP&E> 624,663
<DEPRECIATION> 225,079
<TOTAL-ASSETS> 6,260,478
<CURRENT-LIABILITIES> 1,180,557
<BONDS> 181,292
0
1,500,520
<COMMON> 10,955,124
<OTHER-SE> (7,512,481)
<TOTAL-LIABILITY-AND-EQUITY> 6,260,478
<SALES> 635,994
<TOTAL-REVENUES> 635,994
<CGS> 282,588
<TOTAL-COSTS> 362,204
<OTHER-EXPENSES> 4,184,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247,694
<INCOME-PRETAX> (4,488,756)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,488,756)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,488,756)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
