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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Transition Period From _____ to ______
Commission File Number 000-22172
MIDISOFT CORPORATION
(Exact name of small business issuer as specified in its charter)
Washington 91-1345532
(State of incorporation) (I.R.S. Employer Identification No.)
1605 NW Sammamish Rd., Suite 205
Issaquah, Washington 98027
(Address of principal executive offices)
(425) 391-3610
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common stock, no par value; shares outstanding;
6,387,954 as of July 31, 1999
<PAGE>
MIDISOFT CORPORATION
INDEX TO FORM 10-QSB
PART I
FINANCIAL INFORMATION
Page
Item 1. Financial Statements............................................. 3
a) Balance Sheets - June 30, 1999 and December 31, 1998
b) Statements of Operations - For the Three and Six Months Ended
June 30, 1999 and 1998
c) Statements of Cash Flows - For the Six Months Ended
June 30, 1999 and 1998
d) Notes to Financial Statements - For the Three and Six Months
Ended June 30, 1999 and 1998
Item 2. Management's Discussion and Analysis or
Plan of Operation ............................................... 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 15
Item 2. Changes in Securities and Use of Proceeds ...................... 15
Item 3. Defaults Upon Senior Securities ................................ 16
Item 4. Submission of Matters to a Vote of Security Holders ............ 16
Item 5. Other Information .............................................. 16
Item 6. Exhibits and Reports on Form 8-K ............................... 16
SIGNATURE ................................................................. 17
<PAGE>
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
MIDISOFT CORPORATION
BALANCE SHEETS
ASSETS
<S> <C> <C>
(Unaudited) (Audited)
At June 30, At December 31,
1999 1998
---------------- ----------------
Current assets:
Cash and cash equivalents $ 85,000 $ 270,000
Accounts receivable - net of allowances of
$252,000 in 1999 and $245,000 in 1998 120,000 183,000
Inventories 143,000 115,000
Prepaid expenses and other receivable 58,000 42,000
---------------- ----------------
Total current assets 406,000 610,000
Long-term receivable 195,000 195,000
Property & equipment, net of depreciation 88,000 116,000
Debt issuance costs, net of accumulated
amortization of $37,000 in 1999
and $23,000 in 1998 63,000 56,000
---------------- ----------------
Total assets $ 752,000 $ 977,000
================ ================
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,255,000 $ 1,181,000
Line of credit 315,000 -
Current portion of long-term debt 250,000 250,000
Accrued wages & payroll taxes 107,000 93,000
Other accrued expenses 215,000 273,000
Deferred revenue 74,000 6,000
---------------- ----------------
Total current liabilities 2,216,000 1,803,000
Long-term debt, net of discount 2,661,000 2,258,000
Warrant obligations 81,000 81,000
Shareholders' (deficit) equity
Common stock, no par value; 25,000,000
shares authorized, 7,251,000 issued
and outstanding in 1999 and 1998 20,488,000 20,488,000
Additional paid-in capital 3,476,000 3,026,000
Notes receivable from shareholders (191,000) (191,000)
Retained deficit (27,979,000) (26,488,000)
---------------- ----------------
Total shareholders' deficit (4,206,000) (3,165,000)
---------------- ----------------
Total liabilities and shareholders' deficit $ 752,000 $ 977,000
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
MIDISOFT CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ------------ ------------
Revenues $ 157,000 $ 389,000 $ 290,000 $ 754,000
Cost of revenues 14,000 167,000 55,000 307,000
---------- ---------- ----------- ------------
Gross profit 143,000 222,000 235,000 447,000
Operating expenses:
Sales and marketing 157,000 365,000 360,000 674,000
General and administrative 391,000 410,000 748,000 789,000
Research and development 79,000 197,000 180,000 422,000
---------- ---------- ------------ ------------
Total operating expenses 627,000 972,000 1,288,000 1,885,000
---------- ---------- ------------ ------------
Operating loss (484,000) (750,000) (1,053,000) (1,438,000)
Interest and other
income/(expense) (190,000) (60,000) (437,000) (836,000)
---------- ---------- ------------ -------------
Net loss $(674,000) $(810,000) $(1,490,000) $(2,274,000)
========== ========== ============ =============
Net loss per share ** $ (0.09) $ (0.13) $ (0.21) $ (0.36)
========== ========== ============ =============
** Common stock equivalents are not included, as it would be anti-dilutive
Weighted average shares
outstanding 7,251,000* 6,297,000 7,251,000* 6,297,000
========== ========== ============ =============
</TABLE>
* 1999 weighted average shares outstanding include 862,000 shares the Company
was obligated to issue.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
MIDISOFT CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<S> <C> <C>
Six Months Ended
June 30,
-----------------------------------
1999 1998
------------- ----------------
Cash flows used for operations:
Net loss $(1,490,000) $(2,274,000)
------------- ----------------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation & amortization 46,000 83,000
Non-cash interest expense to APIC 450,000 722,000
(Increase) decrease in assets:
Accounts receivable, net 63,000 280,000
Inventories (28,000) (36,000)
Prepaid expenses & other assets (22,000) (51,000)
Increase (decrease) in liabilities:
Trade accounts payable 74,000 205,000
Accrued wages & payroll taxes 14,000 16,000
Other accrued expenses (58,000) (15,000)
Deferred revenue 68,000 (4,000)
------------- ----------------
Total adjustments 607,000 1,200,000
------------- ----------------
Net cash used for operations (883,000) (1,074,000)
------------- ----------------
Cash flows used for investing:
Additions to plant & equipment (5,000) (5,000)
------------- ----------------
Net cash used for investing (5,000) (5,000)
------------- ----------------
Cash flows from financing:
Bank - Line of Credit 315,000 -
Proceeds from issuance of long-term debt
and warrants, net of debt issue costs 388,000 1,165,000
------------- ----------------
Net cash provided by financing 703,000 1,165,000
------------- ----------------
Net change in cash and cash equivalents (185,000) 86,000
Cash and cash equivalents, beginning of year 270,000 90,000
------------- ----------------
Cash and cash equivalents, end of period $ 85,000 $ 176,000
============= ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MIDISOFT CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 1999 and 1998
Interim Financial Information
The condensed financial statements included herein have been prepared
by Midisoft Corporation (the "Company") without audit, according to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (consisting
of only normal recurring accruals) considered necessary to present fairly the
results for the interim periods presented. The accompanying condensed financial
statements and related notes should be read in conjunction with the Company's
1998 audited financial statements included in its Annual Report on Form 10-KSB/A
filed April 30, 1999.
The results of operations for the three and six months ended June 30,
1999 are not necessarily indicative of the results tobe expected for the full
calendar year.
Accounts Receivable and Major Customer Information
Accounts receivable from Original Equipment Manufacturers (OEM) and
other resellers are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1999 1998
OEM $78,000 $ 17,000
Resellers and other 294,000 411,000
---------- -------------
Subtotal 372,000 428,000
Less: Allowance for doubtful accounts (54,000) (72,000)
Allowance for sales returns (198,000) (173,000)
========== =============
Total accounts receivable $120,000 $ 183,000
========== =============
</TABLE>
Accounts receivable consist principally of amounts due from OEMs and
reseller customers for licensing fees, royalties and direct sales of products.
OEM customer payment terms typically are one year in duration and require
payments to be made in quarterly installments. At June 30, 1999, OEM accounts
receivable amounts not yet due were $64,000, equal to 17% of total OEM
receivables compared to $1,000, equal to 6% of total OEM receivables at December
31, 1998. Reseller payment terms typically are standardized and similar to those
given software distributors. At June 30, 1999, reseller accounts receivable
amounts not yet due were $91,000, equal to 31% of total reseller receivables
compared to $257,000, equal to 63% at December 31, 1998.
The Company's primary credit concentrations involve domestic and
foreign OEM and reseller customers. Foreign customers are primarily located in
Western Europe, Taiwan, Singapore, Korea and Japan. Domestic customers comprised
$356,000 of accounts receivable at June 30, 1999, compared to $415,000 at
December 31, 1998. Foreign customers comprised $16,000 of accounts receivable at
June 30, 1999 compared to $13,000 at December 31, 1998.
Income Taxes
No income taxes were payable at June 30, 1999, due to the Company's
year-to-date loss. The Company had Federal net operating loss carryforwards at
December 31, 1998 of approximately $26.1 million that may reduce taxes due in
future periods and expire beginning in 2008. In certain circumstances, as
specified in the Internal Revenue Code, a 50% or more change in ownership of the
Company during any three-year period would result in limitations on the
Company's ability to utilize its net operating loss carryforward. Such a change
may have occurred as defined in Section 382 of the Internal Revenue Code. An
investor who owns $3,200,000 in principal amount of convertible debentures and
associated warrants, has the right to purchase an additional $800,000 of
convertible debentures in 1999. If this investor were to exercise all its
warrants and convert all the debt it holds and has a right to acquire, a change
in control of the Company would result.
Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1999 1998
Raw materials $118,000 $ 106,000
Finished goods 49,000 29,000
Less: Allowance for obsolescence (24,000) (20,000)
------------- -----------------
Total inventory $143,000 $ 115,000
============= =================
</TABLE>
Subsequent Events
On July 14, 1999 the Company entered into Subscription and Registration Rights
Agreements to sell 781,250 shares of the Company's common stock to a new
investor for total consideration of $1,000,000. The funds were received on July
14, 1999. As part of the transaction, the Company agreed to pay a finders fee of
$30,000 to an unrelated third party. The finders fee may be paid in cash, common
stock of the Company or some combination of the two.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in this Form
10-QSB.
General
Midisoft, founded in 1986, provides innovative applications and utilities for
the control and enhancement of sound on personal computers. Over the past
thirteen years, the use of hardware for sound creation has expanded
dramatically. While sound was initially available on only a small segment of PCs
used mainly by computer hobbyists, it is now a feature on nearly every computer
that ships from every system manufacturer. Emergence of the Internet has fueled
this expansion by permitting global distribution of music and other audio
embellished communication, which web-based businesses increasingly desire to use
in creating compelling online experiences.
Midisoft is pursuing a strategy focused on two groups which share a desire for a
compelling "musical experience:" (i) those who seek an engaging music listening
experience from their PC desktop, and (ii) those who desire to create this
musical experience for others to enjoy. For example, in the first quarter of
1999, the Company completed engineering that customized its Desktop Sheet Music
product for the Christian music market. This customized version features
functionality tailored to the needs of music pastors and directors who require
numerous pages of easily modified sheet music each week for use by soloist
performers or choirs. In addition, this product contains a large selection of
hymns, which can be transposed and modified with the Company's proprietary
software to fit particular voices of the choir and individual parts of
accompanying instruments.
The Company believes that it has identified other groups which desire
compelling online musical experiences, and will benefit from the Company's
expertise in music creation and Internet-centric audio and music delivery.
Development of these products is in the planning stages.
Midisoft's strategy is based on its belief that the Internet provides
the ideal platform for promoting, marketing and selling music and related
products and services. For example, MP3, the file format for compression of
audio files, is one of the most frequently searched terms on leading Internet
search engines, according to Searchterms.com. Jupiter Communications estimates
music downloads and other music sales will reach $1.4 billion by 2002. The
Company is seeking to position its Internet products to exploit these trends.
For example, Internet Media Player is a candidate for private labeling on
destination and portal websites. The Company has initiated arrangements with
content aggregators and providers for download of its Internet Media Player.
Success of the Company's strategy depends in large part on the global
development of an infrastructure for providing Internet access and services.
Because global e-commerce and online exchange of information and compelling
music content on the Internet and other similar open wide area networks are new
and evolving, it is not possible to anticipate with assurance whether the
Internet will prove to be a viable commercial marketplace for the Company's
technology. Even though the Internet has experienced, and is expected to
continue to experience significant and rapid growth in the number of users and
amount of traffic, there can be no assurance that the Internet infrastructure
will continue to be able to support the demands placed on it by this continued
growth. In addition, the Internet could lose its viability because of delays in
the development or adoption of new standards and protocols to handle increased
levels of Internet activity, or increased governmental regulation. If the
necessary infrastructure or complementary services or facilities are not
developed, or if the Internet does not become a viable commercial marketplace,
the Company's ability to execute its strategy could be seriously limited and
this would materially and adversely affect its results of operations and
financial position.
With these strategies the Company is seeking to enhance its core
technologies, in which it has continued to invest over the past 24 months, and
augment its retail distribution model with more direct distribution models,
including web-based sound and music delivery. The Company believes that
successful execution of these strategies will result in growth and improved
gross margins. Midisoft's development efforts may not result in the timely
introduction of new products, and these new products may not be commercially
successful. Inability to successfully develop new products, delays in the
introduction of these new products, or lower-than-anticipated demand for these
products could have a material and adverse effect on the Company's business and
results of operations.
The Company markets its products on a worldwide basis to: (i) original
equipment manufacturers (OEMs), which "bundle" one or more of Midisoft's
products with their own products, (ii) distributors and resellers, which
directly supply the retail distribution channel, (iii) end users, catalog
companies, and businesses; and (iv) through on-line Internet sales. Sales to
software distributors and resellers, together with direct sales, represented 22%
of revenues in the three and six months ended June 30, 1999, and OEM sales
represented 78% during the same periods. International sales accounted for 4%
and 7% of the Company's revenues during the three and six months ended June 30,
1999. During the three and six months ended June 30, 1999, two customers
individually accounted for more than 10% of the Company's total revenues and
together represented 72% and 64% of net revenues for those periods.
The principal competitive factors affecting the music creation software
and Internet music distribution markets include product functionality, ease of
use, performance and reliability; customer service and support; product
availability; vendor credibility; brand awareness; ability to keep pace with
technological change; and price. Although the Company believes that its products
currently compete favorably with respect to these factors, there can be no
assurance that the Company can achieve an improved competitive position in the
face of increasing competition from new products and enhancements introduced by
existing competitors and new companies entering its markets. Markets for the
Company's products are characterized by significant price competition, and the
Company expects it will continue to face increasing pricing pressures. There can
be no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial position
and results of operations.
Certain of the Company's competitors have substantially greater
financial, marketing or technical resources than the Company. There can be no
assurance that other companies have not developed or marketed or will not
develop or market products that are superior to those of the Company, that are
offered at substantially lower prices than those of the Company or that have or
will achieve greater market acceptance than those of the Company.
The Company's revenues include sales of software, software licenses and
services, less returns. Cost of revenues includes the costs of manuals,
diskettes and duplication, packaging materials, paper goods, product assembly,
warehousing and logistics services. Cost of revenues as a percentage of sales is
lower for OEM sales than for distributor and direct sales because fewer direct
costs are involved. Sales and marketing expenses consist primarily of salaries
of sales and marketing personnel, customer service and technical support costs,
advertising and promotion expenses. General and administrative expenses reflect
salaries of administrative personnel, legal and accounting costs and general
operating expenses including rent and insurance. Research and development
expenses consist mainly of personnel and equipment costs required to conduct the
Company's development efforts. Software development costs are expensed as
incurred.
Revenues from sales to distributors and resellers and direct sales are
recognized when products are shipped. The Company's software sales agreements
generally do not involve significant support obligations to customers subsequent
to delivery. Revenues from products licensed to OEMs, consisting of one-time
license fees, are recognized at the time the software master is delivered and
when the criteria for fixed fee revenue recognition under Statement of Position
No. 97-2 "Software Revenue Recognition" are satisfied. Additional royalty use or
unit copy royalty fees are recognized when they are received pursuant to license
agreements upon notification of shipment from OEMs.
Seasonality
Sales to distributors tend to be greater in the fourth quarter as
consumers buy software to supplement their holiday computer hardware purchases.
OEM sales are concentrated in a small number of large customer contracts and
tend to occur sporadically. Direct sales generally increase when software
upgrades become available.
Comparison of three and six months ended June 30, 1999 and 1998
This table provides comparative results of the periods ended June 30,
1999 and 1998. A general discussion of these results follows.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
% of Revenue % of Revenue
Net Sales Revenue 100% 100% 100% 100%
Gross Profit 91% 57% 81% 59%
Sales & Marketing Expense 100% 94% 124% 89%
General & Administrative Expense 249% 105% 258% 105%
Research & Development 50% 51% 62% 56%
Total Operating Expenses 399% 250% 444% 250%
Net Operating Income (Loss) -308% -193% -363% -191%
Other (Income) Expense -121% -15% -151% -111%
Net Income (Loss) -429% -208% -514% -302%
</TABLE>
Revenues for the three months ended June 30, 1999 were $157,000, a
decrease of $232,000, or 60%, compared to $389,000 for the same period in 1998.
Revenues for the first six months of 1999 were $290,000, a decrease of $464,000,
or 62%, compared to $754,000 for the same period in 1998. Sales to software
distributors and resellers, together with direct sales were $34,000 and $64,000,
representing 22% of revenues in the three and six months ended June 30, 1999,
compared to $311,000 and $583,000 which represented 80% and 77% of revenues for
the same periods in 1998. OEM sales were $123,000 and $226,000 representing 78%
of revenues in the three and six months ended June 30, 1999 and $78,000 and
$171,000 representing 20% and 23% of revenues respectively for the same periods
in 1998. International sales accounted for 4% and 7% of the Company's revenues
for the three and six months ended June 30, 1999 and 5% and 4% for the same
periods in 1998.
The Company has begun positioning its Worship StudioTM 6.0 into the
Christian music market with enhanced features tailored to meet requirements of
music pastors. With this emphasis on special feature sets enhancing its core
technologies, the Company hopes to lessen its reliance on relatively low margin
retail distribution. The Company began shipping Worship StudioTM 6.0 during the
second quarter of 1999. This effort required marketing and sales resources,
which the Company would otherwise have applied to its traditional retail channel
sales efforts. The Company believes that this transitioning process, and the
resources it has required, is the principal reason for significantly lower
revenues in the quarters ended March 31 and June 30, 1999 compared to the same
periods in 1998. These efforts are an element of the Company's strategy to
enhance its core technologies and augment its retail distribution with more
direct distribution models. The Company believes that successful execution of
this strategy will result in higher gross margins for its packaged software
business. These development efforts may not result in timely introduction of new
products, and these new products may not be commercially successful. Inability
to successfully develop new products, delays in the introduction of these new
products, or lower-than-anticipated demand for these products could have a
material and adverse effect on the Company's business and results of operations.
Gross profit for the three and six months ended June 30, 1999 was
$143,000 and $235,000, a decrease of $79,000 and $212,000, respectively,
compared to $222,000 and $447,000 for the same periods in the prior year. As a
percentage of revenues, gross margin increased to 91% and 81% in the three and
six months ended June 30, 1999 from 57% and 59% for the same periods in 1998.
This difference occurred because of a higher percentage of OEM sales, compared
to other software sales, in the three and six month periods ended June 30, 1999
versus the same periods in 1998. OEM sales generate licensing royalties without
distribution or packaging costs, resulting in higher gross margins than the
Company's other products.
Sales and marketing expenses for the three and six months ended June
30, 1999 were $157,000 and $360,000, a reduction of $208,000 and $314,000,
compared to $365,000 and $674,000 for the same periods in the prior year. This
decrease resulted from targeted reductions in advertising and fewer personnel
during the three and six months ending June 30, 1999 compared to the same
periods in 1998. As a percentage of revenues, sales and marketing expenses
increased to 100% and 124% in the three and six months ended June 30, 1999 from
94% and 89% for the same periods in 1998. This increase was a direct result of
comparably lower revenues in the first and second quarters of 1999.
General and administrative expenses for the three and six months ended
June 30, 1999 were $391,000 and $748,000, a decrease of $19,000 and $41,000,
respectively, compared to $410,000 and $789,000 for the same periods of the
prior year. As a percentage of revenues, these expenses for the three and six
months ended June 30, 1999 increased to 249% and 258% from 105% for the same
periods in 1998, as a result of lower revenues in the three and six month
periods ending June 30, 1999.
Research and development expenses for the three and six months ended
June 30, 1999 were $79,000 and $180,000, a decrease of $118,000 and $242,000,
respectively, compared to $197,000 and $422,000 for the same periods in the
prior year. As a percentage of revenues, research and development expenses
changed slightly to 50% and 62% in the three and six months ended June 30, 1999
from 51% and 56% for the same periods in 1998.
Interest and other income for the three and six months ended June 30,
1999 was $6,000 and $11,000, compared to $3,000 and $10,000 for the same periods
of the prior year. Interest and other expense for the three and six months ended
June 30, 1999 was $196,000 and $448,000 compared to $63,000 and $846,000 for the
same periods in 1998. Interest expense includes one-time non-cash charges of
$106,000 and $280,000 in the three and six months ended June 30, 1999, relating
to the valuation of the $450,000 of convertible debt and $57,000 and $107,000
for the same periods for amortization of the discount on the detachable warrants
issued through June 1999. Interest expense for the three and six month periods
ended June 30, 1998 included one-time non-cash charges of $0 and $722,000,
relating to the valuation of the $1,000,000 of convertible debentures and
$36,000 and $66,000, respectively, for amortization of the discount on
detachable warrants issued through June 1998. The balance of the expense,
totaling $61,000 in the first half of 1999 and $58,000 in the same period last
year, represents accrued interest, penalties and issuance costs on the Company's
debt.
No income taxes were payable at June 30, 1999, due to the Company's
year-to-date loss. The Company had Federal net operating loss carryforwards at
December 31, 1998 of approximately $26.1 million that may reduce taxes due in
future periods and expire beginning in 2008. In certain circumstances, as
specified in the Internal Revenue Code, a 50% or more change in ownership of the
Company during any three-year period would result in limitations on the
Company's ability to utilize its net operating loss carryforward. Such a change
may have occurred as defined in Section 382 of the Internal Revenue Code. An
investor who owns $3,200,000 in principal amount of convertible debentures and
associated warrants, has the right to purchase an additional $800,000 of
convertible debentures in 1999. If this investor were to exercise all its
warrants and convert all the debt it holds and has a right to acquire, a change
in control of the Company would result.
Liquidity and Capital Resources
As of June 30, 1999, the Company's principal sources of liquidity
included cash and cash equivalents of $85,000 and net accounts receivable of
$120,000. This compares to cash, cash equivalents and short term investments of
$270,000 and net accounts receivable of $183,000 at December 31, 1998. The
change in liquidity and capital resources is the result of negative cash flow
from operations during the first and second quarters of 1999, partially offset
by bank borrowings and proceeds from the issuance of long term debt.
The Company's current liabilities at June 30, 1999 were $2,216,000
compared to $1,803,000 at December 31, 1998. As of June 30, 1999, working
capital totaled a negative $1,810,000. The Company's operating activities used
cash of $527,000 and $883,000 for the three and six month periods ended June 30,
1999, primarily caused by operating losses of $484,000 and $1,053,000 for the
same periods, net of non-cash charges. This use of cash of $527,000 for the
three month period ended June 30, 1999, is an increase of $232,000 from the
second quarter of 1998. Lower collections of accounts receivable and payment of
some of the overdue accounts payable contributed to the increased use of cash in
the second quarter of 1999.
The Company sold $250,000 of convertible notes on March 30, 1999, in
accordance with the Securities Purchase Agreement discussed in the Company's
10-KSB/A filed with the SEC on April 30, 1999. The notes bear interest at the
rate of 1% per annum payable annually in cash, or shares of the Company's common
stock, and are convertible into 1,000,000 shares of the Company's common stock.
The note holder also received five-year detachable warrants to purchase 500,000
shares of common stock for $0.75 per share. On April 30, 1999 the Company sold
another $200,000 of convertible notes bearing interest at 1% per annum, payable
annually in cash, or shares of the Company's common stock, and convertible into
250,000 shares of common stock. The note holder received five-year detachable
warrants to purchase 250,000 shares of the Company's common stock for $1.75 per
share. The note holder has the right to purchase an additional $800,000 of
convertible debentures in 1999. If the note holder were to exercise all its
warrants and convert all the debt it holds and has a right to acquire, a change
in control of the Company would result.
In June 1999 the Company opened two lines of credit with Key Bank of
Washington for $750,000 each, or $1,500,000 combined. These lines of credit
jointly obligate the Company and the Company's largest creditor, who holds
$3,200,000 of the Company's convertible debt. These credit lines were expanded
to $1,000,000 each, or $2,000,000 combined, on July 15, 1999. All outstanding
principal and interest must be paid on both lines by March 4, 2000. The amount
borrowed under the lines at June 30, 1999 was $315,000, which was completely
repaid on July 16, 1999 after receipt of the new equity investment described
below, putting the cash availability under the lines at $2,000,000.
On July 14, 1999 the Company entered into Subscription and Registration
Rights Agreements to sell 781,250 shares of the Company's common stock to a new
investor for total consideration of $1,000,000. The funds were received on July
14, 1999. As part of the transaction, the Company agreed to pay a finder's fee
of $30,000 to an unrelated third party. The finder's fee may be paid in cash,
common stock of the Company or some combination of the two. The 781,250 shares
of common stock have not been issued.
To date, the Company has financed its operations principally through
net proceeds from two public offerings and private placements of debt and
equity. The Company believes that cash on hand, along with cash generated from
the sale of products and collections of accounts receivable, will be sufficient
to meet the Company's requirements for the next few months and that the lines of
credit, so long as they are available, will provide working capital through
early 2000 . The Company's ability to fund continued operations beyond that
point depends on raising additional capital. Should the Company be unable to
raise additional capital, the Company will be required to significantly reduce
operations, reduce expenses, and may find it necessary to file for protection
under the bankruptcy code. Such steps would likely have a material adverse
effect on the Company's ability to establish profitable operations in the
future. The Company will continue to pursue other financing arrangements to
increase its cash reserves. There can be no assurance the Company will be
capable of raising additional capital or that the terms upon which such capital
will be available to the Company will be acceptable.
Trade Debt and Other Matters
As of June 30, 1999, the Company had $37,000 of accounts payable that
were current, $24,000 extended to between 31 and 60 days and $1,194,000 extended
over 60 days. The level of extended accounts payable results from the Company's
negative operating cash. The Company has entered into plans to extend payments
beyond due dates in the original purchase orders. While the Company believes
that payment plans will continue to be accepted, there is no certainty that the
Company will be able to continue to meet extended payment terms. The Company has
received demand letters from certain vendors requesting immediate payment of
amounts owing them totaling approximately $793,000. Nine of these vendors have
initiated litigation and received judgments. The remaining unpaid balance of
these judgments is approximately $117,000. Some vendors have declined sales
on credit terms to the Company and others have required cash on delivery terms.
The Company has negotiated changes in delivery dat commitments, but has not
failed to make product shipments because of supply problems from its vendors.
YEAR 2000 Issues
The Year 2000 or Y2K problem is somewhat predictable in its timing, but
unpredictable in its effects. In order to conserve limited computer memory, many
computer systems, software programs, and other microprocessor dependent devices
were created using only two digit dates, such that 1998 was represented as 98.
These systems may not recognize certain 1999 dates, and the year 2000 and
beyond, with the result that processors and programs may fail to complete the
processing of information or revert back to the year 1900. As we approach the
year 2000, we expect computer systems and software used by many companies in a
wide variety of applications to experience operating difficulties unless they
are modified or upgraded to process information involving, related to, or
dependent upon the century change. Failures could incapacitate systems essential
to the functioning of commerce, building systems, consumer products, utilities,
and government services locally as well as worldwide. Significant uncertainty
exists concerning the scope and magnitude of problems associated with Y2K.
The Company has established a Y2K Task Force to address these risks.
The Y2K Task Force, comprised of the CEO, CFO and Director of Information
Technology, is leading the Year 2000 risk management efforts. The Y2K Task Force
is coordinating the identification and testing of computer hardware and software
applications, with a goal to ensure availability and integrity of the
information systems and the reliability of the operational systems utilized by
the Company.
The Year 2000 Project at Midisoft Corporation uses the following five-phase
methodology and approach:
The first two phases are "work in progress" and are being updated on an ongoing
basis.
Phase I - Inventory. Collect a comprehensive list of components that may be
affected by the Year 2000 issues. Components are categorized into facilities,
hardware, software, and services.
Phase II - Assessment. Evaluate the inventory to determine which components will
function properly with the turn of the century and rank components based on
their potential impact to the Company. Each component is assigned priority as
follows:
Based on assigned priorities from Phase I and II, the following phases
will be carried out to the critical components first, followed by important
components, then inconvenient components and finally non-essential components if
resources and time are available. The Company has completed testing of all
critical and important components and is committed to achieving Y2K compliance
for these components by September 30, 1999. Testing on all inconvenient and
non-essential components should be finished by September 30, 1999 and complete
Y2K compliance is scheduled to be accomplished before November 30, 1999.
Phase III - Remediation. Analyze all components affected by Year 2000,
identifying problem areas and repairing / replacing non-compliant components.
Phase IV - Testing. Thorough testing of all affected systems, including present
and future date testing to simulate Year 2000 dates.
Phase V - Implementation. Place all components that have been successfully
tested into production.
Information systems are being tested with a licensed software program,
diagnostic tools designed for personal computers and servers that will identify
Y2K issues related to computer hardware, software and data. To date, this
testing appears to have been successful and has yielded no significant problems.
With the constant introduction of new computer equipment and software,
information systems testing will continue throughout the year.
The Company does not currently utilize Electronic Data Interchange
(EDI) with any of its partners or vendors but will thoroughly test any EDI
situation that may arise between now and March 1, 2000. If critical suppliers do
not satisfy the Company's Year 2000 compliance requirements, alternative
suppliers will be identified. As a contingency plan, inventory levels may be
raised prior to December 1999 to assure continued delivery of products to
customers through March 2000.
Risks
In the event such third parties cannot provide the Company with
products, services, or systems that meet the Year 2000 requirements on a timely
basis, or in the event Year 2000 issues prevent such third parties from timely
delivery of products or services required by the Company, the Company's results
of operations could be materially adversely affected. To the extent Year 2000
issues cause significant delays in, or cancellation of, decisions to purchase,
the Company's products or services, the Company's business, results of
operations, and financial position would be materially adversely affected. The
Company is assessing these risks and in some cases has initiated formal
communications with significant suppliers and customers to determine the extent
to which the Company is vulnerable to these third parties' failure to remediate
their own Year 2000 issues. There can be no assurance the Company will identify
and remediate all significant Year 2000 risks, or that such risks will not have
a material adverse effect on the Company's business, results of operations, or
financial position. Accordingly, the Company will continue to develop
contingency plans in anticipation of unexpected Year 2000 events. Based on its
assessment of year 2000 risks to date, the Company does not believe any material
exposure to significant business interruption exists as a result of Year 2000
compliance issues.
Contingency Plans
Since the Year 2000 problem is pervasive, few, if any, companies can
make absolute assurances that they will identify and remediate all Y2K risks.
Accordingly, the Company expects the risk assessment and contingency planning to
remain an ongoing process leading up to and beyond the year 2000. In addition,
the potential Year 2000 problem is being addressed as part of the Company's
overall emergency preparedness program that includes contingency planning for
other potential major catastrophes like earthquakes, fires and floods.
The Company's approach to Financial Risk has two main areas of focus.
Secure the broadest insurance coverage available at a reasonable cost and avoid
exclusions or restrictions of coverage, if possible. The Company will explore
other Financial Risk Transfer products and/or Y2K specific insurance coverage to
the extent that it becomes available at economically feasible levels.
Estimated Costs
The Company is continuing to assess the potential impact of the century
change on its business, results of operations, and financial position. The total
cost of these Year 2000 compliance activities is anticipated to be immaterial to
the Company's financial position or its results of operations. If there should
be significant problem(s) achieving Year 2000 compliance, there is no assurance
that the Company will have the financial or other resources to properly address
the problem(s). The cost of internal resources dedicated to the Year 2000 has
not been estimated at this time.
Forward-Looking Statements
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and such statements are subject to the safe
harbors created thereby. These forward-looking statements include the plans and
objectives of management for future operations, including plans and objectives
relating to (a) the ability to fund continued operations out of additional
capital infusion and (b) the success of the Company's approach to dealing with
year 2000 issues. The forward-looking statements included herein are based on
current expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
continue to develop and introduce new music, strategic and Internet products on
a timely basis, that rapid changes in technology will not make the Company's
products obsolete or otherwise reduce their ability to compete in the
marketplace, that competitive conditions within the industry will not change
materially or adversely, that the use of multimedia PC's in homes and small
offices will continue to grow, that management's decision to focus the Company's
resources on music and sound products will reduce certain expenses from the
levels which were experienced in 1997 and 1998, and that there will be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, there can be no
assurance that the forward-looking information will prove to be accurate. In
light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -
In 1997, an entity which sold substantially all of its assets to
the Company in 1995 demanded that the Company arbitrate certain
claims arising from the sale. The claims aggregated in excess of $1
million. The parties reached an agreement in July 1998 outside of
arbitration. In exchange for the mutual release of all claims and
counterclaims, the Company agreed to provide consideration of
$420,000, $25,000 in cash and the remainder comprised of
forgiveness of $112,000 in debt and issuance of approximately
630,000 Midisoft common shares. The Company agreed to file a
registration statement for these shares within 30 days after final
authorization by the shareholders in 1998, but has not filed the
registration statement as of this date. Payments totaling $20,000
have been made. The debt of $112,000 has been fully reserved and
expense of $283,000 for the additional common shares has been
booked as of December 31, 1998. Midisoft agreed to remove
restrictive legends on 166,667 of previously issued shares. The
Company believes that the entity's subsequent actions nullified
this agreement. The 630,000 common shares have not been issued In
July 1999 the Company demanded the return of the cash payments and
16,667 shares of the common stock issued, withdrew its forgiveness
of the debt and the terms of settlement are being reconsidered. The
Company has not yet received a response to its demand.
In March 1997, a former sales representative filed suit in Michigan
against Midisoft under a certain manufacturer's representative
agreement entered into between the parties in November 1994.
Plaintiff claims that the Company breached this agreement by
failing to pay commissions and is seeking damages in excess of
$75,000. Midisoft denies that it failed to pay commissions under
the agreement and is asserting counterclaims for over payments and
return credits. Damages asserted by the Company equal the damages
claimed by the plaintiff. The parties are awaiting a trial date,
which is reportedly to occur sometime during 1999. The ultimate
outcome cannot be determined at this time, but the Company believes
that it has meritorious defenses and is vigorously defending
against the claim.
On April 3, 1997 the Company began arbitration proceedings against
a former customer. On September 24, 1997, the Company was awarded a
judgment in the amount of $194,983.37 against the former customer.
The amount of the award represents the sum of 1) $160,000.00, the
unpaid portion of the base annual license royalty under the
Company's OEM License Agreement and 2) $34,983.37, representing
interest on the unpaid installments from their respective due dates
through the date of the award computed at 12% per annum. In
November 1998, the former customer exhausted its appeals when the
Washington State Court of Appeals denied the former customer's
appeal motion, thereby terminating the appellate process. In March
1999, the Company amended the judgment to add attorneys' fees and
interest accrued since the original judgment was entered. The total
amount of the amended judgment is $247,925.34. The Company is
pursuing collection in Washington State and has engaged a
California law firm to enforce judgment in the state of California,
the headquarters location of the former customer.
The Company has received demand letters from certain vendors
requesting immediate payment of amounts owing them totaling
approximately $793,000. Fifteen of these vendors have initiated
litigation for claims totaling approximately $183,000 and nine of
these have received judgments of which the remaining unpaid balance
is approximately $117,000. The Company has reached settlement
agreements with some vendors and is negotiating with the remainder.
Some vendors have declined sales on credit terms to the Company and
others have required cash on delivery or in advance terms.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS -
In July 1999 the Company entered into a Subscription and
Registration Rights Agreements to sell 781,250 shares of the
Company's common stock to a new investor for a total consideration
of $1,000,000. The shares have not been issued. The funds were
received on July 14, 1999 and will be used for working capital. As
part of the transaction, the Company agreed to pay a finder's fee
of $30,000 to an unrelated third party. The finders fee may be paid
in cash, common stock of the Company or some combination of the
two.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -None
ITEM 5. OTHER INFORMATION. - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS - The following exhibits are filed as part of this
report:
Exhibit No.
10.1 1998 Nonstatutory Option Plan, adopted February 10, 1998,
authorizing 500,000 shares of Common Stock for issuance
pursuant to the Plan.
10.2 1999 Incentive and Nonstatutory Option Plan, adopted
June 2, 1999, authorizing 1,000,000 of Common Stock for
issuance pursuant to the Plan.
27 Financial Data Schedule
b) Reports on Form 8-K - None
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MIDISOFT CORPORATION
(Registrant)
Date: August 18, 1999
BY: /S/ Gary M.Cully
-----------------------------------------
Gary M. Cully, Vice President of Finance and
Chief Financial Officer
Exhibit 10.1
MIDISOFT CORPORATION
NONSTATUTORY STOCK OPTION PLAN
DATED FEBRUARY 10, 1998
<PAGE>
Exhibit 10.1
PREAMBLE
On February 10, 1998, Midisoft Corporation's Board of Directors
unanimously adopted, by resolution, a new Stock Option Plan for independent
directors, non-employee consultants, and employees as described in the plan; and
authorized 500,000 shares of Common Stock to be reserved for administration of
the plan.
Legal Counsel advised that in November 1996, the SEC removed the
requirement for shareholder approval of director stock option plans. The
exemption from short-swing profits regulation ss.166-3(d) continues to apply.
The options and underlying stock would be covered for exemption based upon the
Board's approval of the grants or the Committee with two independent directors
making the grant or the shares being held for at least six months.
Counsel further advised that the Non-Qualified plan does not qualify
for tax treatment under IRS ss.422; therefore, shareholder approval is not
required for purposes of meeting 26 USC Sec 422. Nasdaq OTC/BB Compliance Unit
advised that there is no requirement to obtain shareholder approval of stock
option plans on the OTC/BB.
Therefore, the following plan is established to allow Directors and
Non-Employee consultants to participate in the ownership of the Company.
<PAGE>
Exhibit 10.1
MIDISOFT CORPORATION
NONSTATUTORY STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The Midisoft Corporation Incentive Stock Option Plan ("Plan A") and
Nonstatutory Stock Option Plan ("Plan B") (collectively, "the Plans") provide
two methods for key employees and certain non-employee directors and consultants
of Midisoft Corporation (the "Company") to acquire ownership in the Company and
provide them with greater incentive for their service to the Company, thereby
promoting the interest of the Company and its stockholders.
Plan A provides for the granting of options that are intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of section 422A of the Internal Revenue Code of 1986, as amended (the
"Code"). Plan B provides for the granting of options that are not intended to so
qualify. Unless otherwise specified, all provisions of the Plan relate equally
to both Plan A and Plan B, which Plans are condensed into one plan document
solely for the purposes of administrative convenience and are not intended to
constitute tandem plans.
ARTICLE II
Effective Date
Plan A is effective February 22, 1989 and is governed by separate
document entitled, MIDISOFT CORPORATION INCENTIVE STOCK OPTION PLAN AND
NONSTATUTORY STOCK OPTION PLAN DATED February 22, 1989. Plan B is effective
February 10, 1998.
<PAGE>
ARTICLE III
Administration of the Plans
The plans shall be administered by the Board of Directors or by a
Committee (the "Committee") appointed by the Board and consisting of not less
than three (3) Board members. (For the purposes of this Plan document, the term
Board shall also mean the Committee to the extent that the Board's powers have
been delegated to the Committee.)
The Board shall have the exclusive authority in its absolute discretion
to determine which employees and consultants of the corporation shall receive
Options (the "Optionees"), and, subject to the express provisions of these
Plans, the terms and conditions of the Options other than those terms and
conditions fixed under these Plans, and the number of shares issued upon the
exercise of the Options. The Board shall adopt by resolution such rules and
regulations as may be required to carry out the purposes of the Plans and shall
have the authority to do everything necessary or appropriate to administer the
Plans. All decisions, determinations and interpretations of the Board shall be
final and binding on all Optionees. Administration of the Plans with respect to
members of the Committee shall not be delegated, but shall at all times remain
vested in the Board. The Board may from time to time remove members from or add
members to the Committee, and vacancies on the Committee shall be filled by the
Board. Furthermore, the Board at any time by resolution may abolish the
Committee and revest in the Board the administration of the Plans.
With respect to Options granted to a key employee who is also a member
of the Board, the Board shall take action by a vote sufficient without counting
the vote of such member of the Board although such member of the Board may be
counted in determining the presence of a quorum at a meeting of the Board which
authorized the granting of Options to such member of the Board.
The Committee, if appointed by the Board, shall report to the Board the
names of employees granted Options, the number of shares covered by each Option
and the terms and conditions of such Option.
ARTICLE IV
Stock Subject to the Plans
The stock to be issued upon the exercise of an Option granted under the
Plans shall be the Company's common stock (the "Common Stock"). The Common Stock
may be either authorized but unissued or Common Stock reacquired by the Company.
The aggregate number of shares of Common Stock which may be issued under the
Plans shall not exceed One Million Nine Hundred Seventy Thousand (1,970,000)
shares of Common Stock. In the event that any outstanding Option for any reason
expires or is terminated, the Common Stock allocable to the unexercised portion
of such Option may again be made subject to an Option under the Plans.
ARTICLE V
Eligibility
Persons who shall be eligible to receive Options under these Plans
shall be as follows:
A. In the case of Plan A, employees of the Company
who render those types of services which tend to contribute materially to the
success of the Company;
B. In the case of Plan B, employees described in
subsection A above and any non-employee directors or consultants who render
those types of services which tend to contribute materially to the Company.
The determination as to whether such persons are eligible to receive
Options under the Plans shall be made by the Board in its sole discretion, and
the decision of the Board shall be binding and final.
ARTICLE VI
Option Price
The option price for shares of Common Stock to be issued under Plan A
shall be equal to or greater than the fair market value of such shares on the
date on which the Option covering such shares is granted, except that if on the
date on which such Option is granted the Optionee is a Restricted Shareholder,
then such option price shall be equal to or greater than one hundred ten per
cent (110%) of the fair market value of the shares on the date such Option is
granted. For the purposes of Plan A, a "Restricted Shareholder" is an individual
who, at the time an Option is granted under Plan A, owns stock possessing more
than ten per cent (10%) of the total combined voting power of all classes of
stock of the Company, with stock ownership to be determined in light of the
attribution rules set forth in Section 425(d) of the Code. The fair market value
of shares of Common Stock for all purposes of Plan A shall be determined by the
Board in its sole discretion, exercised in good faith.
The Option price for shares of Common Stock to be issued under Plan B
shall be determined by the Board in its sole discretion.
ARTICLE VII
Stock Option Agreement
The terms and conditions of Options granted under the Plans shall be
evidenced by a stock option agreement executed by the Company and the person to
whom the Option is granted (the "Stock Option Agreement"). The Stock Option
Agreement shall contain terms as approved from time to time by the Board of
Directors. Each Stock Option Agreement shall incorporate this Plan document by
reference and shall include such provisions as are determined to be necessary or
appropriate by the Board. Each Stock Option Agreement shall contain a
termination date established by the Board, an no Option shall have a termination
date which is more than ten (10) years from the date on which it was granted.
ARTICLE VIII
Exercise of Option
Subject to the limitations set forth in these Plans and/or in any
applicable Stock Option Agreement entered into under these Plans, Options
granted under these Plans shall be exercisable in accordance with the following
rules:
A. General. Subject to the other provisions of
this Article, Options shall vest and become exercisable at such times and in
such installments as the Board shall provide in each individual Stock Option
Agreement. Notwithstanding the foregoing, the Board may in its sole discretion,
accelerate the time at which an Option or installment thereof may be exercised.
For purposes of these Plans, any vested installment of an Option granted under
these Plans shall be referred as an "Accrued Installment."
B. Termination of Options. All installments of
an Option shall expire and terminate on such date as the Board shall determine,
but in no event later than ten (10) years from the date such Option was granted
("Option Termination Date") (except that an Option granted under Plan A to a
Restricted Shareholder shall by its terms not be exercisable after the
expiration of five (5) years from the date such Option was granted). Unless
provided otherwise in the Article, or in the Stock Option Agreement pursuant to
which an Option is granted, an Option may be exercised when Accrued Installments
accrue as provided in such Stock Option Agreement and at any time after that
date until, and including, the day before the Option Termination Date.
C. Sale or Reorganization.
1. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
with one or more corporations, as a result of which the Company goes out of
existence or becomes a subsidiary of another corporation, or upon a sale of
substantially all the property or more than eighty percent (80%) of the then
outstanding stock of the Company to another corporation, an Option shall become
immediately exercisable with respect to the full number of shares subject to
that Option during the period commencing as of the date of the agreement
providing for such transaction is executed and ending of the earlier of:
(a) The applicable expiration date for
such Option as provided for in the Stock Option Agreement; or
(b) The date on which the disposition
of assets or stock contemplated by any suchagreement is consummated.
2. Upon the consummation of any transaction
specified in Article VIII C of these Plans, the Plans and any unexercised
Options issued under the Plans (or any unexercised portion of them) shall
terminate and cease to be effective, unless a provision is made in connection
with the transaction for assumption of Options previously granted or the
substitution for such Options of new options covering the securities of a
successor corporation or an affiliate thereof, with appropriate adjustments as
to the number and kind of securities and prices. Any change or adjustment made
pursuant to the terms of this Subsection 2 shall be made in such a manner so as
not to constitute a "modification" as defined in Section 425(h) of the Code and,
if possible, so as not to cause any Incentive Stock Option issued under Plan A
to fail to continue to qualify as an Incentive Stock Option as defined in
Section 422A(b) of the Code.
D. Termination of Employment Other Than by
Death or Disability. In the event that the employment of an Optionee with the
Company is terminated (or, in the case of a non-employee director or consultant,
service as a director or consultant, as the case may be, is terminated) for any
reason other than death or permanent and total disability, any installments
under the Option which have not accrued, as of the date of the employee's
termination (the "Employee's Termination Date") shall expire and become
unexercisable as of the Employee's Termination Date. All accrued installments as
of the Employee's Termination Date shall remain exercisable for a period not to
exceed three (3) months following the Employee's Termination Date.
E. Death or Disability of Optionee While
Employed. In the event that the employment of an Optionee with the Company is
terminated (or, in the case of a non-employee director or consultant, service as
a director or consultant, as the case may be, is terminated) by reason of death
or permanent and total disability, any unexercised Accrued Installments of
Options granted under the Plans to the Optionee shall expire and become
unexercisable as of the earlier of:
1. The applicable Option Termination Date; or
2. The first anniversary of the Employee's
Termination Date by reason of death or permanent and total disability of such
Optionee. Any installments under such a deceased or disabled Optionee's Option
that have not accrued as of the Employee's Termination Date due to death or
permanent and total disability shall expire and become unexercisable as of the
Employee's Termination Date. For purposes of these Plans, the term "permanent
and total disability" shall be defined under Code Section 105(d)(4).
F. Exercise of Options. An Option may be
exercised in accordance with this Article VIII as to all or any portion of the
shares covered by an Accrued Installment of the Option from time to time during
the applicable Option period, except that an Option shall not be exercisable
with respect to fractions of a share.
G. Payment. Payment of the Option Price shall
be made as determined by the Board in its sole discretion.
ARTICLE IX
Authorization to Issue Options and Shareholder Approval
Options granted under the Plans shall be conditioned upon the Company obtaining
any required regulatory permit, free of any conditions not acceptable to the
Board, authorizing the Company to issue such Options, provided, however, such
condition shall lapse as of the effective date of issuance of such permit(s) in
a form to which the Company does not object within sixty (60) days. The grant of
Options under Plan A also is conditioned on approval of the Plan by the vote or
written consent of the holders of a majority of the outstanding shares of the
Company's Common Stock ("Shareholder Approval"), and no Option shall be granted
under Plan A unless and until the Plan has been so approved. All Options under
the Plans must be granted, if at all, within ten (10) years from the date the
Plans are adopted or from the date of Shareholder Approval, whichever is
earlier.
ARTICLE X
Limit On Value and Number of Optioned Shares
The aggregate fair market value (determined as of the date the Option
is granted) of the shares of Common Stock with respect to which any employee may
exercise Incentive Stock Options for the first time in any calendar year under
all incentive stock option plans of the Company (or any parent or subsidiary
corporation) shall not exceed One Hundred Thousand Dollars ($100,000.00). The
limitation imposed by this Article X shall not apply with respect to
nonstatutory stock options granted under Plan B.
ARTICLE XI
Stock Restriction Agreement
As a condition to the granting of any Option under the Plans and the subsequent
exercise of such Option, the Board may require the Optionee to enter into a
stock restriction agreement ("Stock Restriction Agreement") with the Company for
the purpose of limiting the sale or other transfer of ownership of Common Stock
acquired by the Optionee.
ARTICLE XII
Amendment or Termination of the Plans
The Board may amend, suspend and/or terminate the Plans at any time,
provided, however, that except as provided in Article XV below, the Board shall
not amend Plan A in the following respects without shareholder approval:
A. To increase the maximum number of shares subject to Plan A.
B. To change the designation or class of persons eligible to receive
Options under the Plan; C. To extend the term of the Plans or the
maximum Option exercise period; or D. To decrease the minimum price at
which shares may be optioned under the Plan. Furthermore, the Plans may
not, without the approval of the shareholders, be amended in any manner
that would cause
Incentive Stock Options issued under the Plans to fail to qualify as Incentive
Stock Options as defined in Section 422A(b) of the Code. Notwithstanding the
foregoing, no amendment, suspension or termination of the Plans shall adversely
affect Options granted on or prior to the date thereof, as evidenced by the
execution of a Stock Option Agreement by both the Company and the Optionee,
without the consent of such Optionee.
<PAGE>
ARTICLE XIII
Options Not Transferable
Options granted under the Plans may not be sold, pledged, hypothecated,
assigned, encumbered, gifted or otherwise transferred or alienated in any
manner, whether voluntarily or involuntarily by operation of law, other than by
will or the laws of descent or distribution, and may be exercised during the
lifetime of any Optionee only by such Optionee.
ARTICLE XIV
Restrictions of Issuance of Shares
The Company, during the term of the Plans, will use its best efforts to
seek to obtain from the appropriate regulatory agencies any requisite
authorization in order to issue and sell such number of shares of its Common
Stock as shall be sufficient to satisfy the requirements of the Plans. The
inability of the Company to obtain from any such regulatory agency having
jurisdiction thereof the authorization deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any shares of its stock under the
Plans shall relieve the Company of any liability in respect of the nonissuance
or sale of such stock as to which such requisite authorization shall not have
been obtained.
ARTICLE XV
Adjustments Upon Changes in Capitalization
If the outstanding shares of Common Stock of the Company are increased,
decreased, changed into or exchanged for a different number or kind of shares of
the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, upon proper authorization of the Board an appropriate and
proportionate adjustment shall be made in the number or kind of shares, and the
per share option price thereof, which may be issued in the aggregate to the
individual Optionees under these Plans upon exercise of Options granted under
the Plans; provided, however, that no such adjustment need be made if, upon the
advice of counsel, the Board determines that such adjustment may result in the
receipt of federally taxable income to holders of Options granted under the
Plans or the holders of Common Stock or other classes of the Company's
securities. If any Option granted under the Plans shall terminate for any reason
or expire before such Option is exercised in full, the securities which might
otherwise have been issued upon exercise of such Option shall again become
available for purposes of these Plans.
ARTICLE XVI
Representations and Warranties
As a condition to the granting and the exercise of any portion of any
Option, the Company may require the person receiving or exercising such Option
to make any representation and/or warranty to the Company as may, in the
judgment of counsel to the Company, be required under any applicable law or
regulation, including but not limited to a representation and warranty that the
Option and/or shares are being acquired only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required under the Securities
Act of 1933 or any other applicable law, regulation or rule of any governmental
agency.
ARTICLE XVII
No Enlargement of Rights
These Plans are purely voluntary on the part of the Company, and while
the Company hopes to continue them indefinitely, the continuance of the Plans
shall not be deemed to constitute a contract between the Company and any
employee or any non-employee director or consultant, or to be consideration or a
condition of the employment of any employee or retention of any non-employee
director or consultant. Nothing contained in the Plans shall be deemed to give
any employee or any non-employee director or consultant the right to be retained
or employed by the Company or to interfere with the right of the Company to
discharge or retire any employee or non-employee director or consultant of the
Company at any time. No employee or non-employee director or consultant shall
have any right to or interest in Options authorized under the Plans prior to the
grant of an Option to him, and upon such a grant he shall have only such rights
and interests as are expressly provided in the Plans, subject, however, to all
applicable provisions of the Company's Articles of Incorporation, as the same
may be amended from time to time.
ARTICLE XVIII
Legends on Options and Stock Certificates
Unless an appropriate registration statement is filed pursuant to the
Federal Securities Act of 1933 as amended, with respect to the shares of Common
Stock issuable under these Plans, each certificate representing such Common
Stock shall be endorsed with the following legend or its equivalent:
NEITHER THE OPTION PURSUANT TO WHICH THE SHARES REPRESENTED BY
THIS CERTIFICATE ARE ISSUED NOR SAID SHARES HAVE BEEN
REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). TRANSFER OR SALE OF SUCH SECURITIES OR
ANY INTEREST THEREIN IS UNLAWFUL EXCEPT AFTER REGISTRATION, OR
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS,
AS PROVIDED IN THE ACT AND THE REGULATIONS THEREUNDER.
In addition to the foregoing legend each Stock Option Agreement and
each certificate representing shares of Common Stock acquired upon the exercise
of an Option shall be endorsed with all legends, if any, required by applicable
state securities laws to be placed on the Stock Option Agreement and/or the
certificate.
ARTICLE XIX
Availability of Plans
A copy of these Plans shall be delivered to the Secretary of the
Company and shall be shown by the Secretary to any eligible person making
reasonable inquiry concerning the Plans.
ARTICLE XX
Applicable Law
These Plans shall be governed and construed in accordance with the laws
of the State of Washington.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of
these Plans by the Board and Shareholders in the case of Plan A, the Company has
caused these Plans to be duly executed by its duly authorized officers,
effective as of February 10, 1998.
MIDISOFT CORPORATION
By
Its President
By
Its Secretary
Exhibit 10.2
MIDISOFT CORPORATION
1999 STOCK OPTION PLAN
<PAGE>
Exhibit 10.2 TABLE OF CONTENTS Page
Article 1 PURPOSE AND EFFECTIVENESS.........................................1
1.1 Purpose...........................................................1
1.2 Effective Date; Shareholder Approval Requirement..................1
Article 2 DEFINITIONS.......................................................1
Article 3 ADMINISTRATION....................................................4
3.1 Committee.........................................................4
3.2 Appointment of Committee..........................................5
3.3 Powers; Regulations...............................................5
3.4 Limits on Authority...............................................5
3.5 Exercise of Authority.............................................5
Article 4 SHARES SUBJECT TO THE PLAN........................................6
4.1 Number of Shares..................................................6
4.2 Adjustments.......................................................6
Article 5 ELIGIBILITY.......................................................6
Article 6 STOCK OPTIONS.....................................................6
6.1 Grant of Options..................................................6
6.2 Purchase Price....................................................7
6.3 Limitations on Incentive Stock Options............................7
(a) Grants Only to Employees.................................7
(b) Limitation on Shares.....................................7
6.4 Term of Options...................................................7
6.5 Option Agreement..................................................7
6.6 Exercise of Options...............................................8
(a) Time Exercisable.........................................8
(b) Manner of Exercise.......................................8
(c) Value of Shares..........................................8
(d) Issuance of Shares.......................................8
6.7 Legends...........................................................8
6.8 Transferability...................................................9
6.9 Market Stand-Off Agreement........................................9
6.10 Delegation to Executive Officer of Authority to Grant Options....10
- i -
<PAGE>
Exhibit 10.2 TABLE OF CONTENTS - CONTINUED Page
Article 7 GENERAL PROVISIONS...............................................10
7.1 Termination of Service...........................................10
(a) General.................................................10
(b) Termination for Cause...................................10
(c) Miscellaneous...........................................11
7.2 Certain Events...................................................11
(a) Control Purchase........................................11
(b) Approved Transaction....................................11
7.3 Right to Terminate Service.......................................12
7.4 Nonalienation of Benefits........................................12
7.5 Shareholders Agreement...........................................12
7.6 Termination and Amendment........................................12
(a) Termination.............................................13
(b) Amendment of Plan.......................................13
(c) Amendment of Options....................................13
7.7 Government and Other Regulations.................................13
7.8 Withholding......................................................14
7.9 Severability; Incentive Stock Option Provisions..................14
7.10 Plan Not Exclusive...............................................14
7.11 Exclusion from Pension and Profit-Sharing Computation............14
7.12 No Shareholder Rights............................................14
7.13 Governing Law....................................................15
7.14 Company's Rights.................................................15
- ii -
<PAGE>
Exhibit 10.2
MIDISOFT CORPORATION
1999 STOCK OPTION PLAN
Article 1
PURPOSE AND EFFECTIVENESS
1.1 Purpose. The purpose of the 1999 Stock Option Plan (the "Plan") is
to provide a method by which selected individuals performing services for
Midisoft Corporation, a Washington corporation (the "Company"), or any of its
Affiliates, may be offered an opportunity to invest in capital stock of the
Company, thereby increasing their personal interest in the growth and success of
the Company and its Affiliates.
1.2 Effective Date; Shareholder Approval Requirement. The Plan shall be
effective at the time specified in the resolutions of the Board adopting the
Plan (the "Effective Date"). Issuance of Incentive Stock Options within twelve
(12) months after the Effective Date shall be subject to the approval of the
Plan by the shareholders of the Company at a duly held meeting of shareholders
at which a majority of all outstanding voting stock of the Company is
represented in person or by proxy. The approval required shall be a majority of
the votes cast on the proposal to approve the Plan. Such approval may also be
provided pursuant to a written consent in lieu of such meeting. No Incentive
Stock Option shall be exercisable until this approval requirement has been
satisfied. If this requirement is not satisfied within twelve (12) months after
the Effective Date, then (a) no Incentive Stock Options may thereafter be
granted, and (b) each Incentive Stock Option granted prior thereto shall
automatically be deemed to be a Nonqualified Stock Option (except to the extent
its Option Agreement expressly provides otherwise).
Article 2
DEFINITIONS
Capitalized terms in the Plan shall have the following meanings
(whether used in the singular or plural):
"Affiliate" of the Company means any corporation, partnership or other
entity which, through one or more intermediaries, directly or indirectly
controls, is controlled by, or is under common control with the Company.
"Annual Grant Limit" is defined in Section 4.1.
"Approved Transaction" means any of the following transactions
consummated with the approval, recommendation or authorization of the Board:
(a) any merger, consolidation, statutory or contractual share
exchange, or other transaction to which the Company or any of its
Affiliates or shareholders is a party if, immediately following the
transaction, the persons who held Common Stock (or securities
convertible into Common Stock) immediately before the transaction hold
less than a majority of --
(i) the combined Common Equity of the Company; or
(ii) if, pursuant to the transaction, shares of
Common Stock are changed or converted into or exchanged for,
in whole or part, securities of another corporation or entity,
the combined Common Equity of that corporation or entity;
without taking into account any person's Common Equity of the Company
or the other corporation or entity that is not directly attributable
(through continued ownership, amendment, reclassification, conversion
or exchange) to the person's holdings of Common Stock (or securities
convertible into Common Stock) immediately before the transaction;
(b) any liquidation or dissolution of the Company; and
(c) any sale, lease, exchange or other transfer not in the
ordinary course of business (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the
Company.
"Board" means the Board of Directors of the Company.
"Cause" means, in connection with the termination of the Service of a
Holder (a) repeated failures to carry out directions of the Board or the
Holder's supervisors with regard to material matters reasonably consistent with
the Holder's duties; (b) knowing violation of a state or federal law involving
the commission of a crime against the Company or any of its Affiliates or a
felony; (c) misuse of alcohol or controlled substances; (d) any
misrepresentation, deception, fraud or dishonesty that is materially injurious
to the Company or any of its Affiliates; and (e) any act or omission in willful
disregard of the interests of the Company or any of its Affiliates that
substantially impairs the goodwill, business or reputation of the Company or any
of its Affiliates.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute or statutes thereto. Reference to any specific
section of the Code shall include any successor section.
"Committee" is defined in Section 3.1.
"Common Equity" means the capital stock of a corporation (or
corresponding securities of a noncorporate entity) ordinarily, and apart from
rights accruing under special circumstances, having the right to vote in an
election for directors (or for members of the governing body of the noncorporate
entity).
"Common Stock" means the Common Stock, no par value per share, of the
Company.
"Company" is defined in Section 1.1.
"Continuing Option" is defined in Section 7.2(b)(v)(A)(1).
"Control Purchase" means any transaction (or series of related
transactions), consummated without the approval, recommendation or authorization
of the Board, in which any person, corporation or other entity (including any
"person" as defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act)
purchases any Common Stock (or securities convertible into Common Stock),
pursuant to a tender offer or a request or invitation for tenders (as those
terms are defined in Section 14(d)(1) of the Exchange Act) or otherwise, and
thereafter is the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of securities of the Company representing more than twenty-five
percent (25%) of the combined Common Equity of the Company.
"Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a continuous period of not less than twelve (12) months.
"Effective Date" is defined in Section 1.2.
"Eligible Person" is defined in Article 5.
"Equity-Based Approved Transaction" means an Approved Transaction
pursuant to which (a) the persons who hold Common Stock or securities
convertible into Common Stock immediately before the Approved Transaction retain
such Common Stock or securities, or (b) such Common Stock or securities are
converted into or exchanged for a different number and/or kind of equity
securities of the Company or another corporation or entity and such equity
securities represent all or substantially all of the consideration received by
such persons in the Approved Transaction.
"Equity Securities" has the meaning given that term in Rule 3a11-1
promulgated under the Exchange Act, as amended from time to time, or any
successor rule thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute or statutes thereto. Reference to
any specific section of the Exchange Act shall include any successor section.
"Executive Officer" means any employee of the Company who is an
"officer" within the meaning of Rule 16a-1(f) of the Exchange Act, as amended
from time to time, or any successor rule thereto.
"Fair Market Value" for the Common Stock (or any other security) on any
day means, if the Common Stock (or other security) is publicly traded, the last
sales price (or, if no last sales price is reported, the average of the high bid
and low asked prices) for a share of Common Stock (or unit of the other
security) on that day (or, if that day is not a trading day, on the next
preceding trading day), as reported by the principal exchange on which the
Common Stock (or other security) is listed, or, if the Common Stock (or other
security) is publicly traded but not listed on an exchange, as reported by The
Nasdaq Stock Market, or, if such prices or quotations are not reported by The
Nasdaq Stock Market, as reported by any other available source of prices or
quotations selected by the Committee. If the Common Stock (or other security) is
not publicly traded, or if the Fair Market Value is not determinable by any of
the foregoing means, the Fair Market Value on any day shall be determined in
good faith by the Committee on the basis of such considerations as the Committee
determines to be appropriate.
"Holder" means an Eligible Person who has received an Option or, when
the context so requires, if rights under the Option continue following the death
of the Eligible Person or are transferred in a manner permitted by Section 6.8,
the person who succeeds to those rights by will or by the laws of descent and
distribution or by such transfer.
"Incentive Stock Option" means an Option that is an incentive stock
option within the meaning of Section 422 of the Code.
"Nonqualified Stock Option" means an Option that is not an Incentive
Stock Option.
"Option" means an option with respect to shares of Common Stock awarded
pursuant to Article 6.
"Option Agreement" is defined in Section 6.5.
"Option Securities" means (a) the shares of Common Stock or other
securities that a Holder acquires upon exercise of an Option, and (b) any other
shares of Common Stock or other securities issued or acquired with respect to
the shares or other securities specified in the preceding clause (a) or this
clause (b) in connection with any stock dividend, stock split, reclassification,
recapitalization, reorganization, split-up, spin-off, combination, exchange of
shares, rights offering, or other transaction or event.
"Permitted Transferee" of a Holder means any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law of the Holder (including any such relative by
adoption); any person sharing the Holder's household (other than a tenant or
employee); a trust in which these persons have more than fifty percent (50%) of
the beneficial interest; and any other non-charitable entity in which these
persons (or the Holder) own more than fifty percent (50%) of the voting
interests.
"Plan" is defined in Section 1.1.
"Replacement Securities" is defined in Section 7.2(b)(v)(A)(2).
"Securities Act" means the Securities Act of 1933, as amended from time
to time, or any successor statute or statutes thereto. Reference to any specific
section of the Securities Act shall include any successor section.
"Service" means the performance of services on a periodic basis for the
Company or any of its Affiliates in the capacity of an employee, a nonemployee
member of a board of directors or other governing body, or an independent
consultant or advisor.
"Transaction Date" is defined in Section 7.2(b)(i).
"10% Shareholder" means a person who owns (or is considered as owning
within the meaning of Section 424 of the Code) stock possessing more than 10% of
the total combined voting power of all classes of capital stock of the Company.
Article 3
ADMINISTRATION
3.1 Committee. The Plan shall be administered by the Board unless the
Board appoints a separate committee of the Board to administer the Plan pursuant
to Section 3.2 (the Board, or such committee, if it is administering the Plan,
will be referred to as the "Committee"). The Committee shall select one of its
members as its chairman and shall hold its meetings at such times and places as
it shall deem advisable. A majority of its members shall constitute a quorum and
all determinations shall be made by a majority of that quorum. Any determination
reduced to writing and signed by all of the members of the Committee shall be as
effective as if it had been made by a majority vote at a meeting duly called and
held.
3.2 Appointment of Committee. The Board may appoint a committee
consisting of two or more of its members to administer the Plan. Once appointed,
the committee shall continue to serve until otherwise directed by the Board.
From time to time the Board may increase the size of the committee and appoint
additional members, remove members (with or without cause) and appoint new
members in their place, fill vacancies however caused, and/or remove all members
of the committee and thereafter directly administer the Plan.
3.3 Powers; Regulations. The Committee shall have full power and
authority, subject only to the provisions of the Plan (a) to administer or
supervise the administration of the Plan; (b) to interpret the provisions of the
Plan and the Option Agreements; (c) to correct any defect, supply any
information and reconcile any inconsistency in such manner and to such extent as
it determines to be necessary or advisable to carry out the purpose of the Plan;
and (d) to take such other actions in connection with the Plan as it determines
to be necessary or advisable. The Committee is authorized to adopt, amend and
rescind such rules, regulations and procedures not inconsistent with the
provisions of the Plan as it determines to be necessary or advisable for the
proper administration of the Plan, and each Option shall be subject to all such
rules, regulations and procedures (whether the Option was granted before or
after promulgation thereof). Without limiting the authority of the Committee to
interpret the provisions of the Plan, the Committee shall have the right to
determine that a transaction (or series of related transactions) is not a
Control Purchase, even though literally included within the definition of that
term, if the Committee determines that the transaction (or series of related
transactions) does not have the effect of significantly changing or influencing
the control of the Company on a permanent basis.
3.4 Limits on Authority. Exercise by the Committee of its authority
shall be consistent (a) with the intent that all Incentive Stock Options be
qualified under the terms of Section 422 of the Code, and (b) with the intent
that the Plan be administered in a manner so that, to the extent possible, the
grant of Options and all other transactions with respect to the Plan, to Options
and to any Common Stock acquired upon exercise of Options, shall be exempt from
the operation of Section 16(b) of the Exchange Act.
3.5 Exercise of Authority. Each action and determination made or taken
by the Committee, including but not limited to any interpretation of the Plan
and the Option Agreements, shall be final, conclusive and binding for all
purposes and upon all persons. No member of the Committee shall be liable for
any action or determination made or taken by the member or the Committee in good
faith.
Article 4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to the provisions of this Article 4, the
maximum number of shares of Common Stock for which Options may be granted during
the term of the Plan shall be one million (1,000,000). In addition, the maximum
number of shares of Common Stock for which Options may be granted to any
Eligible Person during any calendar year shall be five hundred thousand
(500,000) (such maximum number of shares will be referred to as the "Annual
Grant Limit"). Shares of Common Stock will be made available from the authorized
but unissued shares of the Company or from shares reacquired by the Company. If
an Option terminates for any reason without having been exercised in full, the
shares of Common Stock for which the Option has not been exercised shall again
be available for purposes of the Plan.
4.2 Adjustments. If the Company subdivides its outstanding shares of
Common Stock into a greater number of shares (by stock dividend, stock split,
reclassification or otherwise) or combines its outstanding shares of Common
Stock into a smaller number of shares (by reverse stock split, reclassification
or otherwise), or if the Committee determines that any stock dividend,
extraordinary cash dividend, reclassification, recapitalization, reorganization,
split-up, spin-off, combination, exchange of shares, rights offering, or other
transaction or event that is not an Approved Transaction or Control Purchase
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available under
the Plan, then the Committee shall, in such manner as it determines to be
equitable and appropriate, adjust any or all of (a) the number of shares of
Common Stock (or number and kind of other securities or property) for which, and
the time or times when, outstanding Options may thereafter be exercised; (b) the
purchase price for the shares (or other securities or property) under
outstanding Options; (c) the number of shares of Common Stock (or number and
kind of other securities or property) for which Options may thereafter be
granted, and (d) the number of shares of Common Stock (or number and kind of
other securities or property) that will thereafter constitute the Annual Grant
Limit. In connection with any adjustment made pursuant to this Section 4.2, the
Committee may, if deemed equitable and appropriate, provide for a cash payment
to be made to the Holder of an Option, in cancellation of the Option, of such
amount as the Committee determines represents the value the Option would then
have if it were exercisable for all of the shares under the Option.
Article 5
ELIGIBILITY
The persons eligible to participate in the Plan and to receive Options
("Eligible Persons") shall be persons who are performing or have been hired to
perform Service for the Company or any of its Affiliates.
Article 6
STOCK OPTIONS
6.1 Grant of Options. The Committee shall from time to time determine
(a) the Eligible Persons to whom Options are to be granted; (b) the number of
shares of Common Stock for which the Options are exercisable and the purchase
price of such shares; (c) whether the Options are Incentive Stock Options or
Nonqualified Stock Option; and (d) all of the other terms and conditions (which
need not be identical) of the Options; provided, however, that all such
determinations shall be subject to the express limitations of the Plan.
6.2 Purchase Price. The price at which shares of Common Stock may be
purchased upon exercise of an Option may be more than, less than or equal to the
Fair Market Value of the shares on the date the Option is granted; provided,
however, that the purchase price of each share of Common Stock under an
Incentive Stock Option shall be (a) at least 110% of the Fair Market Value of
such share on the date of grant of the Option, if it is granted to a 10%
Shareholder, and (b) at least 100% of the Fair Market Value of such share on the
date of grant of the Option, if it is granted to any other Eligible Person.
6.3 Limitations on Incentive Stock Options.
(a) Grants Only to Employees. Incentive Stock Options may only
be granted to Eligible Persons who are employees of the Company or an Affiliate
that constitutes a "parent corporation" or a "subsidiary corporation" within the
meaning of Section 424 of the Code.
(b) Limitation on Shares. The aggregate Fair Market Value of
the shares of Common Stock for which, during any calendar year, one or more
Incentive Stock Options under the Plan (and/or one or more options under any
other plan maintained by the Company or any of its Affiliates for the granting
of options intended to qualify under Section 422 of the Code) become exercisable
for the first time by a Holder shall not exceed $100,000 (said value to be
determined as of the respective dates on which the options are granted to the
Holder). If an Option that would otherwise qualify as an Incentive Stock Option
becomes exercisable for the first time in any calendar year for shares of Common
Stock that would cause such aggregate Fair Market Value to exceed $100,000, then
the portion of the Option in respect of such shares shall be deemed to be a
Nonqualified Stock Option.
6.4 Term of Options. Subject to the provisions of the Plan with respect
to termination of Options upon or following death, Disability or other
termination of Service, the Committee shall determine the term of each Option,
which term shall not be more than (a) five (5) years from the date of grant in
the case of an Incentive Stock Option granted to a 10% Shareholder, and (b) ten
(10) years from the date of grant in the case of any other Incentive Stock
Option.
6.5 Option Agreement. Each Option shall be evidenced by an agreement
(the "Option Agreement") containing the terms and conditions of the Option as
determined by the Committee. Each grantee of an Option shall be notified
promptly of the grant, an Option Agreement shall be executed and delivered by
the Company to the grantee within sixty (60) days after the date the Committee
approves the grant, and the Committee may terminate the grant if the Option
Agreement is not signed by the grantee and delivered to the Company within sixty
(60) days after it is delivered to the grantee. An Option Agreement may contain
(but shall not be required to contain) such terms and conditions as the
Committee determines to be necessary or appropriate to ensure that the penalty
provisions of Section 4999 of the Code will not apply to any stock received by
the Holder from the Company. An Option Agreement may be amended from time to
time pursuant to Section 7.6(c).
6.6 Exercise of Options.
(a) Time Exercisable. An Option shall become and remain
exercisable to the extent provided in its Option Agreement and in the Plan.
However, if an Option is granted prior to the date its Holder first performs
Service for the Company or any of its Affiliates, the Option shall not be
exercisable prior to the date the Holder first performs such Service. If an
Option is scheduled to become exercisable on one or more dates specified in its
Option Agreement, and its Holder has a leave of absence without pay, such date
or dates shall be postponed for a period equal to the duration of the leave
unless the Committee determines otherwise.
(b) Manner of Exercise. An Option shall be exercised by
written notice to the Company in compliance with the terms and conditions of its
Option Agreement and such procedures for exercise of Options as the Committee
may adopt from time to time. The method or methods of payment of the purchase
price of the shares to be purchased upon exercise of the Option and of any
amounts required by Section 7.8 shall be determined by the Committee and set
forth in the Option Agreement for the Option. Such method or methods may consist
of (i) check, (ii) promissory note, (iii) whole shares of Common Stock already
owned by the Holder, (iv) the withholding of shares of Common Stock issuable
upon exercise of the Option, (v) the delivery, together with a properly executed
exercise notice, of irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds required to pay the purchase
price, (vi) any combination of the foregoing methods of payment, or (vii) such
other consideration and method of payment as may be permitted for the issuance
of shares under applicable securities and other laws. The Committee may specify
a minimum number of shares of Common Stock for which an Option must be
exercised, but such minimum shall not prevent exercise of an Option for the full
number of shares for which it is exercisable.
(c) Value of Shares. Shares of Common Stock delivered in
payment of all or any part of the amounts payable upon exercise of an Option,
and shares of Common Stock withheld for such payment, shall be valued at their
Fair Market Value on the exercise date of the Option.
(d) Issuance of Shares. The Company shall issue the shares of
Common Stock purchased under an Option as soon as practicable after the Option
has been duly exercised; provided, however, that no fractional shares shall be
issuable under the Plan, and any fractional shares that would otherwise be
issuable shall be disregarded. Following exercise of an Incentive Stock Option,
the Committee shall cause the information statement required by Section 6039 of
the Code to be furnished to the Holder within the time and in the manner
prescribed by law.
6.7 Legends. Each certificate representing shares of Common Stock
issued upon exercise of an Option shall, unless the Committee otherwise
determines, contain on its face the notice "SEE TRANSFER RESTRICTIONS ON
REVERSE" and on its reverse a legend in form substantially as follows, together
with any other legends that are required by the provisions of the Plan or that
the Committee determines to be necessary or appropriate:
NOTICE: TRANSFER AND OTHER RESTRICTIONS
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, ENCUMBERED, OR OTHERWISE DISPOSED OF EXCEPT UPON
SATISFACTION OF CERTAIN CONDITIONS. INFORMATION CONCERNING
THESE RESTRICTIONS MAY BE OBTAINED FROM THE CORPORATION. ANY
OFFER OR DISPOSITION OF THESE SECURITIES WITHOUT SATISFACTION
OF SAID CONDITIONS WILL BE WRONGFUL AND WILL NOT ENTITLE THE
TRANSFEREE TO REGISTER OWNERSHIP OF THE SECURITIES WITH THE
CORPORATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
ALSO SUBJECT TO RESTRICTIONS ON TRANSFER, AND MAY BE SUBJECT
TO REPURCHASE BY THE CORPORATION OR ONE OR MORE OF ITS
SHAREHOLDERS, OR RIGHTS OF FIRST REFUSAL OR OTHER
RESTRICTIONS, PURSUANT TO THE PROVISIONS OF THE CORPORATION'S
1999 STOCK OPTION PLAN AND/OR AN AGREEMENT BETWEEN THE HOLDER
AND THE CORPORATION AND/OR AN AGREEMENT AMONG THE SHAREHOLDERS
OF THE CORPORATION. INFORMATION CONCERNING THESE RESTRICTIONS
MAY BE OBTAINED FROM THE CORPORATION.
The Company may cause the transfer agent for the Common Stock to place a stop
transfer order with respect to such shares.
6.8 Transferability. Except to the extent the Committee limits this
Section 6.8 at the time an Option is granted, the original Holder of the Option
may transfer the Option to any Permitted Transferee, so long as the transfer is
without value, and the Permitted Transferee may transfer the Option without
value to any other Permitted Transferee of the original Holder. Neither (a) a
transfer under a domestic relations order in settlement of marital property
rights, nor (b) a transfer to an entity in which more than fifty percent (50%)
of the voting interests are owned by Permitted Transferees (or the original
Holder) in exchange for an interest in that entity, will constitute a transfer
for value. Except as expressly permitted by this Section 6.8, an Option will not
be transferable by its Holder other than by will or by the laws of descent and
distribution, will not be involuntarily alienable by legal process or otherwise
by operation of law, and will be exercisable during the Holder's lifetime only
by the Holder. If the Holder of an Option dies prior to its full exercise, the
Option may be exercised, to the extent it does not thereby terminate, by the
person or persons to whom the rights of the holder under the Option pass by will
or by applicable laws of descent and distribution..
6.9 Market Stand-Off Agreement. By accepting an Option, the Holder
shall be deemed to have agreed that, for a period of one hundred eighty (180)
days after the effective date of any Registration Statement filed with the
Securities and Exchange Commission pursuant to the Securities Act in connection
with a firm commitment underwritten offering covering the offer and sale to the
public of Common Stock for the account of the Company, the Holder will not, if
the Holder is in the Service of the Company or any of its Affiliates on such
effective date and any managing underwriter in the offering so requests,
directly or indirectly (through any put, short sale, collar or other derivative
security or financial instrument) sell or offer to sell or otherwise dispose of
any shares of Common Stock, or any securities convertible into or exchangeable
for, or any rights to purchase or acquire, Common Stock owned by the Holder,
whether owned on such effective date or thereafter acquired, without the prior
written consent of each managing underwriter in the offering, which consent may
be withheld at the sole discretion of any managing underwriter.
6.10 Delegation to Executive Officer of Authority to Grant Options. The
Board may delegate to an Executive Officer the authority to determine from time
to time (a) the Eligible Persons to whom Options are to be granted; (b) the
number of shares of Common Stock for which the Options are exercisable and the
purchase price of such shares; (c) whether the Options are Incentive Stock
Options or Nonqualified Stock Options; and (d) all of the other terms and
conditions (which need not be identical) of the Options; provided, however, that
(i) the authority delegated to the Executive Officer under this Section 6.10
shall not exceed that of the Committee under the foregoing provisions of this
Article 6 and shall be subject to such limitations, in addition to those
specified in this Section 6.10, as may be specified by the Board at the time of
delegation; (ii) the Executive Officer may not be delegated authority under this
Section 6.10 to grant any Option to any person who is an Executive Officer or a
director of the Company at the time of the grant; (iii) the purchase price of
each share of Common Stock under an Option granted under this Section 6.10 shall
not be less than the Fair Market Value of such share on the date of grant of the
Option; and (iv) the Executive Officer shall promptly provide a report to the
Committee of each person to whom an Option has been granted under this Section
6.10 and the material terms and conditions of the Option.
Article 7
GENERAL PROVISIONS
The provisions of this Article 7 shall apply to all Options, except
to the extent that one or more Option Agreementsexpressly provide otherwise.
7.1 Termination of Service.
(a) General. If a Holder's Service terminates without Cause
prior to the full exercise of an Option, then the Option shall thereafter be
exercisable, to the extent the Holder was entitled to exercise the Option on the
date of such termination, for a period of three (3) months following such
termination (but not later than the end of the term of the Option); provided,
however, that, if the Holder's Service terminates by reason of death or
Disability, the Option shall be exercisable for a period of one (1) year
following such termination (but not later than the end of the term of the
Option). At the end of such period, the Option shall terminate.
(b) Termination for Cause. If a Holder's Service is terminated
for Cause, then all Options held by the Holder shall immediately terminate.
Following termination of a Holder's Service, if the Holder engages in any act
that would have constituted Cause if the Holder had remained in the Service of
the Company or any of its Affiliates, then the Committee shall be entitled to
terminate any Options held by the Holder.
(c) Miscellaneous. The Committee may determine whether a leave
of absence of a Holder constitutes a termination of the Holder's Service;
provided, however, that neither (i) a leave of absence, duly authorized in
writing by the Company or any of its Affiliates for military service or
sickness, or for any other purpose approved by the Company or any of its
Affiliates, if the period of the leave does not exceed ninety (90) days, nor
(ii) a leave of absence in excess of ninety (90) days, duly authorized in
writing by the Company or any of its Affiliates, provided the Holder's right to
return to Service with the Company or the Affiliate is guaranteed either by
statute or by contract, shall be deemed a termination of the Holder's Service.
An Option shall not be affected by any change in the Holder's Service so long as
the Holder continues to be in the Service of the Company or any of its
Affiliates. If a Holder is in the Service of an Affiliate of the Company that
ceases to be an Affiliate, such event shall, for purposes of any Option held by
the Holder, be deemed to constitute a termination of the Holder's Service for a
reason other than death or Disability.
7.2 Certain Events.
(a) Control Purchase. Effective upon a Control Purchase, if
the Holder of an Option is in the Service of the Company or any of its
Affiliates at that time, the Option shall automatically become exercisable for
all of the shares under the Option.
(b) Approved Transaction. The following provisions shall apply
if an Approved Transaction occurs:
(i) The Company shall provide each Holder with
notice of the pendency of the Approved Transaction at least fifteen (15) days
before the expected date of consummation thereof (the date on which the Approved
Transaction is consummated will be referred to as the "Transaction Date").
(ii) Effective immediately before the Transaction
Date, if the Holder of an Option is in the Service of the Company or any of its
Affiliates on the Transaction Date, the Option shall automatically become
exercisable for all of the shares under the Option.
(iii) Following notice of the Approved Transaction,
any exercise of an Option may be contingent upon consummation of the Approved
Transaction, if so elected by the Holder in the notice of exercise, and shall be
contingent upon such consummation with respect to any portion of the Option that
will only become exercisable immediately before the Transaction Date.
(iv) Subject to Section 7.2(b)(v), upon consummation
of the Approved Transaction, all Options shall terminate.
(v) If an Approved Transaction is an Equity-Based
Approved Transaction, then Section 7.2(b)(iv) shall not apply and the following
provisions shall apply instead:
(A) The Company shall, or shall cause
another party to the Approved Transaction to, either --
(1) make appropriate provision for
continuation of the Option, or for replacement of the Option with a new award on
terms that are, as nearly as practicable, the financial equivalent of the
Option, taking into account in either event any automatic acceleration of
exercisability provided for in Section 7.2(b)(ii) (the Option as so continued or
replaced shall be referred to as a "ContinuingOption"); or
(2) deliver to the Holder equity
securities of the Company or another party to the Approved Transaction (the
"Replacement Securities") having a value equal to the value of the Option on the
Transaction Date, taking into account any automatic acceleration of
exercisability provided for in Section 7.2(b)(ii).
(B) At the time the Holder is given
notice of the pendency of the Approved Transaction under Section 7.2(b)(i) or in
a separate notice given before the Transaction Date, the Committee shall inform
the Holder of the provision to be made for a Continuing Option or for delivery
of Replacement Securities. Effective automatically upon consummation of the
Approved Transaction and without any action by the Holder, the Option shall
represent the Continuing Option (if provision is made for a Continuing Option)
or terminate (if Replacement Securities are to be delivered).
7.3 Right to Terminate Service. Nothing contained in the Plan or in any
Option Agreement, and no action of the Company or the Committee with respect
thereto, shall confer on any Holder any right to continue in the Service of the
Company or any of its Affiliates or interfere in any way with the right of the
Company or any of its Affiliates, subject to the terms and conditions of any
agreement between the Holder and the Company or any of its Affiliates, to
terminate at any time, with or without Cause, the Service of the Holder.
7.4 Nonalienation of Benefits. Except as permitted pursuant to Section
6.8, no right or benefit under the Plan or any Option shall be (a) subject to
anticipation, alienation, sale, assignment, hypothecation, pledge, exchange,
transfer, encumbrance or charge (and any attempt to anticipate, alienate, sell,
assign, hypothecate, pledge, exchange, transfer, encumber or charge the same
shall be void); or (b) liable for or subject to the debts, contracts,
liabilities or torts of the person entitled to the right or benefit.
7.5 Shareholders Agreement. If requested by the Company, the Holder of
an Option shall be required, as a condition to issuance of the shares of Common
Stock that the Holder acquires upon exercise of the Option, to execute and
deliver to the Company a shareholders agreement in such form as may be required
by the Company at the time of such exercise, or a counterpart thereof, together
with, unless the Holder is unmarried, a spousal consent in the form required
thereby, unless the Holder has previously executed and delivered such documents
and they are in effect at the time of exercise and apply by their terms to the
shares to be issued.
7.6 Termination and Amendment.
(a) Termination. The Plan shall terminate on the tenth (10th)
anniversary of the Effective Date; provided, however, that the Board or the
Committee may terminate the Plan at any earlier time. No Options may be granted
following termination of the Plan, but the provisions of the Plan shall continue
in effect until all Options terminate or are exercised in full and all rights of
all persons with any interest in the Plan expire.
(b) Amendment of Plan. The Board or the Committee may from
time to time amend the Plan, whether before of after termination of the Plan, in
such respects as it shall deem advisable; provided, however, that any such
amendment (i) shall comply with all applicable laws and stock exchange listing
requirements, and (ii) with respect to Incentive Stock Options granted or to be
granted under the Plan, shall be subject to any approval by shareholders of the
Company required under the Code. No amendment of the Plan may adversely affect
the rights of the Holder of an Option in any material way unless the Holder
consents thereto.
(c) Amendment of Options. The Committee may amend the Option
Agreement for an Option in such respects as it shall deem advisable, including
but not limited to any amendment that would accelerate the time or times at
which the Option may be exercised or extend the scheduled termination date of
the Option; provided, however, that (i) no amendment may adversely affect the
rights of the Holder of the Option in any material way unless the Holder
consents thereto, and (ii) the Option Agreement, as amended, shall satisfy all
of the requirements of the Plan at the time of the amendment. Nothing in this
Section 7.6 shall prevent the Committee from adopting, amending or rescinding
rules, regulations and procedures pursuant to Section 3.3.
7.7 Government and Other Regulations.
(a) The obligation of the Company with respect to Options and
the issuance of Common Stock upon the exercise thereof shall be subject to all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including but not limited to the effectiveness of
any registration statement required under the Securities Act, and the rules and
regulations of any securities exchange or over-the-counter market on which the
Common Stock may be listed or quoted. The Company shall have no obligation to
register shares of Common Stock issuable upon exercise of Options under the
Securities Act or to register, qualify or list such shares under the laws of any
state or other jurisdiction or the rules of any securities exchange or
over-the-counter market.
(b) As long as the Common Stock is not registered under the
Exchange Act, the Company intends that all offers and sales of Options and
shares of Common Stock issuable upon exercise of Options shall be exempt from
registration under the provisions of Section 5 of the Securities Act, and the
Plan shall be administered in a manner so as to preserve such exemption. The
Company also intends that the Plan shall constitute a written compensatory
benefit plan, within the meaning of Rule 701(b) promulgated under the Securities
Act, and that each Option granted at a time when the Common Stock is not
registered under the Exchange Act shall, unless otherwise specified by the
Committee at the time the Option is granted or at any time thereafter, be
granted in reliance on the exemption from the registration requirements of
Section 5 of the Securities Act provided by Rule 701.
7.8 Withholding. By accepting an Option, the Holder shall be deemed to
have agreed to pay, or make arrangements satisfactory to the Committee for
payment to the Company of, all taxes required to be withheld by the Company in
connection with the exercise of the Option or any sale, transfer or other
disposition of any shares of Common Stock acquired upon exercise of the Option.
If the Holder shall fail to pay, or make arrangements satisfactory to the
Committee for the payment of, all such taxes, then the Company or any of its
Affiliates shall, to the extent not prohibited by law, have the right to deduct
from any payment of any kind otherwise due to the Holder an amount equal to any
taxes of any kind required to be withheld by the Company or any of its
Affiliates with respect to the Option.
7.9 Severability; Incentive Stock Option Provisions.
(a) If any provision of this Plan or any Option Agreement, on
its face or as applied to any person or circumstance, is or becomes
unenforceable to any extent, the remainder of this Plan or the Option Agreement,
as the case may be, and the application of the provision to any other person,
circumstance or extent, shall not be affected, and this Plan and the Option
Agreement shall continue in force.
(b) With respect to Incentive Stock Options, if the Plan does
not contain any provision required to be included herein under Section 422 of
the Code, such provision shall be deemed to be incorporated herein with the same
force and effect as if such provision had been set out in full herein; provided,
however, that to the extent any Option that is intended to qualify as an
Incentive Stock Option cannot so qualify, the Option, to that extent, shall be
deemed to be a Nonqualified Stock Option for all purposes of the Plan.
7.10 Plan Not Exclusive. Neither the adoption of the Plan by the Board
nor any submission of the Plan to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including but
not limited to the granting of stock options and the awarding of stock and cash
outside of the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
7.11 Exclusion from Pension and Profit-Sharing Computation. By
accepting an Option, the Holder shall be deemed to have agreed that the Option
is special incentive compensation that will not be taken into account, in any
manner, as salary, compensation or bonus in determining the amount of any
payment or other benefit under any pension, retirement or other employee benefit
plan, program or policy of the Company or any of its Affiliates.
7.12 No Shareholder Rights. No Holder or other person shall have any
voting or other shareholder rights with respect to shares of Common Stock under
an Option until the Option has been duly exercised, full payment of the purchase
price has been made, all conditions under the Option and the Plan to issuance of
the shares have been satisfied, and a certificate for the shares has been
issued. No adjustment shall be made for cash or other dividends or distributions
to shareholders for which the record date is before the date of such issuance.
7.13 Governing Law. The Plan and all Options shall be governed by, and
interpreted in accordance with, the laws of the State of Washington.
7.14 Company's Rights. The grant of Options shall not affect in any way
the right or power of the Company to make reclassifications, reorganizations or
other changes of or to its capital or business structure or to merge,
consolidate, liquidate, sell or otherwise dispose of all or any part of its
business or assets.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET DATED JUNE 30, 1999 AND THE STATEMENT OF OPERATIONS FOR THE THREE AND SIX
MONTH PERIODS ENDED JUNE 30, 1999 FOUND ON PAGES 3 AND 4 OF THE COMPANY'S 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRITY BY
REFERENCE TO THOSE FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000882692
<NAME> MIDISOFT CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> $
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 85 85
<SECURITIES> 0 0
<RECEIVABLES> 372 372
<ALLOWANCES> (252) (252)
<INVENTORY> 143 143
<CURRENT-ASSETS> 406 406
<PP&E> 1,015 1,015
<DEPRECIATION> (964) (964)
<TOTAL-ASSETS> 752 752
<CURRENT-LIABILITIES> 2,216 2,216
<BONDS> 0 0
0 0
0 0
<COMMON> 20,448 20,448
<OTHER-SE> (24,654) (24,654)
<TOTAL-LIABILITY-AND-EQUITY> 752 752
<SALES> 290 157
<TOTAL-REVENUES> 290 157
<CGS> 55 14
<TOTAL-COSTS> 1,288 627
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 448 196
<INCOME-PRETAX> (1,490) (674)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,490) (674)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,490) (674)
<EPS-BASIC> (0.21) (0.09)
<EPS-DILUTED> (0.21) (0.09)
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