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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended October 31, 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 0-22636
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DIAL-THRU INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2801677
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 JETSTAR DRIVE, SUITE 100 IRVING, TEXAS 75063
(Address of principal executive offices)
(Zip Code)
972-929-1920
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $0.001 Par Value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amount to this Form 10-K or any amount to this Form 10-K. [_]
As of January 14, 2000, 7,881,004 shares of Common Stock were outstanding.
The aggregate market value of the 5,498,906 shares of Common Stock held by
nonaffiliates of Dial-Thru International Corporation, formerly known as ARDIS
Telecom & Technologies, Inc., as of such date approximated $18,902,500 using
the beneficial ownership rules as adopted pursuant to Section 13 of the
Securities Exchange Act of 1934 to exclude stock that may be beneficially owned
by directors, executive officers or ten percent stockholders, some of whom
might not be held to be affiliates upon judicial determination.
DOCUMENT INCORPORATED BY REFERENCE
Part III of this Annual Report incorporates by reference information in the
Proxy Statement for the Annual Meeting of Stockholders, Dial-Thru International
Corporation formerly known as ARDIS Telecom & Technologies, Inc., to be filed
with Securities and Exchange Commission on or before February 29, 2000.
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FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
Annual Report on Form 10-K include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements are statements other
than historical information or statements of current condition. Some forward-
looking statements may be identified by the use of such terms as "expects,"
"will," "anticipates," "estimates," "believes," "plans" and words of similar
meaning. These forward-looking statements relate to business plans, programs,
trends, results of future operations, satisfaction of future cash requirements,
funding of future growth, acquisition plans and other matters. In light of the
risks and uncertainties inherent in all such projected matters, the inclusion
of forward-looking statements in this Form 10-K 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 or that operating expectations will be
realized. Revenues and results of operations are difficult to forecast and
could differ materially from those projected in forward-looking statements
contained herein, including without limitation statements regarding the
Company's belief of the sufficiency of capital resources and its ability to
compete in the telecommunications industry. Actual results could differ from
those projected in any forward-looking statements for, among others, the
following reasons: (a) increased competition from existing and new competitors
providing prepaid phone card services or using voice over Internet protocol
("VoIP") to provide telecommunications services over the Internet, (b) the
relatively low barriers to entry for start-up prepaid operators and companies
using VoIP to provide telecommunications services over the Internet, (c) the
price-sensitive nature of consumer demand, (d) the relative lack of customer
loyalty to any particular prepaid card company or provider of services over the
Internet, (e) the Company's dependence upon favorable pricing from its
suppliers to compete in the prepaid phone card industry, (f) increased
consolidation in the telecommunications industry, which may result in larger
competitors being able to compete more effectively, (g) the failure to attract
or retain key employees, (h) continuing changes in governmental regulations
affecting the telecommunications industry and the Internet and (i) changing
consumer demand ,technological developments and industry standards that
characterize the industry. The Company does not undertake to update any
forward-looking statements contained herein. For a discussion of these factors
and others, please see "Certain Business Factors" in Item 1 of this Annual
Report on Form 10-K. Readers are cautioned not to place undue reliance on the
forward-looking statements made in, or incorporated by reference into, this
Annual Report on Form 10-K or in any document or statement referring to this
Annual Report on Form 10-K.
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PART I
Item 1. Business
THE COMPANY
Throughout this Annual Report, the term "Company" refers to Dial-Thru
International Corporation, a Delaware corporation formerly known as ARDIS
Telecom & Technologies, Inc., successor by merger to Canmax Inc. The Company
was incorporated on July 10, 1986 under Company Act of the Province of British
Columbia, Canada. On August 7, 1992, the Company renounced its original
province of incorporation and elected to continue its domicile under the laws
of the State of Wyoming, and on November 30, 1994 its name was changed to
"Canmax Inc." The Company was listed on the Nasdaq SmallCap Market tier of The
Nasdaq Stock Market from February 10, 1994 through June 8, 1998. On February 1,
1999, the Company consummated a merger into a wholly owned subsidiary to effect
the reincorporation of the Company under the laws of the State of Delaware
under the name "ARDIS Telecom & Technologies, Inc." On November 2, 1999, the
Company acquired substantially all of the business and assets of Dial-Thru
International Corporation, a California corporation, along with the rights to
the name "Dial-Thru International Corporation." On January 19, 2000, the
Company changed its name from ARDIS Telecom & Technologies, Inc. to "Dial-Thru
International Corporation." The Company's common stock currently trades on the
OTC Bulletin Board, under the symbol "DTIX."
Prior to December 7, 1998, the Company operated in both the software and
telecommunications industries. On December 7, 1998, the Company sold its retail
automation software business (the "Software Business") to Affiliated Computer
Services, Inc. ("ACS"). Therefore, the Company no longer engages in the
Software Business, and is now operating only in the telecommunications industry
(the "Telecommunications Business"). During fiscal 1999, the Software Business
accounted for approximately 35% of the Company's revenues (approximately $1.7
million) and 17% of the Company's cost and expenses (approximately $1.5
million). In fiscal 1999, the Company recorded income from the Software
Business of $218,000 and a gain on the sale of the Software Business of $5.3
million. During the fiscal year ended October 31, 1998, the Software Business
accounted for 81% of the Company's revenues (approximately $9.38 million), 72%
of the Company's costs and expenses (approximately $9.48 million) and 4% of the
Company's losses (approximately $103,000). The Software Business accounted for
all of the Company's revenues, costs and expenses and earnings for all fiscal
years through and including October 31, 1997.
The Company's principal executive offices are located at 8100 Jetstar Drive,
Suite 100, Irving, Texas 75063, and its telephone number is (972) 929-1920.
Telecommunications Business
General
In the latter part of fiscal 1996, the Company decided that it needed to
expand its business operations beyond the single vertical market and one large
customer that dominated its Software Business. After evaluating a number of
alternative strategies, the Company decided that the rapidly expanding
telecommunications market presented an opportunity to utilize some of the
technology and support capabilities that it had developed through its Software
Business. The Company chose to make its entry into the telecommunications
industry via the pre-paid long distance market.
On January 30, 1998, the Company acquired USCommunication Services, Inc.
("USC") in a private stock transaction. USC provided a number of
telecommunication and internet products and services, including prepaid phone
cards, public internet access kiosks, and pay telephones. USC primarily
marketed its products and services to individuals and businesses in the
transportation industry through national and regional truckstops and trucking
fleets. USC's products were sold at selected locations throughout the U.S.,
such as
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locations operated by Pilot Travel Centers, Petro Stopping Centers and All
American Travel Centers. USC also marketed its services directly through
prepaid phone card recharge sales. The Company concluded its acquisition of USC
believing that it would provide the Company with access to the
telecommunications market. Certain capabilities of USC, along with distribution
channels, failed to meet the expectations of the Company. On June 15, 1998, the
Company executed an agreement with the former principals of USC to rescind the
USC acquisition effective May 27, 1998.
During its experience with USC, the Company decided to develop its in-house
capabilities to expand its telecommunications operations. The Company chose to
make its entry into the telecommunications industry via the prepaid phone card
market. The prepaid phone card industry has grown significantly in recent years
and industry estimates project revenue growth from prepaid phone cards in the
United States from an estimated $1.5 billion in 1997 to in excess of $5 billion
shortly after the year 2000. In August of 1998, the Company entered into an
agreement (the "PT-1 Agreement") with PT-1 Communications, Inc. ("PT-1") to
acquire long distance telecommunications and debit services for use in the
Company's marketing and distribution of domestic and international prepaid
phone cards. The Company purchased services from PT-1 until mid-1999 when it
launched its facilities-based telecommunication operations. The Company
presently conducts its domestic prepaid phone card business through RDST, Inc.,
a wholly owned subsidiary. In the second quarter of fiscal 1999, the Company
purchased telecommunications switching equipment and an enhanced services
platform. Following a period of development, implementation and testing, the
Company commenced operations as a facilities-based carrier in the fourth
quarter of 1999. Calls made with the Company's prepaid phone cards are now
routed through the Company's switching facilities, enabling the Company to
compete more effectively on rates to targeted areas and in product offerings to
its customers.
On November 2, 1999, the Company acquired the assets and business of Dial-
Thru International Corporation, an international facilities-based carrier. The
Company operates the acquired business through its operating subsidiary, Dial-
Thru.com.
The Company expects to combine the domestic phone card operations of RDST,
Inc. and the international operations of Dial-Thru.com to create its "Bookend
Strategy" to allow it to effectively compete in the international
telecommunications market. See "Business Strategy" below. Dial-Thru.com is a
provider of a variety of international telecommunications services including
international dial-thru, re-origination and Internet fax services. Dial-
Thru.com utilizes packetized voice technology and compression techniques, such
as Voice over Internet Protocol (VoIP), to improve both the cost and quality of
telecommunications transmissions. The Company believes that, after achieving a
market presence, it will be a strong competitor in the telecommunications
industry.
Regulatory Environment
Domestic Prepaid Phone Card Services. Businesses offering prepaid phone
cards are subject to federal and state governmental regulations applicable to
providers of long distance telephone services. At the federal level, the
industry is regulated by the Federal Communications Commission (the "FCC"),
while at the state level, telecommunication service providers are subject to
regulation by various state agencies. Federal regulations require that long
distance telephone service providers maintain both domestic interstate and
international tariffs that contain the then effective rates, terms and
conditions of service. Intrastate long distance telecommunication service
providers are also subject to various state regulations, which typically
require prior state certification, notification and/or registration and tariff
approval. Generally, companies offering such services must obtain and maintain
certificates of public convenience and necessity from state regulatory
authorities in each state in which they offer service, and file tariffs and
obtain tariff approval prior to providing intrastate telecommunication
services. The Company has obtained the necessary state and federal regulatory
approvals for operating its debit platform and switching facilities in the
United States.
Regulation of Internet Telephony and the Internet. The use of the Internet
to provide telephone service is a recent market development. Currently, the FCC
is considering whether to impose surcharges or additional
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regulations upon certain providers of Internet telephony. On April 10, 1998,
the FCC issued its report to Congress concerning the implementation of the
universal service provisions of the Telecommunications Act. In the report, the
FCC indicated that it would examine the question of whether certain forms of
phone-to-phone Internet telephony are information services or
telecommunications services. The FCC noted that it did not have, as of the date
of the report, an adequate record on which to make a definitive pronouncement,
but that the record suggested that certain forms of phone-to-phone Internet
telephony appear to have the same functionality as non-Internet
telecommunications services and lack the characteristics that would render them
information services. If the FCC were to determine that certain services are
subject to FCC regulation as telecommunications services, the FCC may require
providers of Internet telephony services to make universal service fund
contributions, pay access charges or be subject to traditional common carrier
regulation. It is also possible that PC-to-phone and phone-to-phone services
may be regulated by the FCC differently. In addition, the FCC sets the access
charges on traditional telephony traffic and if it reduces these access
charges, the cost of traditional long distance telephone calls will probably be
lowered, thereby decreasing the Company's competitive pricing advantage.
Changes in the legal and regulatory environment relating to the Internet
connectivity market, including regulatory changes which affect
telecommunications costs or that may increase the likelihood of competition
from the regional Bell operating companies or other telecommunications
companies, could increase the Company's costs of providing service. For
example, the FCC recently has determined that subscriber calls to Internet
service providers should be classified for jurisdictional purposes as
interstate calls. This determination could affect a telephone carrier's cost
for provision of service to these providers by eliminating the payment of
reciprocal compensation to carriers terminating calls to these providers. The
FCC has pending a proceeding to encourage the development of cost-based
compensation mechanisms for the termination of calls to Internet service
providers. Meanwhile, state agencies will determine whether carriers receive
reciprocal compensation for these calls. If new compensation mechanisms
increase the costs to carriers of terminating calls to Internet service
providers or if states eliminate reciprocal compensation payments, the affected
carriers could increase the price of service to Internet service providers to
compensate, which could raise the cost of Internet access to consumers.
In addition, although the FCC to date has determined that providers of
Internet services should not be required to pay interstate access charges, this
decision may be reconsidered in the future. This decision could occur if the
FCC determines that the services provided are basic interstate
telecommunications services and no longer subject to the exemption from access
charges that are currently enjoyed by providers of enhanced services. Access
charges are assessed by local telephone companies to long-distance companies
for the use of the local telephone network to originate and terminate long-
distance calls, generally on a per minute basis. The FCC has stated publicly
that it would be inclined to hold the provision of phone-to-phone Internet
protocol telephony to be a basic telecommunications service and therefore
subject to access charges and universal service contribution requirements. In a
Notice of Inquiry released September 29, 1999, the FCC again asked for comments
on the regulatory status of Internet telephony. Specifically, the FCC asked for
comments to address whether Internet telephony service generally, and phone-to-
phone service in particular, may be regulated as a basic telecommunications
service. If the FCC concludes that any or all Internet telephony should be
regulated as basic communications service, it eventually could require Internet
telephony providers to contribute to universal service funds and pay access
charges to local telephone companies. The imposition of access charges or
universal service contributions would substantially increase the Company's
costs of serving dial-up customers.
To the Company's knowledge, there are currently no domestic and few foreign
laws or regulations that prohibit voice communications over the Internet. State
public utility commissions may retain jurisdiction to regulate the provision of
intrastate Internet telephony services. A number of countries that currently
prohibit competition in the provision of voice telephony have also prohibited
Internet telephony. Other countries permit but regulate Internet telephony. If
Congress, the FCC, state regulatory agencies of foreign governments begin to
regulate Internet telephony, such regulation may materially adversely affect
the Company's business, financial condition or results of operations.
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In addition, access to the Company's services may also be limited in foreign
countries where laws and regulations otherwise do not prohibit voice
communication over the Internet. The Company has negotiated agreements to
provide its services in various countries. No assurances can be given that the
Company will continue to be successful in these negotiations.
Congress has recently adopted legislation that regulates certain aspects of
the Internet, including on-line content, user privacy and taxation. For
example, the Internet Tax Freedom Act prohibits certain taxes on Internet uses
through October 21, 2001. The Company cannot predict whether substantial new
taxes will be imposed on its services after that date. In addition, Congress
and other federal entities are considering other legislative and regulatory
proposals that would further regulate the Internet. Congress is, for example,
currently considering legislation on a wide range of issues including Internet
spamming, database privacy, gambling, pornography and child protection,
Internet fraud, privacy and digital signatures. Various states have adopted and
are considering Internet-related legislation. Increased United States
regulation of the Internet may slow its growth, particularly if other
governments follow suit, which may negatively impact the cost of doing business
over the Internet and materially adversely affect the Company's business,
financial condition, results of operations and future prospects.
The European Union has also enacted several directives relating to the
Internet. The European Union has, for example, adopted a directive on data
protection that imposes restrictions on the processing of personal data which
are more restrictive than current United States privacy standards. Under the
directive, personal data may not be collected, processed or transferred outside
the European Union unless certain specified conditions are met. In addition,
persons whose personal data is processed within the European Union are
guaranteed a number of rights, including the right to access and obtain
information about their data, the right to have inaccurate data rectified, the
right to object to the processing of their data for direct marketing purposes
and in certain other circumstances, and rights of legal recourse in the event
of unlawful processing. The directive will affect all companies that process
personal data in, or receive personal data processed in, the European Union,
and may affect companies that collect or transmit information over the Internet
from individuals in the European Union Member States. In particular, companies
with establishments in the European Union may not be permitted to transfer
personal data to countries that do not maintain adequate levels of data
protection.
In addition, the European Union has adopted a separate, complementary
directive which pertains to privacy and the processing of personal data in the
telecommunications sector. This directive establishes certain requirements with
respect to, among other things, the processing and retention of subscriber
traffic and billing data, subscriber rights to non-itemized bills, and the
presentation and restriction of calling and connected line identification. In
addition, a number of European countries outside the European Union have
adopted, or are in the process of adopting, rules similar to those set forth in
the European Union directives. Although the Company does not engage in the
collection of data for purposes other than routing calls and billing for its
services, the data protection directives are quite broad and the European Union
Privacy standards are stringent. Accordingly, the potential effect of these
data protection rules on the development of the Company's business is
uncertain.
Software Business--Discontinued Operations
Prior to December 7, 1998, the Company, through its wholly owned subsidiary
Canmax Retail Systems, Inc., developed and provided enterprise wide technology
solutions to the convenience store and retail petroleum industries. On December
7, 1998, the Company sold its Software Business to Affiliated Computer
Services, Inc. ("ACS") for an initial payment of $4.0 million and contingent
payments of up to $3.625 million. During the fiscal year ended October 31,
1999, the Company received the full amount of the $3.625 million of contingent
payments from ACS. As of October 31, 1998, the Company's Software Business
products had been installed in over 5,900 locations. The Company's primary
customers of the Software Business included The Southland Corporation
("Southland"), ARCO and the Army and Air Force Exchange.
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BUSINESS STRATEGY
The Company's core business operations are in the telecommunications
industry, and are concentrated on the marketing of long distance services. The
Company has coined the term "Bookend Strategy" to describe its primary focus,
which is to establish private line circuits utilizing Voice over Internet
Protocol (VoIP) and other digitized voice technologies between selected foreign
countries and the United States, and to provide a variety of telecommunications
services (including worldwide long distance calling with both foreign and U.S.
origination) over these private circuits targeted at retail markets in the
foreign countries and corresponding ethnic segments of the domestic market in
the United States. The Company's "Bookend Strategy" calls for filling these
circuits with wholesale traffic as quickly as possible to grow top line
revenues while retail markets are being developed. Developing the retail
markets allows the Company to improve margins from the operation of its private
IP network while establishing a more stable customer base. Retail products for
foreign origination are primarily dial around products that include
international dial-thru, re-origination, fax over the Internet, and other
services targeted at small and medium sized businesses. Retail products for
domestic origination are initially prepaid phone cards targeted at residential
customers in the ethnic segments of the United States, with particular focus on
those that correspond to foreign markets where the Company operates its direct
routes. The Company expects to add additional telecommunications products to
expand both its US and foreign markets. These products may include services
such as 10 10 XXX, 1+ services and other dial-around services targeted at small
to medium size businesses in the U.S., and prepaid products, such as phone
cards, targeted at residential customers in foreign markets. The primary
objectives of the Company are to develop a strong IP Telephony network, to
quickly grow its top line revenues and fully utilize capacity by selling into
the wholesale market, and to develop foreign and domestic retail markets to
maximize margins and customer retention. The Company also plans to expand
services in both foreign and domestic markets to include additional IP
Telephony and Internet products.
A key part of the "Bookend Strategy" is the establishment of direct routes
for telecommunications traffic to and from a target country. Once the Company
determines that a candidate country presents suitable retail revenue
opportunities, it then selects the best manner to establish dedicated
connectivity between the United States and that country. Typically, the Company
establishes dedicated connectivity by putting into place International Private
Leased Circuits (IPLC). The Company must apply the appropriate technology to
effectively and efficiently utilize the IPLC lines. The Company has chosen VoIP
as the technology to merge its voice and data traffic to fully utilize all
circuits to maximize returns.
The explosive growth of the Internet has accelerated the rapid merger of the
worlds of voice-based and data-based communications. By first digitizing voice
signals, then utilizing the same packetizing technology that makes the Internet
possible (Internet Protocol or IP), IP Telephony was born. IP Telephony not
only provides for a cost effective manner in which to perform the signal
compression needed to maximize the return from the use of the IPLC lines, but
in certain cases allows for the use of public Internet circuits. In this way,
not only has efficiency of the dedicated circuits been improved, but also
signaling and communications can be accomplished utilizing the public Internet.
The Company currently operates two separate telecommunications switching
facilities, both located in Los Angeles, California, providing long distance
and value added services worldwide. The development of the private IP Telephony
network and the use of VoIP technology is expected to improve both cost and
quality of telecommunications services, as well as facilitate the Company's
expansion into other Internet related opportunities.
The Company also continues to review an acquisition strategy within its
current industries and other related markets. Any material acquisitions may
result in significant changes in the Company's business.
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PRODUCTS AND SERVICES
Telecommunications Businesses
During the year ended October 31, 1999, the Company's revenues from
continuing operations were derived from the sale of prepaid phone cards. In
fiscal 1999, the Company also developed its VIP Card(TM). The remaining
products and services below are primarily associated with business operations
acquired by the Company on November 2, 1999, and therefore the products and
services did not contribute to the Company's revenues or expenses for the year
ended October 31, 1999.
Prepaid Phone Cards
The Company provides convenient, cost-effective telecommunications products
and services to individuals and businesses through its prepaid phone card (the
"RDST Card"). The RDST Card provides customers with a single point of access to
prepaid telecommunications services at a fixed rate charge per minute
regardless of the time of day or, in the case of domestic calls, the distance
of the call. The Company's services currently include domestic calling,
outbound international long distance calling, as well as enhanced features such
as customized greetings and sequential calling. The RDST Card enables consumers
to place local, long distance and international calls from virtually any touch-
tone phone, without the need of coins, operator assistance, collect or other
third party billing processes. Consumers may access the services of the RDST
Card by dialing a toll-free number and entering a personal identification
number (PIN) printed on the back of the card. A voice prompt guides users
through the card's features and, at the beginning of each call, announces the
balance remaining on a card. Time spent on a call or using the card's enhanced
features is automatically deducted from the balance remaining on the card.
Users are reminded when one minute remains on the card. Cards expire upon the
earlier of six months after the date of first use or the expiration date
printed on the card. The Company provides all technical and customer support
for the RDST Card. Whenever possible, all international calls will be routed
over the Company's private network.
Dial-Thru and Re-origination Services
The Company, through its subsidiary Dial-Thru.com, provides international
dial-thru and re-origination services. Generally, these services are provided
to foreign customers that establish deposits with the Company to be used for
long-distance calling. By using the Company's dial-thru or re-origination
services, a caller outside of the United States can place a long distance
telephone call that appears to have originated from the customers phone or PBX,
but actually originates from the Company's switch in Los Angeles, which is
connected through the Company's network to anywhere in the world. By completing
the calls in this manner, the Company is able to provide very competitive rates
to the customer in the foreign market. Wherever possible, the Company routes
calls over its private network. By using VoIP and other technologies to merge
voice and data transmissions across its international private lines and public
Internet circuits, the Company can offer its voice and data services at costs
that are substantially less than traditional communications services with
comparable quality.
PowerCallTM
PowerCallTM is a web-based e-commerce service that uses Internet signaling
to notify a business of a customer's interest, and initiates a call to the
customer from the business while the customer continues accessing the
businesses' website. This service provides the merchant with a PowerCallTM icon
on its website that allows a customer to type their telephone number in the
PowerCallTM box and then click on the icon. This prompts a call from the
merchant to the customer's telephone number, and allows a customer to talk to
the merchant's representative while continuing to view the website. This
service is much more convenient for the customer than using toll-free access
lines which typically require various prompts through voice activated menus.
Also, for access by customers around the world, a long list of toll-free access
numbers would be required. PowerCallTM services, including the associated long
distance calls, are paid for by the merchant, and target markets are focused
where the Company's private network can be utilized. The PowerCallTM product
has been developed and tested by the Company, and plans are underway for the
first customer implementation.
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PC-to-Phone
The Company's PC-to-Phone services allow a user to place a call from a
personal computer to another party who uses a standard telephone. To utilize
this service, the customer's personal computer must be equipped with a sound
card, speakers and a microphone. The call is originated over the public
Internet and terminated over the public switched telephone network to the
receiving party's phone.
FaxThruTM
FaxThruTM and fax store-and-forward services allow the Company to provide
fax services over the public Internet at significant savings to the customer.
These products function exactly like traditional fax services, but utilize the
Internet to avoid long distance charges.
Global Roaming
The Company's Global Roaming service allows customers to use a single
account number to initiate phone-to-phone calls from locations throughout the
world using specific toll-free access numbers. This service enables customers
to receive the cost benefits associated with the Company's telecommunications
network while traveling throughout the world.
NetborneTM
The Company's NetBorneTM product allows a customer to dial a toll free
number to access calling services in a foreign country. Upon entering a
personal identification number assigned to each customer, the Dial-Thru.com
telecommunications switch (in Los Angeles) receives a signal across the
Internet indicating that the customer wishes to initiate a call. The switch
then originates a call to the server in the foreign country which connects to
the phone from which the customer is calling and allows the customer to then
place a call across the Company's network to anywhere in the world. From the
customer's perspective, the use of the card is identical to that of a prepaid
phone card; however, the use of re-origination services provides the customer
with lower rates than are normally available in the foreign country. The
NetBorneTM product is currently in being test marketed in a foreign country.
VIP CardTM
The Company's Virtual Inventory Prepaid or VIP CardTM is a product that is
in the final stages of testing and may revolutionize the way in which prepaid
phone cards are ordered and distributed throughout the United States. The
system utilizes a proprietary terminal at the retail outlet which stores all of
the information necessary to print phone cards at the point of purchase. The
information necessary to activate the card is electronically downloaded to the
terminal, based upon the product mix that the merchant wishes to offer to its
clientele. On a periodic basis (usually weekly), the host computer polls the
terminal at the store to terminate the sales for that period. Once the amount
of sales has been determined, the "virtual inventory" is replenished and the
payment for the sold inventory is withdrawn from the merchant's checking
account using an Automated Clearing House (ACH) electronic funds transfer. If
the sales exceed the projected sales by the merchant, the terminal is
programmed to dial the host and initiate the replenishment/settlement
transaction before the end of the scheduled period. This system "virtually"
eliminates the counting of inventory, placing of replenishment orders,
packaging and shipping of products, freight and insurance costs associated with
transport, invoicing and payment by check and significantly reduces the risk of
theft. The Company expects to launch its VIP Card(TM) in the second fiscal
quarter of 2000.
Software Business--Discontinued Operations
Prior to the Software Business sale, the Company's primary product offering
consisted of its C-Serve software, a comprehensive site-based store automation
software solution, and its Vista software, a headquarters-
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based management system. The products and services of the Software Business
enabled retailers and operators to interact electronically with customers,
capture data at the point of sale, manage site operations and logistics and
communicate electronically with their sites, vendors and credit/debit networks.
The products and services of the Software Business also included (a) software
development, customization and enhancements, (b) systems integration,
installation and training services, and (c) 24 hour a day, 365 day per year
help desk services.
SUPPLIERS
The Company's principal suppliers consist of domestic and international
telecommunications carriers. Relationships currently exist with a number of
reliable carriers. Due to the highly competitive nature of the
telecommunications business, the Company believes that the loss of any carrier
would not have a material adverse effect on the Company's business, financial
condition or results of operation.
CUSTOMERS
During fiscal 1999, the Company established regional sales offices in key
locations where it had previously relied upon independent distributors to
supply its products to the market. By doing so, the Company established direct
sales relationships at the dealer level, resulting in less dependence on
concentrated sales to independent distributors. The Company has also
established acceptance of its products at the consumer level, reducing reliance
on any segment of the distribution chain. Consequently, the Company does not
believe that the loss of any individual customer would have a material adverse
effect on the Company's business, financial condition or results of operations.
COMPETITION
The telecommunications services industry is highly competitive, rapidly
evolving and subject to constant technological change. Currently, numerous
companies sell prepaid phone cards, and the Company expects competition to
increase in the future. Other providers currently offer one or more of each of
the services offered by the Company. Telecommunication service companies
compete for consumers based on price, with the dominant providers conducting
extensive advertising campaigns to capture market share. As a service provider
in the long distance telecommunications industry, the Company competes with
such dominant providers as AT&T Corp. ("AT&T"), MCI WorldCom Inc. ("WorldCom"),
and Sprint Corporation ("Sprint"), all of which are substantially larger than
the Company and have (i) greater financial, technical, engineering, personnel
and marketing resources; (ii) longer operating histories; (iii) greater name
recognition; and (iv) larger consumer bases than the Company. These advantages
afford the Company's competitors the ability to (a) offer greater pricing
flexibility, (b) offer more attractive incentive packages to encourage
retailers to carry competitive products, (c) negotiate more favorable
distribution contracts with retailers and (d) negotiate more favorable
contracts with suppliers of telecommunication services. The Company also
competes with other smaller, emerging carriers in both the prepaid long
distance card retail and wholesale markets, including IDT and RSL
Communications. The Company believes that additional competitors will be
attracted to the prepaid phone card market, including internet-based service
providers and other telecommunications companies. The Company also believes
that existing competitors are likely to continue to expand their service
offerings to appeal to retailers and consumers.
The ability of the Company to compete effectively in the prepaid
telecommunications services industry will depend upon the Company's ability to
(i) continue to provide high quality services at prices generally competitive
with, or lower than, those charged by its competitors and (ii) develop new
innovative products and services. There can be no assurance that competition
from existing or new competitors or a decrease in the rates charged for
telecommunications services by major long distance carriers or other
competitors will not have a material adverse effect on Company's business,
financial condition and results of operations, or that Company will be able to
compete successfully in the future.
9
<PAGE>
The market for international voice and fax call completion services is
highly competitive. The Company competes both in the market for enhanced
Internet Protocol ("IP") communication services and the market for carrier
transmission services. Each of these markets is highly competitive, and the
Company faces competition from a variety of sources. According to International
Data Corporation ("IDC"), a market research firm, there were an estimated 300
IP telephony service providers worldwide in mid-1999. The Company faces
competition from a variety of sources, including large communication service
providers with greater resources, longer operating histories and more
established positions in the telecommunications marketplace than the Company,
some of which have commenced developing Internet telephony capabilities. Most
of the Company's competitors are larger than the Company, although the Company
also competes with small companies that focus primarily on Internet telephony.
The Company believes that the primary competitive factors in the Internet and
IP communications business are quality of service, price, convenience and
bandwidth. The Company believes that the ability to offer enhanced service
capabilities, including new services, will become an increasingly important
competitive factor in the near future.
Future competition could come from a variety of companies both in the
Internet and telecommunications industries. The Company also competes in the
growing markets of providing re-origination services, dial-thru services, dial-
around, 10 10 XXX calling and other calling services. In addition, some
Internet service providers have begun enhancing their real-time interactive
communications and, although these companies have initially focused on instant
messaging, the Company expects them to provide PC-to-phone services in the
future.
Internet Telephone Service Providers
A number of companies have started Internet telephony operations in the past
few years. AT&T Clearing House, GRIC Communication and IXC Communications sell
international voice and fax over the Internet and compete directly with the
Company. Other Internet telephony companies, such as Net2Phone, deltathree.com,
Jens Corporation, JFAX.com, GlobalNet, Poptel and PhoneFree.com also provide
Internet telephony services and compete or may in the future compete with the
Company.
Traditional Telecommunications Carriers
A substantial majority of the telecommunications traffic around the world is
carried by dominate carriers in each market. These carriers, such as British
Telecom and Deutsch Telekom, have started to deploy packet-switch networks for
voice and fax traffic. In addition, other industry leaders, such as AT&T, MCI
Worldcom and Qwest Communications International have recently announced their
intention to offer Internet telephony services both in the United States and
internationally. All of these competitors are significantly larger than the
Company and have substantially greater financial, technical and market
resources; larger networks; a broader portfolio of services, better name
recognition and customer loyalties; an established customer base; and an
existing user base to cross-sell their services. These and other competitors
may be able to bundle services and products that are not offered by the
Company, together with Internet telephony services, to gain a competitive
advantage on the Company in the marketing and distribution of products and
services.
CERTAIN BUSINESS FACTORS
Limited Operating History; Net Losses
The Company commenced its Telecommunications Business in early 1998. For the
years ended October 31, 1999 and 1998, the Company recorded net losses from
continuing operations of approximately $3.8 million and $2.6 million,
respectively, on revenues from continuing operations of approximately
$3.1 million and $2.2 million, respectively. The losses in fiscal 1999 were
primarily attributable to the startup costs associated with establishing the
Company's facilities-based operations, marketing costs associated with
establishing the Company's distribution channels, and research and development
costs associated with development of the Company's VIP Card(TM) product. The
losses in fiscal 1998 were primarily attributable to the
10
<PAGE>
Company's unsuccessful acquisition of USC and a one-time charge of
approximately $1.2 million incurred in connection with the disposition of USC.
As the Company continues to substantially increase its distribution network and
customer base, and develops its private IP telephony network, it may continue
to experience losses.
Competition
The market for the Company's products and services is highly competitive.
The Company faces competition from multiple sources, many of which have greater
financial resources and a substantial presence in the Company's markets and
offer products or services similar to the services of the Company. Therefore,
the Company may not be able to successfully compete in its markets, which could
result in a failure to implement the Company's business strategy adversely
affect the Company's ability to attract and retain new customers. In addition,
competition within the industries in which the Company operates is
characterized by, among other factors, price and ability to offer enhanced
service capabilities. Significant price competition would reduce the margins
realized by the Company in its telecommunications operations and could have a
material adverse effect on the Company. In addition, many competitors have
greater financial resources to devote to research, development and marketing,
and may be able to respond more quickly to new or emerging technologies and
changes in customer requirements. If the Company is unable to provide cutting-
edge technology and value-added Internet products and services, the Company
will be unable to compete in certain segments of the market, which could have a
material adverse effect on its business, results of operation and financial
condition.
Governmental Regulation
The legal and regulatory environment pertaining to the Internet is uncertain
and changing rapidly as the use of the Internet increases. For example, in the
United States, the FCC is considering whether to impose surcharges or
additional regulations upon certain providers of Internet telephony.
In addition, the regulatory treatment of Internet telephony outside of the
United States varies from country to country. There can be no assurance that
there will not be interruptions in Internet telephony in these and other
foreign countries. Interruptions or restrictions on the provision of Internet
telephony in foreign countries may adversely affect the Company's ability to
continue to offer services in those countries, resulting in a loss of customers
and revenues.
New regulations could increase the cost of doing business over the Internet
or restrict or prohibit the delivery of the Company's product or service using
the Internet. In addition to new regulations being adopted, existing laws may
be applied to the Internet (see "Business--Governmental Regulation.") Newly
existing laws may cover issues that include sales and other taxes; access
charges; user privacy; pricing controls; characteristics and quality of
products and services; consumer protection; contributions to the Universal
Service Fund, an FCC-administered fund for the support of local telephone
service in rural and high-cost areas; cross-border commerce; copyright,
trademark and patent infringement; and other claims based on the nature and
content of Internet materials.
Future Capital Needs
To fully implement its business plan, the Company will need to raise
additional funds within the next twelve months for capital expenditures and
working capital. Because of the Company's limited operating history and the
nature of the Internet industry, the Company's future capital needs are
difficult to predict. The Company's growth models are scaleable (meaning that
growth targets may be generally adjusted in proportion to the availability of
capital resources), but the rate of growth is dependent on the availability of
future financing. Additional capital funding may be required for any of the
following activities: capital expenditures; advertising, maintenance and
expansion; sales, marketing, research and development; operating losses from
unanticipated competitive pressures or start-up operations; and strategic
partnerships and alliances. There is no assurance that adequate levels of
additional financing will be available at all or on acceptable terms. Any
11
<PAGE>
additional financing could result in significant dilution to the Company's
existing stockholders. If the Company is unable to raise additional capital, it
would not be able to implement its business plan which could have a material
adverse effect on the Company's business, operating results and financial
condition.
Technological Changes
The industries in which the Company competes are characterized, in part, by
rapid growth, evolving industry standards, significant technological changes
and frequent product enhancements. These characteristics could render existing
systems and strategies obsolete, and require the Company to continue to develop
and implement new products and services, anticipate changing consumer demands
and respond to emerging industry standards and technological changes. No
assurance can be given that the Company will be able to keep pace with the
rapidly changing consumer demands, technological trends and evolving industry
standards.
Strategic Relationships
The Company's international business, in part, is dependent upon
relationships with distributors, governments or providers of telecommunications
services in foreign markets. The failure to develop or maintain these
relationships could result in a material adverse effect on the financial
condition and results of operations of the Company.
Dependence on and Ability to Recruit and Retain Key Management and Technical
Personnel
The Company's success depends to a significant extent on its ability to
attract and retain key personnel. In particular, the Company is dependent on
its senior management team and personnel with experience in the
telecommunications industry and experience in developing and implementing new
products and services within the industry. The Company's future success will
depend, in part, upon its ability to attract and retain key personnel.
Market for Common Stock; Volatility of the Stock Price
The Company cannot ensure that an active trading market for the common stock
exists or will exist in the future. However, even if the trading market for the
common stock exists, the price at which the shares of common stock trade is
likely to be subject to significant volatility. The market for the common stock
may be influenced by many factors, including the depth and liquidity of the
market for the Company's common stock, investor perceptions of the Company, and
general economic and similar conditions.
Listing Status; Penny Stock Rules
The Company's common stock currently trades on the OTC Bulletin Board.
Therefore, no assurances can be given that a liquid trading market will exist
as the time any investor desires to dispose of any shares of the Company's
common stock. In addition, the Company's common stock is subject to the so-
called "penny stock" rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as an investor with a net
worth in excess of $1 million or annual income exceeding $200,000 or $300,000
together with a spouse). For transactions covered by the penny stock rules, a
broker-dealer must make a suitability determination for the purchaser and must
have received the purchaser's written consent to the transaction prior to sale.
Consequently, both the ability of a broker-dealer to sell the Company common
stock and the ability of holders of the Company's common stock to sell their
securities in the secondary market may be adversely affected. The Securities
and Exchange Commission has adopted regulations that define a "penny stock" to
be an equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require the delivery, prior to the transaction, of a
disclosure schedule relating to the penny stock market. The broker-dealer must
disclose the commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
12
<PAGE>
is to sell the securities as a market maker, the broker-dealer must disclose
this fact and the broker-dealer's presumed control over the market. Finally,
monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. As a result of the additional suitability requirements and disclosure
requirements imposed by the "penny stock" rules, an investor may find it more
difficult to dispose of the Company's common stock.
Absence of Dividends
The Company has never declared or paid any cash dividends on its common
stock and does not presently intend to pay cash dividend on its common stock in
the foreseeable future.
SALES AND MARKETING
The Company markets long distance telecommunications products and services
from its offices in Irving, Texas and Los Angeles, California. The Company also
has regional sales offices located in New Rochelle, New York; Toledo, Ohio;
Chicago, Illinois; Houston, Texas; Denver, Colorado; Heidelberg, Germany; and
Johannesburg, South Africa. The Company's revenues from prepaid phone cards
used to originate calls from the United States are primarily derived from sales
through the following four marketing channels: wholesale and retail sales
through independent distributors; direct sales to retail stores; telemarketing
sales to retail stores; and promotional and specialty marketing sales to
businesses. The Company's revenues from international dial-thru services for
calls originating from foreign countries are primarily derived from the
following three channels: direct sales to business accounts; sales through
commissioned agents; and wholesale sales to other telecommunications providers.
The Company plans to expand its domestic services to add business accounts to
its current residential customer base, and to grow its foreign markets by
adding residential accounts to its current business customer base.
BACKLOG
Telecommunications products and services are generally delivered to
customers when ordered and, although continuing relationships with customers
exist that produce recurring revenue, there is no traditional backlog of
orders.
EMPLOYEES
As of January 19, 2000, the Company had approximately 56 full-time and 10
part-time employees, approximately 15 of which perform administrative and
financial functions, approximately 22 of which perform customer support duties
and approximately 29 of which have experience in telecommunications operations
and/or sales. Approximately 32 current employees are located in Irving, Texas,
approximately 15 employees are located in Los Angeles, California, and
approximately 19 employees operate out of field sales offices. No employees are
represented by a labor union, and the Company considers its employee relations
to be excellent.
RECENT EVENTS
Dial-Thru International Corporation Acquisition
On November 2, 1999, the Company consummated the acquisition of
substantially all of the assets and business of Dial-Thru International
Corporation, a California corporation now known as DTI-LIQCO, Inc. (the
"Seller"), including the rights to the name "Dial-Thru International
Corporation." The acquisition was accounted for under the purchase method of
accounting, and was effected pursuant to the terms of an Asset Purchase
Agreement between the Company, a wholly owned subsidiary of the Company, the
Seller and John Jenkins, the sole shareholder of the Seller. As consideration
for the acquired business and assets, the
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<PAGE>
Company issued to the Seller an aggregate of 1,000,000 shares of common stock,
and agreed to issue an additional 1,000,000 shares of its common stock upon the
acquired business achieving specified revenue and earnings goals. The number of
shares issued to the Seller was determined after considering the value of the
business acquired and arm's-length negotiations with John Jenkins, the sole
shareholder of the Seller. In connection with the acquisition, John Jenkins
joined the Company as the president of the subsidiary formed to operate the
acquired business. Mr. Jenkins now serves as President and Chief Operating
Officer of the Company and has the joined the Company's Board of Directors. The
acquired business provides a variety of international telecommunications
services, including international dial-thru, re-origination and Internet
FaxThru services. The acquired business utilizes packetized voice technology
and compression techniques, such as Voice over Internet protocol, to improve
both the costs and efficiencies of its telecommunications transmissions.
Approval of Name Change
Following the acquisition of the assets and business of Dial-Thru
International Corporation, a California corporation now known as DTI-LIQCO,
Inc., the Company decided to change its corporate name from ARDIS Telecom &
Technologies, Inc. to Dial-Thru International Corporation. On January 14, 2000,
the stockholders of the Company approved an amendment to the Company's
Certificate of Incorporation to effect the name change. On January 19, 2000,
the Company officially changed its name from ARDIS Telecom & Technologies, Inc.
to Dial-Thru International Corporation. On January 20, 2000, the Company's
common stock began trading under the symbol "DTIX" on the OTC Bulletin Board.
Appointment of New Directors and Management Changes
On December 1, 1999, W. Thomas Rinehart resigned as a director of the
Company for health reasons. On December 15, 1999, John Jenkins was elected as
the President of the Company and as a member of the Company's Board of
Directors. On that date, Roger D. Bryant was elected Chairman of the Company
and continued as its Chief Executive Officer. On January 13, 2000, Debra L.
Burgess resigned as an officer and director of the Company to pursue other
business interests, and on January 14, 2000, Lawrence Vierra was elected to
serve on the Company's Board of Directors, and was appointed as Executive Vice
President, with responsibilities for business development of both domestic and
international markets. Prior to joining the Company, Mr. Vierra served as an
Executive Vice President with RSL Communications, Ltd. He has also served as
the Vice President of Sales and Marketing of GTE/Sprint.
Item 2. Properties
The Company currently occupies approximately 13,163 square feet located at
8100 Jetstar Drive in Irving, Texas under a five year lease that commenced in
March 1999. The Company's subsidiary, Dial-Thru.com currently occupies
approximately 4,000 square feet of office space at 700 South Flower Street,
Suite 2950, Los Angeles, California under a one year lease that commenced in
November of 1999. The Company also leases two sites that house switching
equipment on month-to-month leases in Los Angeles, California.
Item 3. Legal Proceedings
Neither the Company nor any of its subsidiaries are parties to any material
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
14
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
MARKET FOR COMMON STOCK
The Company has only one class of outstanding shares, common stock, $.001
par value, which is traded on the OTC Bulletin Board. Each share ranks equally
as to dividends, voting rights, participation in assets on winding-up and in
all other respects. No shares have been or will be issued subject to call or
assessment. There are no preemptive rights, provisions for redemption or
purpose for either cancellation or surrender or provisions for sinking or
purchase funds. The Company also has authorized 10,000,000 shares of preferred
stock, $.0001 par value, none of which have been issued, which may be issued in
one or more series with rights, preferences and privileges determined by the
Company's Board of Directors from time to time.
The Company was listed on the Nasdaq SmallCap Market tier of The Nasdaq
Stock Market on February 10, 1994 through June 8, 1998. The Company's Common
Stock is currently traded on the OTC Bulletin Board under the symbol "DTIX."
The Company's principal executive offices are located at 8100 Jetstar Drive,
Suite 100, Irving, Texas 75063, and its telephone number is (972) 929-1920.
MARKET PRICES OF THE COMPANY'S COMMON STOCK
The following table sets forth for the fiscal periods indicated the high and
low closing sales price per share of the Company's Common Stock as quoted on
the Nasdaq SmallCap Market through June 8, 1998 and as reported on the OTC
Bulletin Board after such date. The market quotations presented reflect inter-
dealer prices, without retail mark-up, mark-down or commissions and may not
necessarily reflect actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
CLOSING PRICES
---------------
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1998
First Quarter................................................ $ 1.50 $ 0.88
Second Quarter............................................... $ 1.13 $ 0.63
Third Quarter................................................ $ 0.75 $ 0.28
Fourth Quarter............................................... $ 0.65 $ 0.32
FISCAL 1999
First Quarter................................................ $ 0.40 $ 0.28
Second Quarter............................................... $ 0.52 $ 0.33
Third Quarter................................................ $ 0.50 $ 0.41
Fourth Quarter............................................... $ 1.63 $ 0.41
FISCAL 2000
First Quarter (through January 25, 2000)..................... $ 4.57 $ 0.69
</TABLE>
The closing price for the Company Common Stock on January 25, 2000 as
reported on the OTC Bulletin Board was $4.00.
Dividends
The Company has never declared or paid any cash dividends on its Common
Stock and does not presently intend to pay cash dividends on the its Common
Stock in the foreseeable future. The Company intends to retain future earnings
for reinvestment in its business.
15
<PAGE>
Holders of Record
There were 430 stockholders of record as of November 23, 1999, and
approximately 2,930 beneficial stockholders.
Recent Sales of Unregistered Securities
Effective July 15, 1999, the Company issued a warrant to acquire 50,000
shares of common stock to an employee of the Company at an exercise price of
$0.46 per share, the closing price of the Company's stock on July 15, 1999. The
right to purchase 25,000 shares under this warrant vests upon the employee
achieving target revenues in excess of $750,000 per month for three consecutive
months during the one year period ending July 15, 2000, and the right to
purchase the remaining 25,000 shares vests upon the employee achieving target
revenues of $750,000 per month for three consecutive months during the one year
period ending July 15, 2001. This warrant was issued as consideration for
services in a private transaction in reliance upon Section 4(2) of the
Securities Act of 1933, as amended.
On August 16, 1999, the Company issued a warrant to an employee of the
Company to acquire 50,000 shares of common stock at an exercise price of $0.55
per share, the closing price of the Company's common stock on August 13, 1999.
On October 1, 1999, the Company issued a warrant to an employee of the Company
to acquire 50,000 shares of Company's common stock at an exercise price of
$0.80 per share, the closing price of the Company's common stock on September
30, 1999. Each of these warrants vests in 25,000 share increments on the first
and second anniversary dates of the warrant, and are exerciseable during the
two year period following the date of vesting. The right to purchase any shares
under these warrants terminates upon any termination of employment with the
Company. Each of these warrants were issued as consideration for services in a
private transaction in reliance upon Section 4(2) of the Securities Act of
1933, as amended.
October 26, 1999, the Company issued a warrant to a distributor of the
Company's prepaid phone cards to acquire 50,000 shares of common stock at an
exercise price of $0.88 per share, the closing price of the Company's common
stock on October 25, 1999. The warrant is exerciseable beginning October 26,
2001 and expires October 26, 2003. This warrant was issued as consideration for
services in a private transaction in reliance upon Section 4(2) of the
Securities Act of 1933, as amended.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31
-------------------------------------
1999 1998 1997 1996 1995
------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA (1):
Revenues............................... $3,117 $ 2,189 $ -- $ -- $ --
Cost of revenues....................... 2,982 2,155 -- -- --
Operating expenses..................... 4,028 1,399 -- -- --
Interest income (expense), net......... 79 (101) -- -- --
Loss on Disposal of USC................ -- 1,155 -- -- --
Income (loss) from discontinued
operations............................ 218 (103) 87 143 (3,734)
Gain on Sale of Software Business...... 5,310 -- -- -- --
Net income (loss)...................... 1,713 (2,724) 87 143 (3,734)
Net income (loss) per share(2)......... $ .25 $ (.38) $ 0.01 $ 0.02 $ (0.79)
CONSOLIDATED BALANCE SHEET DATA(1):
Total assets
Continuing operations................ 4,467 1,936 -- -- --
Discontinued operations.............. -- 3,355 4,578 4,741 4,225
Working capital (deficiency)
Continuing operations................ 1,846 (1,460) -- -- --
Discontinued operations.............. -- 623 664 701 (946)
Non Current obligations
Continuing operations................ 562 -- -- -- --
Discontinued operations.............. -- 147 178 256 265
Shareholders' equity................... 2,865 1,064 2,220 2,075 1,719
</TABLE>
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- --------
(1) All numbers, other than per share numbers, are thousands. The results of
operations of the Software Business have been presented in the financial
statements as discontinued operations. Results of operations in prior years
have been restated to reclassify the Software Business as discontinued
operations.
(2) All per share amounts have been retroactively adjusted to reflect a one-
for-five reverse stock split of the Company's Common Stock effective
December 21, 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Fiscal Years ended October 31, 1999, 1998 and 1997
General
On December 7, 1998, the Company disposed of its Software Business, and its
primary business during fiscal year ended October 31, 1999 consisted of its
Telecommunications Business. During the fiscal year ended October 31, 1998, the
Company operated in both the software and telecommunications industries. For
the fiscal year ended October 31, 1997, the Software Business accounted for all
of the Company's revenues. As a result of the Software Business sale, the
Company no longer engages in the Software Business and its business is focused
solely on its Telecommunications Business. Therefore, historic financial
information attributable to the Software Business will be reported as
discontinued operations.
The following discussion and analysis of financial condition and results of
operations covers the years ended October 31, 1999, 1998 and 1997 and should be
read in conjunction with the Company's Financial Statements and the Notes
thereto commencing at page F-1 hereof.
Results of Operations--1999 Versus 1998
General
At the beginning of fiscal 1999, the Company conducted its
Telecommunications Business as a switchless reseller of telecommunications
services. During the fourth quarter of fiscal 1999, the Company began operating
its own telecommunications switching equipment and enhanced services platform
and migrated from providing its telecommunications services as a switchless
reseller of products of PT-1 Communications to conducting its
Telecommunications Business as a facilities-based operator. As a facilities-
based operator, the Company defers the recognition of revenue and expenses
until the customer utilizes a phone card or a card containing unused calling
time expires. As a switchless reseller, the Company recognized revenue upon the
shipment and invoicing of phone cards, as the Company performed no further
services after shipment.
The Company's financial statements for the year ended October 31, 1999 and
management's discussion and analysis of the results of operations for 1999
reflect the results of operations of the Telecommunications Business only. On
December 7, 1998, the Company sold its software business, and the results of
operations of the Software Business have been condensed into the line item
captioned "Discontinued Operations" in the Company's financial statements and,
because the Software Business has been discontinued, management has not
discussed the results of operations for the Software Business in 1999 as
compared to 1998.
Revenues
For the year ended October 31, 1999, the Company had revenues from
continuing operations of $3,117,000, an increase of $928,000 or 42% over 1998.
This increase is primarily attributable to the development of distribution
channels and an increased customer base, resulting from the Company's marketing
efforts in preparation for launching its facilities-based operations.
Revenues from discontinued operations were $1,687,000 for the year ended
October 31, 1999, as compared to $9,380,000 for the year ended October 31,
1998. The Company also received $7,395,000
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<PAGE>
(comprised of gross proceeds of $7,625,000, less working capital adjustments)
from ACS in fiscal 1999 from the sale of the Software Business sale, resulting
in a gain of $5,310,000.
Expenses
For the year ended October 31, 1999, the Company had total direct costs of
revenues relating to revenues from continuing operations of $2,982,000, an
increase of $827,000 or 38% from 1998. This increase is primarily attributable
to the Company's 42% increase in sales. In fiscal 1999, revenues from
continuing operations exceeded the total direct cost of revenues attributable
to continuing operations by 4%, compared to 2% for fiscal 1998. The Company
expects these percentages to increase as it begins to more fully utilize its
existing network capacity and is able to negotiate better pricing from its
carriers.
For the year ended October 31, 1999, the Company's expenses relating to
continuing operations (excluding direct costs of revenues of $2,982,000) were
$4,028,000, representing a 188% increase from the comparable period in 1998.
The increase in expenses is primarily due to increases in general and
administrative expenses and in sales and marketing expenses.
General and administrative expenses attributable to continuing operations,
comprised primarily of management, accounting, legal and overhead expenses,
were $2,683,000 and $437,000 for the years ended October 31, 1999 and 1998,
respectively. General and administrative expenses for fiscal 1998 were
accounted for as either continuing operations expenses or discontinued
operations expenses. Because the Company's business operations in 1998 were
primarily comprised of discontinued operations, a significant portion of the
general and administrative expenses for fiscal 1998 was included with
discontinued operations. In fiscal 1999, as the Company continued to grow its
Telecommunications Business, the Company increased its number of employees from
approximately 25 to 45 persons, and a significant portion of the corporate
overhead and management salaries were primarily associated with the
Telecommunications Business. General and administrative expenses also include
research and development costs associated with development of the Company's VIP
Card(TM) product, which is expected to be launched in the second quarter of
fiscal 2000.
Sales and marketing expenses attributable to continuing operations increased
from $389,000 to $1,254,000 for the year ended October 31, 1998 to October 31,
1999. These increases are a result of the Company's increased marketing efforts
within the United States and to targeted international markets. These expenses
include start-up costs associated with the establishment of distribution
channels in various markets, promotional discounts and licensing and printing
costs for phone cards bearing symbols associated with various ethnic regions.
The Company had net interest income in fiscal 1999 of $79,000, compared to
net interest expense of $101,000 in fiscal 1998. The net interest income in
1999 was comprised of approximately $175,000 earned on the proceeds from the
Software Business sale and the Company's note receivable from USCommunications
Services, Inc., reduced by approximately $96,000 of interest and financing
expenses that were attributable to both the Founders Equity indebtedness that
was repaid during fiscal 1999 and to equipment financing costs for the
Company's switching facilities and platform. The interest and financing
expenses for fiscal 1998 were primarily associated with financing provided by
Founders Equity Group to the Company that was repaid during the first and
second quarters of fiscal 1999.
As a result of the foregoing, the Company incurred a net loss from
continuing operations of $3,815,000, or $0.56 per share, for the year ended
October 31, 1999.
Results of Operations--1998 Versus 1997
On January 30, 1998, the Company acquired USCommunications. Effective May
27, 1998, the Company and principals of USC agreed to rescind the USC
acquisition and that the economic benefits and burdens of any revenues received
or expenses incurred following May 27, 1998 would accrue to USC. The statement
of
18
<PAGE>
operations for the fiscal year ended October 31, 1998 includes the operations
of USCommunications since its acquisition through May 27, 1998.
Following its entry into the Telecommunications Business, the Company formed
Canmax Telecom, Inc., its telecommunications operating company and a wholly-
owned subsidiary, and has established sales and marketing activities in four
principle marketing channels for its prepaid phone card program, including
(a) wholesale and retail sales through independent distributors, (b) direct
sales to retail stores, (c) telemarketing sales to retail stores, and (d)
promotional and specialty marketing sales to businesses. The initial product
used to introduce Canmax Telecom to the market was referred to as the Latino
Card, as it was targeted to the long distance market for calls originating
within the continental United States to certain Latin American countries.
Services required to offer this card were provided by USC, and Canmax Telecom
continued to purchase those services from USC following the rescission of the
acquisition.
The Company began marketing prepaid phone cards with services provided by
PT-1 Communications, Inc. in the latter part of August, 1998, and at that time
discontinued purchasing any services from USC except those required to complete
the operation of the already distributed Latino Cards.
The Company's financial statements for the year ended October 31, 1998 and
management's discussion and analysis of the results of operations for 1998
reflect the results of operations of the Telecommunications Business only.
Because the Telecommunications Business was launched in the 1998 fiscal year,
the Company is not able to compare the results of operations for the
Telecommunications Business to prior periods. The results of operations of the
Software Business have been condensed into the line item caption "Discontinued
Operations" in the Company's financial statements and, because the Software
Business has been discontinued, management has not discussed the results of
operations for the Software Business in 1998 as compared to 1997.
Revenues
For the year ended October 31, 1998, the Company had revenues from
continuing operations of $2,190,000, $710,000 of which were attributable to
revenues derived through USC, and $1,480,000 of which were derived from
revenues from Canmax Telecom prepaid phone cards. The Company ceased
recognizing revenues of USC as of May 27, 1998.
Revenues from discontinued operations were $9,380,000 for the year ended
October 31, 1998, as compared to $12,736,000 for the comparable period in 1997.
Expenses
For the year ended October 31, 1998, the Company had total costs of revenues
relating to revenue from continuing operations of $3,554,000, of which
$1,119,000 was attributable to operations of USC and $2,435,000 was
attributable to Canmax Telecom prepaid phone cards.
General and administrative costs attributable to continuing operations
excluding USC were $437,000 for the year ended October 31, 1998. These costs
were primarily comprised of management, accounting, legal and overhead
expenses.
Sales and marketing costs attributable to continuing operations excluding
USC were $389,000.
Interest and financing expenses attributable to continuing operations were
$155,000 for the year ended October 31, 1998. These expenses were associated
with indebtedness outstanding under the Loan Agreement that was entered into
during the 1998 period.
On June 15, 1998, the Company and USCommunications signed an agreement
effective May 27, 1998 to rescind the purchase of USCommunications. Revenues,
phone card cost of revenues, and other expenses for the
19
<PAGE>
period from acquisition through disposition, May 27, 1998 amounted to $710,000,
$565,000 and $554,000, respectively. The Company recorded a loss on disposal of
$1,155,000.
As a result of the foregoing, the Company incurred a net loss from
continuing operations of $2,621,000 or $0.37 per share for the year ended
October 31, 1998.
Liquidity and Sources of Capital
During fiscal 1999, the Company received $7.395 million of proceeds from the
sale of the Software Business ($7.625 million of gross proceeds, reduced by
working capital adjustments). Of this amount, approximately $1.5 million was
used to repay amounts owed to Founders Equity under its Loan Agreement and
approximately $250,000 was used to pay transaction expenses. An additional
$1,105,000 has been used to establish letters of credit and deposits to enable
the Company to launch its facilities-based operations. The Company's growth
models are scaleable, but the rate of growth is dependent on the availability
of future financing for capital resources. The Company plans to commit at least
$2 million for capital investments in the Telecommunications Business for
fiscal 2000, and plans to finance additional infrastructure development
externally through debt and/or equity offerings and internally through the
operations of its Telecommunications Business. The Company believes that, if
provided with sufficient capital, it can significantly accelerate its growth
plan, and consequently plans to raise between $5 million and $15 million in
either debt or equity financing during fiscal 2000. The Company's failure to
obtain any such financing could significantly delay the Company's
implementation of its business plan and have a material adverse effect on its
business, financial condition and operating results.
On October 31, 1999, the Company had a cash and cash equivalents of
approximately $846,000, an increase of $638,000 from the balance at October 31,
1998. This increase is primarily the result of proceeds of the Software
Business sale.
Cash Flows from Operations
Cash used in continuing operating activities totaled $3,613,000 for the year
ended October 31, 1999, and was comprised of the Company's net income of
$1,713,000, adjusted for: gain from discontinued operations of $5,528,000;
depreciation and amortization and stock issued for services of $171,000; bad
debt expense of $406,000; and net changes in operating assets and liabilities
of $375,000.
Cash used in operating activities totaled $556,000 for the year ended
October 31, 1998, and was comprised of the Company's net loss of approximately
$2,724,000, adjusted for: loss from discontinued operations of $103,000; loss
on disposal of USC of $1,568,000; depreciation and amortization of $19,000; and
net changes in operating assets and liabilities of $477,000.
Cash Flows from Investing and Financing Activities
Cash provided by investing activities for continuing operations for the year
ended October 31, 1999 totaled $6,074,000 and was primarily comprised of
proceeds received from the sale of the Software Business of $7,625,000, minus
working capital adjustments, resulting in net proceeds of $7,395,000, reduced
by funds used to purchase property and equipment, including telecommunications
equipment, of $1,436,000, and increased by payments received on notes
receivable of $116,000. Cash used in investing activities for continuing
operations for the year ended October 31, 1998 totaled $803,000 and was
primarily comprised of funds provided to USC in the form of a note receivable
of $725,000 and the purchase of property and equipment of $78,000.
Cash used in financing activities for continuing operations for the year
ended October 31, 1999 totaled $2,006,000, and was comprised primarily of the
repayment of the $1,500,000 outstanding under the Loan Agreement with Founders
Equity, and $1,238,000 used to secure certain note payable and letter of credit
obligations, reduced by net proceeds from notes payable of $724,000. Cash
provided by financing activities for
20
<PAGE>
continuing operations for the year ended October 31, 1998 totaled $1,500,000
provided through borrowings under the Loan Agreement with Founders Equity
entered into during the 1998 period.
Other Capital Resources
Current assets from continuing operations totaled $2,291,000, including
restricted cash of $614,000 at October 31, 1999, resulting in net working
capital from continuing operations of $1,252,000. Net accounts receivable
totaled $298,000 and represented 10% of current assets from continuing
operations. Four customers accounted for 61% of the total accounts receivable
at October 31, 1999.
Net property and equipment from continuing operations totaled $1,421,000 at
October 31, 1999. The majority of property and equipment is comprised of the
telecommunications switch and platform, furniture, fixtures and computer
equipment.
Current liabilities from continuing operations totaled $1,039,000 at October
31, 1999. Current liabilities were comprised of accounts payable, accrued
liabilities, current portions of notes payable and deferred revenue.
At October 31, 1999 and 1998, the Company had a net working capital surplus
(deficiency) of $1,252,000 and ($838,000), respectively.
In connection with the rescission of the Company's acquisition of USC, USC
executed a note payable to the Company in the amount of $724,660. The note
receivable totaled $460,000 at October 31, 1999 and at the date of settlement,
and represented funds provided to USC. On August 17, 1999, USC commenced
voluntary bankruptcy proceedings and on January 7, 2000, the Company received
bankruptcy court approval to settle the USC note for $300,000, with the
remaining $160,000 being charged as a bad debt expense in fiscal 1999. The
settlement proceeds were received by the Company on January 25, 2000.
The Company is currently negotiating with several of its carriers and
financing companies to eliminate or reduce the amount of required deposits
(which are included in restricted cash) to provide the Company with short-term
liquidity. The Company anticipates being able to free up approximately $500,000
to $800,000 of existing deposits through various leasing and financing
activities.
Acquisitions
The Company continues to review an acquisition strategy within its
Telecommunications Business. From time to time the Company will review
acquisition candidates with products, technologies or other services that could
enhance the Company product offerings or services. Any material acquisitions
could result in the Company issuing or selling additional debt or equity
securities, obtaining additional debt or other lines of credit and may result
in a decrease to the Company working capital depending on the amount, timing
and nature of the consideration to be paid. The Company is not currently a
party to any agreements, negotiations or understandings regarding any material
acquisitions.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes new guidance for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires that the
Company's foreign currency translation adjustment be included in other
comprehensive income. The Company adopted this Statement effective November 1,
1998.
In July 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement expands certain reporting
and disclosure requirements for segments and was adopted November 1, 1998. As
the
21
<PAGE>
Company operates in only one segment following the disposition of the Software
Business, this Standard does not currently impact disclosures.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, "Software Revenue Recognition" (SOP 97-2), which supercedes Statement
of Position No. 91-1. SOP 97-2 was effective for all transactions entered into
by the Company subsequent to October 31, 1998. The adoption of the Standard
does not currently significantly impact the Company.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1), which will be effective for all transactions entered
into by the Company subsequent to October 31, 1999. The Company is currently
evaluating the impact that SOP 98-1 will have on software developed or obtained
for internal use subsequent to October 31, 1999.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
"Reporting on the Costs of Start-Up Activities" (SOP 98-5), which will be
effective for all transactions entered into by the Company subsequent to
October 31, 1999. The Company does not currently expect this standard to impact
its disclosures.
In June 1998, the Financial Accounting Standards Board issued Standard No.
133 "Accounting for Derivative Instruments and Hedging Activities." The
Standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. The new Standard is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. The Company does not expect the adoption
of the new Standard to have a material impact on its financial position or
results of operations.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 of Form 10-K is presented at pages F-1 to
F-24 and S-1 to S-2.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
22
<PAGE>
PART III
Item 10. Directors and Executive Officers
The information required by this item will be contained in the Company's
definitive proxy statement which the Company will file with the Commission no
later than February 29, 2000 (120 days after the Company's fiscal year end
covered by this Report) and is incorporated herein by reference.
Item 11. Executive Compensation and Other Information
The information required by this item will be contained in the Company's
definitive proxy statement which the Company will file with the Commission no
later than February 29, 2000 (120 days after the Company's fiscal year end
covered by this Report) and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item will be contained in the Company's
definitive proxy statement which the Company will file with the Commission no
later than February 29, 2000 (120 days after the Company's fiscal year end
covered by this Report) and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item will be contained in the Company's
definitive proxy statement which the Company will file with the Commission no
later than February 29, 2000 (120 days after the Company's fiscal year end
covered by this Report) and is incorporated herein by reference.
23
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(A) (1) AND (2) LIST OF FINANCIAL STATEMENTS
The response to this item is submitted as a separate section of the Report.
See the index on Page F-1.
(3) EXHIBITS
The following is a list of all exhibits filed with this Form 10-K,
including those incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of January 30, 1998, among
Canmax Inc., CNMX MergerSub, Inc. and USCommunications Services, Inc.
(filed as Exhibit 2.1 to Form 8-K dated January 30, 1998 (the "USC 8-
K"), and incorporated herein by reference)
2.2 Rescission Agreement dated June 15, 1998 among Canmax Inc., USC and
former principals of USC (filed as Exhibit 10.1 to Form 8-K dated
January 15, 1998 (the "USC Rescission 8-K"), and incorporated herein
by reference)
2.3 Asset Purchase Agreement by and among Affiliated Computed Services,
Inc., Canmax and Canmax Retail Systems, Inc. dated September 3, 1998
(filed as Exhibit 10.1 to the Company's Form 8-K dated December 7,
1998 and incorporated herein by reference)
2.4 Asset Purchase Agreement dated November 2, 1999 among ARDIS Telecom &
Technologies, Inc., Dial-Thru International Corporation, a Delaware
corporation, Dial-Thru International Corporation, a California
corporation, and John Jenkins (filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 2, 1999 and incorporated
herein by reference)
3.1* Certificate of Incorporation, as amended
3.2* Amended and Restated Bylaws of Dial-Thru International Corporation
4.1 Registration Rights Agreement between Canmax and the Dodge Jones
Foundation (filed as Exhibit 4.02 to Canmax's Quarterly Report on Form
10-Q for the period ended April 30, 1997 and incorporated herein by
reference)
4.2 Registration Rights Agreement between Canmax and Founders Equity
Group, Inc. (filed as Exhibit 4.02 to Canmax's Quarterly Report on
Form 10-Q for the period ended April 30, 1997 and incorporated herein
by reference)
4.3* Amended and Restated Stock Option Plan of Dial-Thru International
Corporation
10.1 Employment Agreement, dated June 30, 1997 between Canmax Retail
Systems, Inc. and Roger Bryant (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-3, File No. 333-33523 (the "Form S-
3"), and incorporated herein by reference)
10.2 Employment Agreement, dated June 30, 1997 between Canmax Retail
Systems, Inc. and Debra L. Burgess (filed as Exhibit 10.6 to the Form
S-3 and incorporated herein by reference)
10.3 Convertible Loan Agreement by and between Canmax Inc. and Canmax
Retail Systems, Inc. as Co-Borrowers and Founders Equity Group, Inc.
and Founders Mezzanine Investors III, LLC as Lenders dated December
15, 1997 (filed as Exhibit 10.8 to Canmax's Annual Report on Form 10-K
for the year ended October 31, 1997 (the "1997 Form 10-K") and
incorporated herein by reference)
10.4 Loan commitment letter dated February 11, 1998, between Canmax Inc.
and Canmax Retail Systems, Inc. as Borrowers and Founders Equity
Group, Inc. and Founders Mezzanine Investors III, LLC as Lenders
(filed as Exhibit 10.18 to the 1997 Form 10-K and incorporated herein
by reference)
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.5 Amendment No. 1 to First Restated Convertible Loan Agreement dated
December 11, 1998 among Canmax, Canmax Telecom, Inc. and Founders
Equity Group, Inc. as agent (filed as Exhibit 10.2 to Canmax Form 8-K
dated December 7, 1998 and incorporated herein by reference).
10.6 Restated Promissory Note dated June 15, 1998 from USC to Canmax
Telecom, Inc. (filed as Exhibit 10.2 to the USC Rescission Form 8-K
and incorporated herein by reference)
10.7 Security Agreement dated June 15, 1998 from USC for the benefit of
Canmax Telecom, Inc. (filed as Exhibit 10.3 to the USC Rescission Form
8-K and incorporated herein by reference)
10.8 Guaranty dated June 15, 1998 executed by Delia O'Donnell for the
benefit of Canmax Telecom, Inc. (filed as Exhibit 10.4 to the USC
Rescission Form 8-K and incorporated herein by reference)
10.9 Guaranty dated June 15, 1998 executed by Alan Anderson, trustee, for
the benefit of Canmax Telecom, Inc. (filed as Exhibit 10.5 to the USC
Rescission Form 8-K and incorporated herein by reference)
10.10 Pledge Agreement executed by Delia O'Donnell and Alan Anderson, as
trustee, for the benefit of Canmax Telecom, Inc. (filed as Exhibit
10.6 to the USC Rescission Form 8-K and incorporated herein by
reference)
10.11 Guaranty dated June 15, 1998 executed by James C. Bernet for the
benefit of Canmax Telecom, Inc. (filed as Exhibit 10.7 to the USC
Rescission Form 8-K and incorporated herein by reference)
10.12** Debit Telecommunications Services Agreement dated August 4, 1998
between PT-1 Communications, Inc., Canmax Telecom, Inc. and Canmax
Inc. (filed as Exhibit 10.19 to the Company's Annual Report on Form
10-K dated October 31, 1998, and incorporated herein by reference)
10.13 Commercial Lease Agreement between Jackson--Shaw/Jetstar Drive Tri-
star Limited Partnership and the Company (filed as Exhibit 10.20 to
the Company's Annual Report on Form 10-K dated October 31, 1998, and
incorporated herein by reference)
21.1* Subsidiaries of the Registrant
23.1* Consent of Independent Certified Public Accountants (King Griffin &
Adamson, P.C.)
23.2* Consent of Ernst & Young LLP
27.1* Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
** Portions of this Exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Company's Application
requesting confidential treatment under Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
October 31, 1999. However, on November 17, 1999, the Company filed a report on
Form 8-K regarding the acquisition of the business of Dial-Thru International
Corporation.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
in its behalf by the undersigned thereunto duly authorized.
DIAL-THRU INTERNATIONAL CORPORATION
/s/ Roger D. Bryant
By: _________________________________
Roger D. Bryant
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
Date: January 31, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Roger D. Bryant Chairman, Chief Executive January 31, 2000
______________________________________ Officer and Director
Roger D. Bryant (principal executive
officer)
/s/ John Jenkins President, Secretary, January 31, 2000
______________________________________ Chief Operating Officer
John Jenkins and Director (principal
financial officer and
principal accounting
officer)
/s/ Lawrence Vierra Executive Vice President January 31, 2000
______________________________________ and Director
Lawrence Vierra
/s/ Robert M. Fidler Director January 31, 2000
______________________________________
Robert M.Fidler
/s/ Nick Demare Director January 31, 2000
______________________________________
Nick DeMare
</TABLE>
26
<PAGE>
Item 8. Financial Statements and Supplementary Data
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly ARDIS Telecom & Technologies, Inc., Formerly Canmax, Inc.)
INDEX TO FINANCIAL STATEMENTS
ITEM 14(A)(1) AND (2)
1.Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ....................... F-2
Report of Independent Auditors ........................................... F-3
Consolidated Balance Sheets at October 31, 1999 and October 31, 1998...... F-4
Consolidated Statements of Operations for the fiscal years ended October
31, 1999, October 31, 1998 and October 31, 1997.......................... F-5
Consolidated Statements of Shareholders' Equity for the fiscal years ended
October 31, 1999, October 31, 1998 and October 31, 1997.................. F-6
Consolidated Statements of Cash Flows for the fiscal years ended October
31, 1999, October 31, 1998 and October 31, 1997.......................... F-7
Notes to Consolidated Financial Statements................................ F-8
2.Financial Statement Schedules
Report of Independent Certified Public Accountants........................ S-1
Schedule II - Valuation and Qualifying Accounts........................... S-2
</TABLE>
All other schedules are omitted because they are not applicable or because
the required information is shown in the consolidated financial statements or
notes hereto.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Dial-Thru International Corporation
We have audited the accompanying consolidated balance sheets of Dial-Thru
International Corporation and subsidiaries (formerly ARDIS Telecom &
Technologies, Inc., formerly Canmax, Inc.) as of October 31, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dial-Thru
International Corporation and subsidiaries at October 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ KING GRIFFIN & ADAMSON P.C.
King Griffin & Adamson P.C.
Dallas, Texas
January 7, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Dial-Thru International Corporation
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows for the year ended October 31, 1997 of
Dial-Thru International Corporation and subsidiaries (formerly ARDIS Telecom &
Technologies, Inc., which was formerly Canmax Inc.). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations, shareholders
equity and cash flows of Dial-Thru International Corporation and subsidiaries
for the year ended October 31, 1997, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Dallas, Texas
December 18, 1997
F-3
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
--------------------------
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................ $ 846,141 $ 207,609
Restricted cash.................................. 613,634 --
Trade accounts receivable, net of allowance for
doubtful accounts of $181,675 and $4,001 in 1999
and 1998, respectively.......................... 297,914 292,086
Inventory........................................ 141,017 229,672
Prepaid expenses and other....................... 92,074 29,002
Current portion of long-term receivable, net of
allowance for doubtful accounts of $20,000 and
$0 in 1999 and 1998, respectively............... 300,000 177,845
Current assets of discontinued operations........ -- 2,305,502
------------ ------------
Total current assets........................... 2,290,780 3,241,716
------------ ------------
PROPERTY AND EQUIPMENT, net........................ 1,421,328 59,135
PROPERTY AND EQUIPMENT OF DISCONTINUED OPERATIONS,
net............................................... -- 524,849
RESTRICTED CASH.................................... 624,099 --
LONG-TERM RECEIVABLE, NET OF CURRENT PORTION, net
of allowance for doubtful accounts of $30,000 and
$0 in 1999 and 1998, respectively................. 50,000 397,851
OTHER ASSETS....................................... 80,582 17,387
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS........ -- 1,049,641
------------ ------------
TOTAL ASSETS....................................... $ 4,466,789 $ 5,290,579
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt................ $ 162,000 $ --
Trade accounts payable........................... 336,053 622,836
Accrued liabilities.............................. 306,239 227,578
Deferred revenue................................. 235,104 46,033
Advances from shareholder........................ -- 1,500,000
Current liabilities of discontinued operations... -- 1,683,591
------------ ------------
Total current liabilities...................... 1,039,396 4,080,038
------------ ------------
LONG-TERM DEBT, NET OF CURRENT PORTION............. 562,000 --
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS... -- 146,693
COMMITMENTS (Notes D, K and M)
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value, 10,000,000
shares authorized, none issued and outstanding
in 1999 and 1998................................ -- --
Common stock, 44,169,100 shares authorized;
6,881,005 $.001 par value and 6,611,005 no par
value shares issued and outstanding in 1999 and
1998, respectively ............................. 6,881 24,858,809
Additional paid-in capital....................... 24,940,093 --
Accumulated deficit.............................. (22,076,165) (23,789,545)
Accumulated other comprehensive income........... (5,416) (5,416)
------------ ------------
Total shareholders' equity..................... 2,865,393 1,063,848
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $ 4,466,789 $ 5,290,579
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended October 31,
------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES
Prepaid phone cards and other........... $ 3,116,911 $ 1,479,588 $ --
Prepaid phone cards--USC................ -- 709,525 --
----------- ----------- ----------
Total revenues........................ 3,116,911 2,189,113 --
COSTS AND EXPENSES --
Prepaid phone cards and other........... 2,982,290 1,589,811
Prepaid phone cards--USC................ -- 565,151 --
Sales & marketing....................... 1,254,429 388,506
General & administrative................ 2,682,545 436,939
Selling general & administrative--USC... -- 554,253 --
Depreciation and amortization........... 91,338 19,356
----------- ----------- ----------
Total cost of revenues................ 7,010,602 3,554,016 --
----------- ----------- ----------
Operating loss...................... (3,893,691) (1,364,903) --
OTHER INCOME (EXPENSES)
Interest and financing costs............ (95,836) (155,318) --
Interest income......................... 174,604 54,535
Loss on disposal of USC................. -- (1,155,385) --
----------- ----------- ----------
Total other income (expense).......... 78,768 (1,256,168) --
NET LOSS FROM CONTINUING OPERATIONS....... (3,814,923) (2,621,071) --
DISCONTINUED OPERATIONS
Income (loss) from operation of software
business,
net of income taxes of $0.............. 218,376 (103,091) 87,331
Gain on sale of software business,
net of income taxes of $0.............. 5,309,927 -- --
----------- ----------- ----------
NET INCOME (LOSS)......................... $ 1,713,380 $(2,724,162) $ 87,331
=========== =========== ==========
BASIC AND DILUTED EARNINGS (LOSS) PER
SHARE:
Continuing operations................... $ (0.56) $ (0.37) $ --
Discontinued operations................. 0.81 (0.01) 0.01
----------- ----------- ----------
Net earnings (loss)................... $ 0.25 $ (0.38) $ 0.01
=========== =========== ==========
SHARES USED IN THE CALCULATION OF PER
SHARE AMOUNTS:
Basic common shares..................... 6,803,471 7,095,937 5,827,262
Dilutive impact of stock options........ -- -- 827,703
----------- ----------- ----------
Dilutive common shares.................. 6,803,471 7,095,937 6,654,965
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Option to Other
Common Common Stock Paid-in Purchase Accumulated Comprehensive
Shares Amount Capital Common Stock Deficit Income Total
---------- ------------ ----------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November
1, 1996..................... 5,012,869 $ 18,372,574 $ -- $ 4,861,659 $(21,152,714) $ (6,201) $ 2,075,318
Comprehensive income
Net income.................. -- -- -- -- 87,331 -- 87,331
Translation adjustment...... -- -- -- -- -- 785 785
---------- ------------ ----------- ----------- ------------ -------- -----------
Total comprehensive
income.................... -- -- -- -- 87,331 785 88,116
Shares issued to EDS......... 1,598,136 4,861,659 -- (4,861,659) -- -- --
Warrants issued in settlement
registration obligation..... -- 56,500 -- -- -- -- 56,500
---------- ------------ ----------- ----------- ------------ -------- -----------
Balance at October 31, 1997.. 6,611,005 23,290,733 -- -- (21,065,383) (5,416) 2,219,934
Issuance of common stock and
warrants in connection with
acquisition of USC.......... 1,500,000 2,647,398 -- -- -- -- 2,647,398
Effect of USC rescission..... (1,500,000) (1,079,322) -- -- -- -- (1,079,322)
Net Loss..................... -- -- -- -- (2,724,162) -- (2,724,162)
---------- ------------ ----------- ----------- ------------ -------- -----------
Balance at October 31, 1998.. 6,611,005 24,858,809 -- -- (23,789,545) (5,416) 1,063,848
Shares and warrants issued as
compensation................ 250,000 80,165 -- -- -- -- 80,165
Effect of change from no par
to $.001 par value common
stock....................... -- (24,932,113) 24,932,113 -- -- -- --
Shares issued upon exercise
of options.................. 20,000 20 7,980 -- -- -- 8,000
Net income................... -- -- -- -- 1,713,380 -- 1,713,380
---------- ------------ ----------- ----------- ------------ -------- -----------
Balance at October 31, 1999.. 6,881,005 $ 6,881 $24,940,093 $ -- $(22,076,165) $ (5,416) $ 2,865,393
========== ============ =========== =========== ============ ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Telecom & Technologies, Inc., Formerly Canmax, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended October 31,
----------------------------------
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................... $ 1,713,380 $(2,724,162) $ 87,331
Adjustments to reconcile net income
(loss) to net cash
used in continuing operating activities:
Loss (income) from discontinued opera-
tions.................................. (218,376) 103,091 (87,331)
Gain on disposal of software business... (5,309,927) -- --
Loss on disposal of USC................. -- 1,568,076 --
Stock and warrants issued for services.. 80,165 -- --
Bad debt expense........................ 405,825 -- --
Depreciation and amortization........... 91,338 19,356 --
(Increase) decrease in: --
Trade accounts receivable............. (201,526) (292,086) --
Inventory............................. 88,655 (229,672) --
Prepaid expenses and other............ (63,072) (29,002) --
Other assets.......................... (180,389) (17,387) --
Increase (decrease) in:
Trade accounts payable................ (286,783) 771,799 --
Accrued liabilities................... 78,661 227,578 --
Deferred revenue...................... 189,071 46,033 --
----------- ----------- --------
Net cash used in operating activities
from continuing operations............... (3,612,978) (556,376) --
----------- ----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of software business... 7,394,917 -- --
Purchase of property and equipment........ (1,436,337) (78,493) --
Advances made under note receivable....... -- (724,660) --
Payments received on note receivable...... 115,569 -- --
----------- ----------- --------
Net cash provided by (used in) investing
activities of continuing operations...... 6,074,149 (803,153) --
----------- ----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of) advances
from shareholder......................... (1,500,000) 1,500,000 --
Proceeds from note payable................ 805,000 -- --
Payments on note payable.................. (81,000) -- --
Proceeds from exercise of stock options... 8,000 -- --
Cash restricted as collateral for note
and letters of credit.................... (1,237,733) -- --
----------- ----------- --------
Net cash provided by (used in) financing
activities of continuing operations...... (2,005,733) 1,500,000 --
----------- ----------- --------
Cash provided by (used in) discontinued op-
erations.................................. 183,094 (61,733) (779,901)
----------- ----------- --------
NET INCREASE (DECREASE) IN CASH............ 638,532 78,738 (779,901)
Cash and cash equivalents at beginning of
year...................................... 207,609 128,871 908,772
----------- ----------- --------
Cash and cash equivalents at end of year... $ 846,141 $ 207,609 $128,871
=========== =========== ========
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING
AND FINANCING ACTIVITIES
Acquisition of USC through issuance of
1,500,000 common
shares and 2,500,000 warrants for 1
common share each........................ $ -- $ 2,647,398 $ --
Rescission of USC purchase................ $ -- $ 1,079,322 $ --
Offset of note receivable against trade
accounts payable......................... $ -- $ 148,963 $ --
Note receivable issued for deposit repay-
ment..................................... $ 100,000 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--ORGANIZATION AND NATURE OF BUSINESS
Dial-Thru International Corporation and subsidiaries ("DTI" or the
"Company"), (formerly ARDIS Telecom & Technologies, Inc., "Ardis" and formerly
Canmax, Inc., "Canmax"), was incorporated on July 10, 1986 under the Company
Act of the Province of British Columbia, Canada. On August 7, 1992, the Company
renounced its original province of incorporation and elected to continue its
domicile under the laws of the State of Wyoming, and on November 30, 1994, its
name was changed to "Canmax Inc". On February 1, 1999 this predecessor company
reincorporated under the laws of the State of Delaware and changed its name to
"ARDIS Telecom & Technologies, Inc". On November 2, 1999, the Company acquired
substantially all of the business and assets of Dial-Thru International
Corporation, a California corporation, along with the rights to the name "Dial-
Thru International Corporation." On January 19, 2000, the Company changed its
name from ARDIS Telecom & Technologies, Inc. to "Dial-Thru International
Corporation."
Prior to December 7, 1998, the Company operated in the software and
telecommunications industries. On December 7, 1998, the Company sold its retail
automation software business (the "Software Business") to Affiliated Computer
Services, Inc. ("ACS"). Therefore, the Company no longer engages in the
Software Business, and is now operating only in the telecommunications industry
(the "Telecommunications Business").
During 1998, the Company began competing in the telecommunications market
through its wholly-owned subsidiary, Canmax Telecom, Inc. ("Telecom") now known
as RSDT, Inc. In connection with the Company's entry into this new business, on
January 30, 1998, the Company acquired USCommunications Services, Inc. ("USC").
The acquisition was rescinded as of May 27, 1998 (See Note C). The accompanying
statement of operations for the year ended October 31, 1998 includes the
operations of USC from its acquisition date through May 27, 1998. Telecom's
operations include mainly sales and distribution of prepaid domestic and
international calling cards to wholesale and retail customers (the
"Telecommunications Business"). In August 1998, the Company entered into an
agreement with PT-1 Communications, Inc. ("PT-1"). The agreement provides for
PT-1 to supply long distance telecom and debit services, for use in the
Company's marketing and distribution of domestic and international prepaid long
distance calling cards. The relationship with PT-1 continued through July 31,
1999, as which time the Company established its own facilities based
operations.
At the beginning of fiscal 1999, the Company conducted its
Telecommunications Business as a switchless reseller of telecommunications
services. During fourth quarter of fiscal 1999, the Company began operating its
own calling card platform and switching facilities and migrated from providing
its telecommunications services as a switchless reseller of products of PT-1
Communications to conducting its Telecommunications Business as a facilities-
based operator.
The Company, through its wholly-owned subsidiary Canmax Retail Systems, Inc.
("CRSI") developed and provided enterprise wide technology solutions to the
convenience store and retail petroleum industries, its "Software Business". On
December 7, 1998, the Company obtained shareholder approval for the sale of,
and sold, the assets of its Software Business (the "Software Business Sale").
The results of operations of the Software Business through December 7, 1998
have been presented in the financial statements as discontinued operations.
Results of operations in prior years have been restated to reclassify the
Software Business as discontinued operations. The measurement date for the sale
is December 7, 1998, the date the shareholders approved the transaction.
Liquidity
During fiscal 1999, the Company received $7.395 million of proceeds ($7.625
million of gross proceeds, reduced by working capital adjustments) from ACS as
a result of the Software Business sale. Of this amount, approximately
$1,500,000 was used to repay amounts owed to Founders Equity under its Loan
Agreement and
F-8
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
approximately $250,000 was used to pay transaction expenses. The Company spent
approximately $1.0 million for capital investments in the Telecommunications
Business to purchase and develop its telecommunications platform. The
investments were primarily financed through bank loans secured by the Company's
cash collateral. The Company's anticipated growth is dependent upon its ability
to finance additional infrastructure development through external debt and/or
equity offerings and internally through the operations of its
Telecommunications Business. Management has instituted certain costs savings
efforts, primarily to reduce overhead. In addition, the Company is in the
process of raising additional equity and or debt financing.
NOTE B--SUMMARY OF SIGNIFICANT POLICIES
Principles of Consolidation
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, RDST Inc. (Texas) formerly known as Canmax
Telecom, Inc., and Canmax Retail Systems Inc. (Texas). All significant
intercompany transactions have been eliminated.
Revenue Recognition
The following describes the Company's revenue recognition policies by type
of activity:
Discontinued Operations:
Software Licenses and Products--Revenue was recognized when the software
or products were delivered to the customer, collectibility was probable,
and no significant vendor obligations remained after delivery.
Software Development Contracts--Revenue was recognized as the Company
performed the services in accordance with the contract terms. Revenue from
long-term contracts was recognized using the percentage-of-completion
method. Progress to completion was measured based upon the relationship
that total costs incurred to date bears to the total costs expected to be
incurred on a specified project. Losses on fixed price contracts were
recorded when estimable.
Service Agreements--Revenue from maintenance and support agreements was
generally recognized in one of the following ways:
--Billed annually in advance and recognized ratably over the ensuing
year.
--Billed and recognized monthly based on a fixed fee per site.
--Billed and recognized monthly at a minimum base fee plus a variable
fee which was dependent on call volumes.
Continuing Operations:
Phone cards sold while the Company owned USC--Revenue recognition
originated from customer usage of prepaid calling cards. The Company sold
cards to retailers and distributors at a fixed price. When the retailer or
distributor was invoiced, deferred revenue was recognized. The Company
recognized revenue, and reduced the deferred revenue account as the
customer utilized calling time and upon expiration of cards containing
unused calling time.
Phone cards sold through the PT-1 Agreement--Revenue was recognized when
the prepaid phone cards were invoiced and shipped. The Company performed no
other services after the cards were shipped.
F-9
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Phone cards sold through the Company's switch platform--Revenue is
recognized based on minutes of customer usage or upon the expiration of
cards containing unused calling time. The Company records payments received
in advance for prepaid services as deferred revenue until such related
services are provided.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents.
Restricted Cash
At October 31, 1999, $804,000 and $433,000 of cash was pledged as collateral
on an outstanding note payable and letters of credit, respectively, and is
classified as restricted cash on the balance sheet. The portion of the
restricted cash which pertains to the long-term portion of the note payable has
been classified correspondingly, as long-term.
Inventory
Inventory is stated at the lower of cost (first in-first out) or market and
is primarily comprised of activated and unactivated calling cards.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated
useful lives of the assets ranging from three to seven years. Equipment held
under capital leases and leasehold improvements are amortized on a straight-
line basis over the shorter of the lease term or the estimated useful life of
the related asset.
Capitalized Software Costs
Under provisions of the Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed", software development costs in connection with the discontinued
operations were charged to expense when incurred until technological
feasibility for the product had been established, at which time the costs were
capitalized until the product was available for release. The Company began
amortizing capitalized software costs upon general release of the software
products to customers. The Company evaluated the net realizable value for each
of its capitalized projects by comparing the estimated future gross revenues
from a project less estimated future disposal costs to the amount of the
unamortized capitalized cost. Costs were being amortized using the greater of
1) the ratio that current gross revenues for a capitalized software project
bears to the total of current and future gross revenue for that project or 2)
the straight-line method over the remaining economic life of the related
projects which is estimated to be a period of between four and five years.
Amortization of capitalized software costs related to the discontinued
operations amounted to approximately $19,000, $231,000, and $231,000, in 1999,
1998, and 1997, respectively.
Net Income (Loss) Per Share
Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding during each period. Diluted earnings per
share is computed using the weighted average number of shares of common stock
outstanding during each period and common equivalent shares consisting of stock
options and warrants (using the treasury stock method) to the extent they are
dilutive.
F-10
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers all cash
and highly liquid short-term deposits to be cash equivalents. Total interest
paid during 1999, 1998, and 1997 amounted to approximately $92,000, $24,000,
and $46,000, respectively.
Concentration of Credit Risk and Significant Customers
Discontinued Operations:
The Company derived its sales primarily from customers in the retail
petroleum market. The Company performed periodic credit evaluations of its
customers and generally did not require collateral. Billed receivables were
generally due within 30 days. Credit losses have historically been
insignificant.
The Company's revenues (See Note G) were concentrated in The Southland
Corporation ("Southland"), which accounted for approximately 86%, 87% and
92% of the Company's total revenue for fiscal years 1999, 1998 and 1997,
respectively. At October 31, 1999 and 1998, Southland accounted for 0% and
77%, respectively of total accounts receivable. The Company's revenues
derived from its relationship with Southland included products and services
provided directly by the Company to Southland and indirectly through NCR
Corporation ("NCR") to Southland pursuant to NCR's contract with Southland.
No other customer accounted for over 10% of the Company's total revenues.
Continuing Operations:
One customer accounted for approximately 18% of revenues during the year
ended October 31, 1999. This customer made up approximately 6% of the trade
accounts receivable balance at October 31, 1999 however the balance was
fully reserved. The Company no longer provides service to this customer,
since its migration to a facilities-based operation. One customer accounted
for approximately 25% of revenues during 1998. Management provides an
allowance for doubtful accounts which reflects its estimate of the
uncollectible receivables. In the event of non-performance, the maximum
exposure to the Company is the recorded amount of the receivable at the
balance sheet date.
The Company has a note receivable and accrued interest from its former
subsidiary, USC, under which approximately $460,000 in principal was
outstanding at October 31, 1999. On August 17, 1999, USC commenced
voluntary bankruptcy proceedings under Chapter 11 of the Bankruptcy Code
(See Note C). Subsequent to October 31, 1999, bankruptcy proceedings were
settled and the Company has agreed to a full settlement of outstanding
debts owed by USC in the amount of $300,000. The remaining $160,000 note
receivable balance has been charged to operations in 1999.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-11
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Market Value of Financial Instruments
The carrying amount for cash and cash equivalents, notes receivable, and
long-term debt is not materially different than fair market value because of
the short maturity of the instruments and/or their respective interest rate
amounts.
Stock-Based Compensation
The Company accounts for its stock-based compensation in accordance with
provisions of the Accounting Principles Board's Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees."
Current and Pending Accounting Changes
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes new guidance for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires that the
Company's foreign currency translation adjustment be included in other
comprehensive income. The Company adopted this statement effective November 1,
1998.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement expands certain reporting
and disclosure requirements for segments and was adopted November 1, 1998. As
the Company operates in only one segment following the disposition of its
software business, the Standard does not currently impact disclosures.
In October 1997, The Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, "Software Revenue Recognition" (SOP 97-2), which supercedes Statement
of Position No. 91-1. SOP 97-2 was effective for all transactions entered into
by the Company subsequent to October 31, 1998. The adoption of this standard
does not currently significantly impact the Company.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position No.
98-1 "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1), which will be effective for all transactions entered
into by the Company subsequent to October 31, 1999. The Company is currently
evaluating the impact the SOP 98-1 will have on software developed or obtained
for internal use subsequent to October 31, 1999.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
"Reporting on the Costs of Start-Up Activities" (SOP 98-5), which will be
effective for all transactions entered into by the Company subsequent to
October 31, 1999. The Company does not expect this standard to impact
disclosures.
In June 1998, the Financial Accounting Standards Board issued Standard No.
133 "Accounting for Derivative Instruments and Hedging Activities." The
Standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. The new Standard is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company does not expect the adoption
of the new Standard to have a material impact on its financial position or
results of operations.
F-12
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE C--ACQUISITIONS AND RESCISSION
USC Acquisition and Rescission
On January 30, 1998, the Company acquired USC in a transaction recorded
under the purchase method of accounting. The total purchase price of the
acquisition was $2,667,398 and consisted of 1,500,000 common shares and
2,500,000 warrants for 1 common share each. The Company shares were valued at
the trading price at the acquisition date with the warrants being valued using
the Black-Scholes pricing model. The following assumptions were used in the
Black-Scholes model; dividend yield of 0%, expected volatility of 112%, risk
free interest rate of 6% over a 3 year period and a expected life of 3 years.
Effective in May of 1998, the Company and principals of USC agreed to rescind
the USC acquisition and that the economic benefits and burdens of any revenues
received or expenses incurred following May 27, 1998 would accrue to USC. On
June 15, 1998, the Company and USC executed definitive documents to reflect the
rescission of the acquisition of USC, resulting in the Company recovering 1.5
million shares, and canceling 2,500,000 warrants. Cash payments made on behalf
of USC will be recovered through a note receivable in the original principal
amount of $724,660, of which approximately $460,000 of principal remains
outstanding at October 31, 1999. Subsequently, as a result of voluntary Chapter
11 re-organization proceedings filed by USC on August 17, 1999, the Company has
agreed to a full settlement of outstanding debts owed by USC in the amount of
$300,000. The remaining $160,000 note receivable balance has been charged to
operations in 1999.
The Company recognized a loss on the disposition of $1,155,385. The loss on
disposal is calculated as the difference between the fair value of common stock
and warrants returned by USC and the net investment in USC, recognized by the
Company through its disposition date.
Acquisition of Talk Time Inc.
On June 16, 1998, the Company acquired the assets of Talk Time, a wholesale
distributor of prepaid calling cards to convenience stores in the Rocky
Mountain and Oklahoma Regions. The asset purchase agreement provided for the
acquisition of certain assets and the assumption of obligations with a cash
purchase price approximating $54,000. In addition, the owner of Talk Time
received 50,000 warrants to purchase 50,000 shares of the Company's common
stock at $1 per share. The exercise price for the warrants was reduced to $.53
per share on July 1, 1998. The warrants vest upon attainment of target revenues
as specified in the warrant agreement. On June 30, 1999, 25,000 of the warrants
expired without vesting. The remaining 25,000 warrants will expire on June 30,
2000. The value of these warrants using the Black-Scholes method approximates
the fair value assigned by management to the net assets acquired of $3,000. The
following assumptions were used in the Black-Scholes model; dividend yield of
0%, expected volatility of 112%, risk free interest rate of 6% and an expected
life of 2 years.
NOTE D--NASDAQ DELISTING
On August 25, 1997, the U.S. Securities and Exchange Commission, The
National Association of Securities Dealers, Inc. and the NASDAQ Stock Market
approved increases in the listing and maintenance standards governing the
NASDAQ SmallCap Market. On June 8, 1998, the Company was delisted from the
NASDAQ SmallCap Market for failing to meet such requirements, and is now traded
on the OTC Bulletin Board. The delisting of the Company's Common Stock may
adversely affect the liquidity of the Company's Common Stock, the operations of
the Company and the ability of the Company to raise capital in the future.
F-13
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE E--CONVERTIBLE DEBENTURES
Convertible Debentures to Shareholders
On December 15, 1997, the Company executed a convertible loan agreement (the
"Original Agreement") with a shareholder, Founders which provided financing of
up to $500,000. Funds obtained under the loan agreement were collateralized by
all assets of the Company and bore interest at 10%. Required payments were for
interest only and were due monthly beginning February 1, 1998. Borrowings under
the loan agreement matured January 1, 1999, unless otherwise redeemed or
converted. Under the terms of the loan agreement, Founders had the option to
exercise its right at any time to convert all, or in multiples of $25,000, any
part of the borrowed funds into the Company's Common Stock at a conversion
price of $1.25 per share. The conversion price was subject to adjustment for
certain events and transactions as specified in the loan agreements.
Additionally, the outstanding principal amount was redeemable at the option of
the Company at 110% of par.
On February 5, 1998, Founders and the Company entered into a financial
consulting agreement pursuant to which Founders agreed to provide financial
advisory and consulting services to the Company, and the Company agreed to pay
to Founders a fee equal to 3% of the value of the consideration received in any
sale or merger of any division or subsidiary of the Company. As a result of
this agreement, Founders has received $120,000 of the initial proceeds of the
sale of the software business. Founders' agreed to forego any further payments
attributable to the Company's receipt of deferred payments in connection with
the sale.
On February 11, 1998, the Company and Founders executed a loan commitment
letter (the "Loan Commitment") which provided for multiple advance loans of up
to $2 million upon terms similar to the Original Agreement; however,
indebtedness outstanding under the Loan Commitment was convertible into shares
of Common Stock at a conversion price equal to the average closing prices of
the Common Stock over the five-day trading period immediately preceding the
date of each advance. As consideration for the Loan Commitment, the Company
paid a commitment fee of $10,000.
As of March 31, 1998, Founders (and certain of its affiliates) entered into
the First Restated Loan Agreement (the "Loan Agreement") which consolidated all
rights and obligations of the Company to Founders under the Original Agreement
and the Loan Commitment. Amounts advanced under the Loan Agreement bore
interest at the rate of 12% per annum, were secured by a lien on all other
Company's assets and were convertible into shares of Common Stock, at the
option of Founders, at $0.80 per share. On August 25, 1998, Founders agreed to
release its lien on all of the Company's assets upon the consummation of the
sale of the Software Business (See Note G). As consideration for the release,
the Company agreed, upon the consummation of the sale, to repay $1.0 million of
the $1.5 million currently outstanding under the Loan Agreement, and to allow
Founders to convert the remaining $0.5 million plus accrued but unpaid interest
outstanding under the Loan Agreement into shares of Common Stock at a
conversion price of $0.50 per share. The Company used $1,000,000 from the
Software Business sale proceeds to pay down the Founders debt.
On December 11, 1998, the Company and Founders executed Amendment No. 1 to
the Loan Agreement. As a result of the amendment, the Company agreed to defer
Founders' conversion of the remaining indebtedness outstanding under the Loan
Agreement in exchange for (a) Founders' waiver of any registration obligation
under the Registration Rights Agreement dated May 1, 1997 or under the Loan
Agreement until February 1, 1999 or the Company's earlier delivery of a
conversion notice with regard to the outstanding indebtedness, (b) the
adjustment of the conversion price for the remaining convertible indebtedness
outstanding under the Loan Agreement ($500,000) from $0.50 per share to the
greater of $0.50 per share or 75% of the average closing price of the Common
Stock over the ten trading days preceding the delivery of a conversion
F-14
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
notice, and (c) Founders' agreement to convert the remaining outstanding
principal amount under the Loan Agreement ($500,000) upon written notice from
the Company at the adjusted conversion agreed to price described above.
Further, the amendment to the Loan Agreement reduced the interest rate payable
on the outstanding principal amount under the Loan Agreement from 12% to 9% per
annum. The amendment also terminated any additional funding obligations of
Founders under the Loan Agreement. On March 31, 1999, the Company and Founders
extended the maturity date of the Founders Loan Agreement from April 1, 1999 to
July 1, 1999. On May 4, 1999, the Company repaid the balance of the amounts
outstanding ($500,000) under the Loan Agreement with Founders and the Company's
obligations under the Loan Agreement were terminated.
Interest expense in connection with Founders debt was $44,063 and $103,352
for the years ended October 31, 1999 and 1998, respectively.
NOTE F--NOTES PAYABLE
On April 13, 1999, the Company executed a loan agreement with Bank One for
$805,000. The loan bears interest at prime less .5% (7.75% at October 31,
1999), is payable in monthly installments of $13,500 plus interest beginning
May 13, 1999, and matures April 13, 2004. The loan is secured by cash
equivalents of $900,000. The purpose of this loan was to purchase the telephone
switch and software to run the switch.
At October 31, 1999, scheduled maturities of notes payable are as follows:
<TABLE>
<S> <C>
2000......................................... $162,000
2001......................................... 162,000
2002......................................... 162,000
2003......................................... 162,000
2004......................................... 76,000
--------
724,000
Current maturities........................... (162,000)
--------
Long-term debt, less current maturities...... $562,000
========
</TABLE>
NOTE G--DISPOSITION OF SOFTWARE BUSINESS AND DISCONTINUED OPERATIONS
On December 7, 1998, the Company obtained shareholder approval to sell the
Software Business to Affiliated Computer Systems, Inc., a Delaware corporation
("ACS"). The Asset Purchase Agreement dated as of September 3, 1998 provided
for the sale of the computer equipment, purchased software, and internally
developed software for $3,770,000 in cash and an additional $3,625,000 of
deferred payments during 1999.
As of October 31, 1999, the Company has received total payments relating to
the additional consideration of $3,625,000. These payments have been recorded
as additional gain on the sale of the Software Business, reduced by costs
associated with the sale. The net gain resulting from disposition of the
Software Business was $5,309,927.
Summarized operating results of discontinued Software Business operations
are as follows:
<TABLE>
<CAPTION>
Period from Year
November 1, 1998 Ending Year Ending
through December October October 31,
7, 1998 31, 1998 1997
---------------- ---------- -----------
<S> <C> <C> <C>
Revenues.......................... $1,686,945 $9,380,064 $12,736,223
Costs and expenses................ 1,468,569 9,483,155 12,648,892
---------- ---------- -----------
Net income (loss)................. $ 218,376 $ (103,091) $ 87,331
========== ========== ===========
</TABLE>
F-15
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At October 31, 1998, assets and liabilities of the discontinued Software
Businesses operations are as follows:
<TABLE>
<CAPTION>
October 31,
1998
-----------
<S> <C>
Current assets:
Accounts receivable........................................ $ 2,135,862
Inventories................................................ 33,990
Prepaid expenses........................................... 135,650
-----------
$ 2,305,502
-----------
Furniture and fixtures....................................... $ 699,552
Computer equipment........................................... 910,442
Computer software............................................ 354,868
Equipment held under capital lease obligations............... 370,235
Leasehold improvements under leasehold obligations........... 536,880
-----------
2,871,977
Less accumulated depreciation and amortization............... (2,347,128)
-----------
$ 524,849
-----------
Noncurrent assets:
Capitalized software costs, net of accumulated
amortization of $1,070,686................................ $ 993,180
Other assets............................................... 56,461
-----------
$ 1,049,641
-----------
Current liabilities:
Trade accounts payable..................................... $ 1,032,300
Accrued liabilities........................................ 297,113
Deferred revenue........................................... 210,342
Current portion of lease obligations....................... 108,641
Current portion of long-term debt.......................... 35,195
-----------
$ 1,683,591
-----------
Long-term obligations, net of current maturities:
Lease obligations.......................................... $ 130,676
Long-term debt............................................. 16,017
-----------
$ 146,693
===========
</TABLE>
Southland Agreements
In December 1993, the Company signed a five year agreement with Southland to
provide software licenses, development services, and provide hardware and help
desk services (the "Master Agreement"). Southland chose the Company's
proprietary convenience store automation software, C-Serve, as the basis for
its automation of store functions and operations at its corporate and franchise
operated 7-Eleven convenience stores in the United States. Software licensing,
product and service revenue under this agreement during the fiscal years ended
October 31, 1998 and 1997 totaled approximately $3,160,000 and $2,051,000,
respectively, while development revenues recorded under the Master Agreement
during these same periods totaled approximately $859,000 and $799,000,
respectively. This agreement expired on December 7, 1998.
On October 31, 1997, the Company and Southland entered into Amendment No.3
to the Master Agreement (the "Southland Amendment"). Pursuant to the terms of
the Southland Amendment, the Company
F-16
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
allowed Southland to exercise its right as specified in the Master Agreement to
use, possess and modify the source code for the software developed by the
Company for Southland for a one-time license fee of $1.0 million. Payment of
the license fee was due in two installments of $500,000. The first installment
was received in November 1997 and the second installment was received in
January 1998.
During fiscal 1996, the Company reached an agreement with NCR to develop for
Southland a next generation Windows NT based version of the Company's C-Serve
convenience store software for $9.5 million. NCR was chosen by Southland to
provide project management and other professional services for the project.
Modifications to project requirements increased total project revenues from
$9.5 million to $11.5 million. Since this project was completed in 1997, no
development revenues under such agreement were recognized by the Company in
fiscal 1998, as compared to $7,560,000 in fiscal year 1997.
EDS Agreements and Transaction
The Company signed agreements with Electronic Data Systems Corporation
("EDS") in April 1993 which were amended in October 1994. Under the terms of
the amended agreements, EDS marketed the Company's software, services and
hardware technology to the retail petroleum marketplace exclusively, and the
Company offered EDS the right to participate with its customers and prospective
customers. Additionally, the Company granted EDS the right to acquire up to 25%
of the Company's Common Stock calculated on a fully diluted basis at the time
of exercise, at an exercise price of not less than 75% of the market value of
the Common Stock at the time of exercise, minus $4,861,659, which would be
reduced by royalties or similar payments received by EDS from any licensing of
the Company's product other than through EDS.
On April 29, 1997, EDS exercised its option to acquire up to 25% of the
Company's Common Stock, resulting in the Company issuing an additional
1,598,136 shares. The company accounted for this transaction by reclassifying
the amount associated with the option to Common Stock. EDS then immediately
sold its total interest in the Company, representing 1,863,364 shares, in a
private transaction to Founders Equity Group, Inc. and the Dodge Jones
Foundation, two Texas-based institutional investors. In conjunction with this
transaction, the Company entered into registration rights agreements with the
two institutional investors.
Additionally, EDS and the Company agreed to amend a license and grant of
rights agreement which specifies rights and obligations of both parties as to
788 of the Company's site licenses sold to EDS in fiscal 1994, and to terminate
all formal agreements including the aforementioned stock option agreement, as
well as their joint marketing and other supporting business agreements.
NOTE H--PROPERTY AND EQUIPMENT
Property and equipment consists of the following at October 31:
<TABLE>
<CAPTION>
1999 1998
---------- -------
<S> <C> <C>
Telephone switch equipment.......................... $ 982,699 $ --
Vending machines.................................... 97,346 --
Leasehold improvements.............................. 21,544 --
Furniture and fixtures.............................. 68,395 72,282
Computer equipment.................................. 77,406 5,199
Computer software................................... 267,438 1,010
---------- -------
1,514,828 78,491
Less accumulated depreciation and amortization...... (93,500) (19,356)
---------- -------
$1,421,328 $59,135
========== =======
</TABLE>
F-17
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Depreciation and amortization expense from continuing operations amounted to
$91,338, $19,356 and $0 in 1999, 1998, and 1997, respectively.
NOTE I--SHAREHOLDERS' EQUITY
Warrant Issuances
Founders Equity Group, Inc.
On May 9, 1997, Founders Equity Group, Inc. exercised its right to
demand that the Company file a registration statement with regard to all
its shares (863,364) of the Company's Common Stock. Such shares were
acquired from EDS on April 29, 1997 (see Note G--EDS Agreements and
Transaction). Under applicable securities laws, the Company was unable to
file such registration statement until after the filing of the registration
statement relating to the resale of shares of the Company's Common Stock in
the proposed Merger of the Company and Auto-Gas Systems, Inc. Pursuant to
the terms of the registration rights agreement with Founders Equity Group,
Inc., the Company was to have filed a registration statement on or about
July 23, 1997 or incur a registration penalty of 50,000 shares per month.
Founders Equity Group, Inc. agreed to extend the registration obligation
until August 26, 1997 in exchange for its receipt of a warrant to purchase
50,000 shares of the Company's Common Stock at an exercise price of $2.00
per share. Such warrants are exerciseable and expire on August 1, 2000. The
registration obligation was satisfied by the filing of a registration
statement on Form S-3 on August 13, 1997.
The Company recorded expense of $56,500 in August, 1997 related to these
Warrants. This amount represents the Company's estimate of the fair value
of these warrants at the date of grant using a Black-Scholes pricing model
with the following assumptions: applicable risk-free interest rate based on
the current treasury-bill interest rate at the grant date of 5.9%; dividend
yields of 0%; volatility factors of the expected market price of the
Company's common stock of .85; and an expected life of the warrant of 1.5
years.
Performance Warrants
In September 1997, the Company executed employment agreements with
certain executives which provided for the issuance of warrants ("1997
Performance Warrants") to each executive as additional compensation. These
agreements were effective July 1, 1997. The aggregate number of shares to
be issued upon exercise of such 1997 Performance Warrants is 475,000. Each
1997 Performance Warrant expires 10 years from the date of issuance, and
was exercisable at a price of $2.25 per share, the closing price of the
Company's Common Stock on July 17, 1997, the date that the compensation
committee approved the issuance of such warrants. The 1997 Performance
Warrants vest 50% upon the "Trigger Date" and 50% on the one-year
anniversary of the Trigger Date. As used in each warrant agreement, the
Trigger Date means the date of the earlier of the following events: (i) the
earnings per share of the Company (after tax) equals or exceeds $0.30 per
share during any fiscal year, (ii) the closing price of the Company's
Common Stock equals or exceeds $8.00 per share for sixty-five consecutive
trading days, or (iii) a Change of Control.
The warrant agreements define a "Change of Control" as existing upon any
of the following: (i) any person or entity is or becomes the beneficial
owner of more than thirty percent (30%) of the combined voting power of the
outstanding securities of CRSI or the Company; (ii) at any time during the
twenty-four month period following a merger, tender offer, consolidation,
sale of assets or contested election, or any combination of such
transactions, at least a majority of the Board of Directors of CRSI or the
Company shall cease to be "continuing directors" (meaning a director of
CRSI or the Company prior to such transaction or who subsequently became
directors and whose election or nomination for election by
F-18
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the stockholders of CRSI or the Company, was approved by a vote of at least
two-thirds of the directors then still in office prior to such
transaction); or (iii) the stockholders approve an agreement of sale or
disposition by CRSI or the Company of all or substantially all of the
assets of CRSI or the Company.
In accordance with APB No. 25, and its related interpretations, the
Company has recorded no compensation expense.
Effective on January 30, 1998, 475,000 of the 1997 Performance Warrants
vested concurrent with the issuance of common stock and warrants in
connection with the acquisition of USC. During fiscal 1998, 1997
Performance Warrants to acquire 100,000 shares were cancelled. The exercise
price of $2.25 was in excess of the trading price at the vesting date, and
accordingly no compensation pursuant to APB No. 25 was recorded by the
Company during 1998. The fair value of these warrants has been calculated
pursuant to SFAS 123 "Accounting for Stock Based Compensation". The fair
value of the warrants using the Black-Scholes pricing model was $650,011
with the following assumptions: applicable risk-free interest rates based
on the current treasury-bill interest rate at the grant date of 6.0%;
dividend yields of 0%; volatility factors of the expected market price of
the Company's common stock of .99; and an expected life of the Performance
Warrants of 5 years. See pro forma and other disclosures further.
Effective July 20, 1998, the 1997 Performance Warrants were repriced to
0.53 per share, the closing price of the Company's Common Stock on that
date. The repricing was made because management believes that the higher
priced options were no longer a motivating factor. The options repriced are
reflected in the cancellation and grant activity for 1998.
Effective June 16, 1998, 50,000 warrants were issued relating to an
asset purchase entered into by the Company (see note C). The warrants were
initially exercisable at a price of $1 per share, and subsequently repriced
to $0.53 per share on July 20, 1998. These warrants vest upon attainment of
certain target revenues as specified in the warrant agreement. On June 30,
1999, 25,000 of the warrants expired without vesting. The remaining 25,000
warrants expire on June 30, 2000.
Effective July 20, 1998, an additional 500,000 performance warrants were
issued to certain executives ("1998 Performance Warrants"). Each 1998
Performance Warrant expires 10 years after the date of issuance and is
excisable at a price of $0.53 per share, the closing price of the Company's
Stock on July 20, 1998. The 1998 Performance Warrants vest upon achieving
either $50 million in revenue in any period of twelve consecutive months
with positive earnings during such months, or upon a change of control of
the Company. In accordance with APB No. 25, and its related
interpretations, the Company has recorded no compensation expense to date.
Compensation expense will be recognized when it becomes probable that an
event, which will trigger vesting, will occur.
Effective July 15, 1999, 50,000 performance warrants were issued to an
employee of the Company ("1999 Performance Warrants"). The warrants expire
two years from the date of vesting and are exercisable at $0.46 per share,
the closing price of the Company's stock on July 15, 1999. The 1999
Performance Warrants vest upon achieving target revenues in excess of
$750,000 per month for three consecutive months during the vesting period.
In accordance with APB No. 25, and its related interpretations, the Company
has recorded no compensation expense to date. Compensation expense will be
recognized when it becomes probable that an event, which will trigger
vesting, will occur.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 "Accounting for Stock-Based Compensation", and has
been determined as if the Company had accounted for the Performance
Warrants under the fair value method of that statement. The fair value of
the 1999 and 1998 Performance Warrants was estimated to be approximately
$11,678 and $205,000 in 1999 and 1998, respectively at the date of grant
using a Black-Scholes pricing model with the following
F-19
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
assumptions: applicable risk-free interest rates based on the current
treasury-bill interest rate at the grant date of 6.0% in 1999 and 5.4% in
1998; dividend yields of 0% in both years; volatility factors of the
expected market price of the Company's common stock of .90 and 1.01,
respectively; and an expected life of the Performance Warrants of 2 and 5
years, respectively.
The weighted-average fair value of warrants granted during 1999 and 1998
is $0.38 and $1.08, respectively, and the weighted-average remaining
contractual life of warrants outstanding at October 31, 1999 and 1998 is
7.0 and 9.2 years, respectively.
Compensation Warrants
On January 11, 1999, the Company retained a consultant to assist in its
strategic planning and investor relations activities by issuing warrants to
acquire 50,000 shares of Company common stock at an exercise price of $.29
per share. The right to acquire 25,000 shares under such warrant vests on
January 10, 2000, and the right to acquire the remaining 25,000 shares
under the warrant vests on July 10, 2000.
The Company recorded expense of $5,942 in 1999 related to these
warrants. This amount represents the Company's estimate of the fair value
of these warrants at the date of grant using a Black-Scholes pricing model
with the following assumptions: applicable risk-free interest rate based on
the current treasury-bill interest rate at the grant date of 6.0%; dividend
yields of 0%; volatility factors of the expected market price of the
Company's common stock of 1.02; and an expected life of the warrant of one
year.
On August 16, 1999, the Company issued a warrant to an employee of the
Company to acquire 50,000 shares of common stock at an exercise price of
$0.55 per share, the closing price of the Company's common stock on
August 13, 1999. On October 1, 1999, the Company issued a warrant to an
employee of the Company to acquire 50,000 shares of the Company's common
stock at an exercise price of $0.80 per share, the closing price of the
Company's common stock on September 30, 1999. Each of these warrants vests
in 25,000 share increments on the first and second anniversary dates of the
warrant, and are exerciseable during the two year period following the date
of vesting. The right to purchase any shares under these warrants
terminates upon any termination of employment with the Company. Each of
these warrants were issued as consideration for services.
October 26, 1999, the Company issued a warrant to a distributor of the
Company's prepaid phone cards to acquire 50,000 shares of common stock at
an exercise price of $0.88 per share, the closing price of the Company's
common stock on October 25, 1999. The warrant is exerciseable beginning
October 26, 2001 and expires October 26, 2003. This warrant was issued as
consideration for services.
During the fiscal year ended October 31, 1999, the Company issued a
warrant to purchase 20,000 shares of the Company's common stock for
provision of services. The fair market value of these warrants is not
significant, and therefore is not included in the proforma disclosure or
net income for the year.
Stock Options
In 1990, the Company adopted a stock option plan (the "Stock Option Plan").
The Stock Option Plan authorizes the Board of Directors to grant up to
1,200,000 options to purchase common shares of the Company. No options will be
granted to any individual director or employee which will, when exercised,
exceed 5% of the issued and outstanding shares of the Company. The term of any
option granted under the Stock Option Plan is fixed by the Board of Directors
at the time the options are granted, provided that the exercise period may not
be longer than 10 years from the date of granting. All options granted under
the Stock Option Plan have up to 10 year terms and have vesting periods which
range from 0 to 3 years from the grant date. The exercise price of any options
granted under the Stock Option Plan is the fair market value at the date of
grant. As of October 31, 1997, the Board had granted certain options under the
Stock Option Plan in excess of shares
F-20
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
authorized under the plan. On February 26, 1998, the Board of Directors
increased the number of shares issuable under the Company's stock option plan
(the "Stock Option Plan") from 1.2 million shares to 2.3 million shares so that
stock options previously granted by the Board in excess of those permitted by
the Stock Option Plan could be covered by the plan. Activity under the Stock
Option Plan for the three years ended October 31, 1999 was as follows:
<TABLE>
<CAPTION>
Number Option
of Price
Shares Per Share
--------- -------------
<S> <C> <C>
Options outstanding at October 31, 1996.......... 1,051,050 $1.88 - $5.00
Options granted................................ 266,000 1.50 - 2.50
Options canceled............................... (299,350) 1.88 - 5.00
--------- -------------
Options outstanding at October 31, 1997.......... 1,017,700 1.50 - 5.00
Options granted................................ 199,050 0.38 - 1.41
Options exercised.............................. -- --
Options canceled............................... (122,600) 1.41 - 5.00
--------- -------------
Options outstanding at October 31, 1998.......... 1,094,150 0.38 - 5.00
Options granted................................ 901,450 0.28 - 0.48
Options exercised.............................. (20,000) 0.40
Options canceled............................... (912,300) 0.28 - 5.00
--------- -------------
Options outstanding at October 31, 1999.......... 1,063,300 0.30 - 2.50
========= =============
</TABLE>
Effective December 11, 1998, employee options to purchase 792,150 shares
were repriced to $.40 per share, the closing price of the Company's stock on
that date. The repricing was made because the Board of Directors believed that
the higher priced options were no longer a motivating factor for key employees
and officers. The repriced options are reflected above in the cancellation and
grant activity for 1999.
A summary of the Company's stock option activity and related information for
the years ended October 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--Beginning
of year................ 1,094,150 $1.95 1,017,700 $2.23 1,051,050 $3.04
Granted................. 901,450 0.40 199,050 0.94 266,000 1.91
Exercised............... (20,000) 0.40 -- -- -- --
Canceled................ (912,300) 1.97 (122,600) 2.17 (299,350) 4.35
--------- ----- --------- ----- --------- -----
Outstanding--End of
year................... 1,063,300 0.70 1,094,150 1.95 1,017,700 2.23
========= ===== ========= ===== ========= =====
Exercisable at end of
year................... 1,043,300 0.72 732,850 2.20 691,535 2.29
Weighted-average fair
value of options
granted
during the year........ $0.24 $0.49 $1.33
</TABLE>
The weighted-average remaining contractual life of options outstanding at
October 31, 1999, 1998 and 1997 is 2.12 years, 4.37 years and 4.37 years,
respectively.
At October 31, 1999, there are 2,283,300 shares issuable upon the exercise
or conversion of outstanding options issued under the Stock Option Plan or
warrants.
Under APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
F-21
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for options was estimated at the date of grant using
a Black-Scholes option pricing model with the following assumptions: applicable
risk-free interest rates based on the current treasury-bill interest rate at
the grant date, which approximated 6% in 1999, 5.4% to 6.0% in 1998 and 5.8% to
6.2% in 1997; dividend yields of 0% in all three years; volatility factors of
the expected market price of the Company's common stock of approximately .90 in
1999; between .94 and 1.0 in 1998 and between .89 and .95 in 1997; and an
expected life of the option of between 3 and 6 years in 1999, 2 and 6 years in
1998 and between 1.6 and 6 years in 1997.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options and warrants is amortized to expense over the vesting period of the
related option or warrant. The effects of applying SFAS No. 123 in computing
the pro forma disclosures presented below are not indicative of future amounts
as only options and warrants granted subsequent to October 31, 1995 have been
included in the pro forma computations. The Company's pro forma information for
the years ended October 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ---------
<S> <C> <C> <C>
Net income (loss) as reported............. $1,713,380 $(2,724,162) $ 87,331
SFAS No. 123 Pro forma adjustments:
Stock options........................... (81,849) (261,726) (465,476)
Performance warrants.................... (11,678) (650,011) --
---------- ----------- ---------
Pro forma net income (loss)............... $1,619,853 $(3,635,899) $(378,145)
========== =========== =========
Income (loss) per share as reported -
basic and diluted........................ $ 0.25 $ (0.38) $ 0.01
========== =========== =========
Pro forma income (loss) per share - basic
and diluted.............................. $ 0.24 $ (0.51) $ (0.06)
========== =========== =========
</TABLE>
Stock Option Plan
As of October 31, 1999, 1,141,990 shares of the Company's Common Stock have
been issued under the Stock Option Plan, 1,063,300 shares remain subject to
outstanding options under the Stock Option Plan, and 94,710 shares were
available for future grants under the Stock Option Plan.
NOTE J--INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.
F-22
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The temporary differences that give rise to the deferred tax assets or
liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryovers................... $6,252,711 $7,201,424
Accounts receivable............................. 78,770 1,360
Property and equipment.......................... -- 62,700
Other assets.................................... 173,710 168,989
Other........................................... 202 202
---------- ----------
Total gross deferred tax assets............... $6,505,393 $7,434,675
Deferred tax liabilities
Current assets of discontinued operations....... -- (337,682)
Other........................................... (447) --
---------- ----------
Total gross deferred tax liabilities.......... (447) (337,682)
---------- ----------
6,504,946 7,096,993
Valuation allowance........................... (6,504,946) (7,096,993)
---------- ----------
Net deferred tax assets......................... $ -- $ --
========== ==========
</TABLE>
The reconciliation of income tax provision at the statutory United States
federal income tax rates to income tax provision is:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Income tax provision (benefit) at
statutory rate......................... $ 582,549 $(923,263) $ 29,693
Change in valuation allowance........... (592,047) 390,118 --
Difference related to USC rescission.... -- 533,145 --
Other................................... 9,498 -- (29,693)
--------- --------- --------
$ -- $ -- $ --
========= ========= ========
</TABLE>
At October 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $18.4 million which expire in 2006
through 2019. Utilization of net operating losses may be subject to annual
limitations due to limitations provided for by the Internal Revenue Code of
1986. The annual limitation may also result in the expiration of net operating
losses before utilization.
NOTE K--COMMITMENTS
The Company leases branch office facilities and its corporate office under
various noncancelable operating leases with terms expiring at various dates
through 2004. The Company has also entered into various operating leases for
equipment used in the Company's business. Rental expense for operating leases
was $210,157 and $585,428 for the years ended October 31, 1999 and 1998,
respectively.
F-23
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under noncancelable operating leases as of
October 31, 1999 are as follows:
<TABLE>
<S> <C>
2000............................................................ $191,948
2001............................................................ 182,488
2002............................................................ 156,146
2003............................................................ 152,375
2004............................................................ 65,081
--------
$748,038
========
</TABLE>
NOTE L--BENEFIT PLAN
Effective January 1, 1994, the Company implemented an Internal Revenue Code
Section 401(k) Profit Sharing Plan for all employees of the Company. The Plan
provides for voluntary contributions by employees into the Plan subject to the
limitations imposed by the Internal Revenue Code Section 401(k). The Company
may match employee contributions to a discretionary percentage of the employees
contribution. The Company's matching funds are determined at the discretion of
the Board of Directors and are subject to a seven-year vesting schedule from
the date of original employment. The Company made matching contributions of
$18,659 for the year ended October 31, 1999. No matching contributions were
made for the years ended October 31, 1998 and 1997.
NOTE M--SUBSEQUENT EVENTS
On November 2, 1999, the Company consummated the acquisition of
substantially all of the assets and business of Dial-Thru International
Corporation, a California corporation now known as DTI-LIQCO, Inc. (the
"Seller"), including the rights to the name "Dial-Thru International
Corporation." The acquisition was effected pursuant to the terms of an Asset
Purchase Agreement between the Company, a wholly owned subsidiary of the
Company, the Seller and John Jenkins, the sole shareholder of the Seller. The
Company issued to the Seller an aggregate of 1,000,000 shares of common stock,
and agreed to issue an additional 1,000,000 shares of its common stock upon the
acquired business achieving specified revenue and earnings goals. The number of
shares issued to the Seller was determined after considering the value of the
business acquired and arm's-length negotiations with John Jenkins, the sole
shareholder of the Seller. In connection with the acquisition, John Jenkins
joined the Company as the president of the subsidiary formed to operate the
acquired business. Mr. Jenkins now serves as President and Chief Operating
Officer of the Company and has the joined the Company's Board of Directors. The
acquired business provides a variety of international telecommunications
services, including international dial-thru, callback and Internet FaxThru
services. The acquired business utilizes packetized voice technology and
compression techniques, such as Voice over Internet protocol, to improve both
costs and efficiencies of its telecommunications transmissions. The acquisition
will be accounted for under the purchase method of accounting.
On August 17, 1999, USC commenced a voluntary Chapter 11 reorganization
proceeding before the United States Bankruptcy Court for the Southern District
of California. Upon the rescission of the Company's acquisition of USC in June
of 1998, USC consolidated its then existing debt obligations into a promissory
note, of which approximately $460,000 of principal remained outstanding at
October 31, 1999. In January 2000, bankruptcy proceedings were settled and the
Company has agreed to a full settlement of outstanding debts owed by USC in the
amount of $300,000. The remaining balance due of $160,000 has been charged to
operations during 1999.
F-24
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board Of Directors and Stockholders
Dial-Thru International Corporation
In connection with our audit of the consolidated financial statements of
Dial-Thru International Corporation and Subsidiaries referred to in our report
dated January 7, 2000, we have also audited Schedule II for the years ended
October 31, 1999 and 1998. In our opinion, this schedule presents fairly, in
all material respects, the information required to be set forth herein.
King Griffin & Adamson P.C.
Dallas, Texas
January 7, 2000
S-1
<PAGE>
DIAL-THRU INTERNATIONAL CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the years ended October 31, 1999 and 1998
<TABLE>
<CAPTION>
Additions
--------------------
Balance at Charged Charged Balance at
beginning to to other end of
of period expense accounts Deductions period
---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1999
Allowance for
uncollectible accounts $ 4,001 $405,825 $ -- $178,151(2) $ 231,675
========== ======== ===== ======== ==========
Deferred tax valuation
allowance $7,096,993 $ -- $ -- $592,047(3) $6,504,946
========== ======== ===== ======== ==========
1998
Allowance for
uncollectible accounts $ 26,900 $ -- $ -- $ 22,899(1) $ 4,001
========== ======== ===== ======== ==========
Deferred tax valuation
allowance $6,995,956 $101,037(3) $ -- $ -- $7,096,993
========== ======== ===== ======== ==========
</TABLE>
- --------
(1) Collections on accounts previously written off.
(2) Write offs.
(3) Utilization and/or revaluation of deferred tax assets.
(4) Information for the year ended October 31, 1997 has been omitted as all
amounts are included in discontinued operations for that period.
S-2
<PAGE>
Exhibit 3.1
-----------
CERTIFICATE OF INCORPORATION
OF
ARDIS TELECOM & TECHNOLOGIES, INC.
FIRST: The name of the Corporation is ARDIS Telecom & Technologies, Inc.
(the "Corporation").
SECOND: The name and mailing address of the Incorporator of the
Corporation is William L. Rivers, c/o Arter & Hadden LLP, 1717 Main Street,
Suite 4100, Dallas, Texas 75201.
THIRD: The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle 19801. Its
registered agent at such address is The Corporation Trust Company.
FOURTH: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The aggregate number of shares of all classes of stock which the
corporation shall have authority to issue is Fifty-four Million One Hundred
Sixty-nine Thousand One Hundred (54,169,100) shares, consisting of (A) Forty-
four Million One Hundred Sixty-nine Thousand One Hundred (44,169,100) shares of
common stock, par value $0.001 per share (the "Common Stock"), and (B) Ten
Million (10,000,000) shares of preferred stock, par value $0.0001 per share (the
"Preferred Stock").
The designations, powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof with respect to the Common Stock and the Preferred Stock are as follows:
(A) Common Stock.
Each holder of the Common Stock of the Corporation shall be entitled to one
vote for every share of Common Stock outstanding in his name on the books of the
Corporation. Except for and subject to those rights expressly granted to the
holders of the Preferred Stock or except as may be provided by the laws of the
State of Delaware, the holders of Common Stock shall have exclusively all other
rights of stockholders including, without limitation, (i) the right to receive
dividends, when and as declared by the Board of Directors out of assets legally
available therefor, and (ii) in the event of any distribution of assets upon
liquidation, dissolution or winding up of the Corporation or otherwise, the
right to receive ratably and equally with all holders of all Common Stock all
the assets and funds of the Corporation remaining after the payment to the
holders of the Preferred
________________________________________________________________________________
CERTIFICATE OF INCORPORATION - Page 1
(ARDIS Telecom & Technologies, Inc.)
<PAGE>
Stock of the specific amounts that they are entitled to receive upon such
liquidation, dissolution or winding up of the Corporation, if any.
(B) Preferred Stock.
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated in the resolution or resolutions
providing for the establishment of such series adopted by the Board of Directors
of the corporation as hereinafter provided. Except as otherwise expressly stated
in the resolution or resolutions providing for the establishment of a series of
Preferred Stock, any shares of Preferred Stock that may be redeemed, purchased
or acquired by the Corporation may be reissued except as otherwise expressly
provided by law. Different series of Preferred Stock shall not be construed to
constitute different classes of stock for the purpose of voting by classes
unless expressly provided in the resolution or resolutions providing for the
establishment thereof. The Board of Directors of the Corporation is hereby
expressly authorized to issue, from time to time, shares of Preferred Stock in
one or more series, and, in connection with the establishment of any such series
by resolution or resolutions, to determine and fix the number of shares
constituting that series and the distinctive designation of that series and to
determine and fix such voting powers, full or limited, or no voting powers, and
such other powers, designations, preferences and relative, participating,
optional and other rights, and the qualifications, limitations and restrictions
thereof, including, without limitation, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be stated in such
resolution or resolutions, all to the fullest extent permitted by the Delaware
General Corporation law (the "DGCL"). Without limiting the generality of the
foregoing, the resolution or resolutions providing for the establishment of any
series of Preferred Stock may, to the extent permitted by law, provide that such
series shall be superior to, rank equally with or be junior to the Preferred
Stock of any other series. Except as otherwise expressly provided in the
resolution or resolutions providing for the establishment of any series of
Preferred Stock, no vote of the holders of shares of Preferred Stock or Common
Stock shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of this
Certificate of Incorporation.
SEVENTH: In furtherance and not in limitation of the powers conferred on
it by the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, amend or repeal the Bylaws of the Corporation.
EIGHTH: No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director of the Corporation; PROVIDED, HOWEVER, that the
foregoing is not intended to eliminate or limit the liability of a director of
the Corporation for (i) any breach of a director's duty of loyalty to the
Corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional
________________________________________________________________________________
CERTIFICATE OF INCORPORATION - Page 2
(ARDIS Telecom & Technologies, Inc.)
<PAGE>
misconduct or a knowing violation of law, (iii) a violation of Section 174 of
the DGCL, or (iv) any transaction from which the director derived an improper
personal benefit. No amendment to or repeal of this Article NINTH shall apply to
or have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
TENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the DGCL, as that section may be amended and supplemented from time to
time, indemnify any director or officer of the Corporation (and any director,
trustee or officer of any corporation, business trust or other entity to whose
business the Corporation shall have succeeded) which it shall have power to
indemnify under that Section against any expenses, liabilities or other matter
referred to in or covered by that Section. The indemnification provided for in
this Article TENTH (a) shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any Bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (b) shall continue as to a person who has ceased to be a director or
officer and (c) shall inure to the benefit of the heirs, executors and
administrators of such a person. To assure indemnification under this Article
TENTH of all such persons who are determined by the Corporation or otherwise to
be or to have been "Fiduciaries" of any employee benefit plan of the Corporation
which may exist from time to time and which is governed by the Act of Congress
entitled "Employee Retirement Income Security Act of 1974," as amended from time
to time, such Section 145 shall, for the purposes of this Article, be
interpreted as follows: an "other enterprise" shall be deemed to include such an
employee benefit plan; the Corporation shall be deemed to have requested a
person to serve an employee benefit plan where the performance by such person of
his duties to the Corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines;" and action taken or
omitted by a person with respect to an employee benefit plan in the performance
of such person's duties for a purpose reasonably believed by such person to be
in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
Corporation.
ELEVENTH: Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 662/3% of the
outstanding shares of the Common Stock of the Corporation shall be required to
amend or repeal Articles EIGHTH and TENTH of this Certificate of Incorporation
or to adopt any provision inconsistent therewith. Further, the affirmative vote
of at least 662/3% of the outstanding shares of the Common Stock of the
Corporation shall be required to amend or repeal the Bylaws of the Corporation,
if the stockholders of the Corporation are required by the DGCL, the Certificate
of Incorporation or the Bylaws to vote thereon. Except as provided herein, the
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights herein conferred
are granted subject to this reserved power.
________________________________________________________________________________
CERTIFICATE OF INCORPORATION - Page 3
(ARDIS Telecom & Technologies, Inc.)
<PAGE>
TWELFTH: Meetings of stockholders may be held within or without the State
of Delaware as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the Delaware General Corporation Law)
outside the State of Delaware at such place or places as may be designated form
time to time by the Board of Directors or in the Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 30th day of December,
1998, and affirm the statements contained therein as true under penalties of
perjury.
/s/ William L. Rivers
---------------------
William L. Rivers
Incorporator
________________________________________________________________________________
CERTIFICATE OF INCORPORATION - Page 4
(ARDIS Telecom & Technologies, Inc.)
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARDIS TELECOM & TECHNOLOGIES, INC.
ARDIS TELECOM & TECHNOLOGIES, INC (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware ("DGCL"),
DOES HEREBY CERTIFY THAT:
FIRST: The name of the Corporation is ARDIS TELECOM & TECHNOLOGIES, INC.
SECOND: The Board of Directors of the Corporation (the "Board"), at a
special meeting held on November 23, 1999, did unanimously adopt resolutions
approving the amendment to the Corporation's Certificate of Incorporation. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that ARTICLE I of the Certificate of Incorporation of the
Corporation be amended to read in its entirety as follows:
"ARTICLE I
The name of the Corporation is : DIAL-THRU INTERNATIONAL CORPORATION"
THIRD: That the proposed amendment to ARTICLE I of the Certificate of
Incorporation of the Corporation was submitted to the stockholders of the
Corporation at a special meeting held on January 14, 2000 and the stockholders
of the Corporation duly adopted, approved and confirmed such amendment to
ARTICLE I of the Certificate of Incorporation.
FOURTH: That said amendment was duly adopted in accordance with Section
242 of the DGCL.
________________________________________________________________________________
CERTIFICATE OF INCORPORATION - Page 5
(ARDIS Telecom & Technologies, Inc.)
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Amendment of Certificate of Incorporation to be executed as of this 14th day of
January, 2000.
ARDIS TELECOM & TECHNOLOGIES, INC
By: /s/ Roger D. Bryant
----------------------------
Name: Roger D. Bryant,
Chairman
________________________________________________________________________________
CERTIFICATE OF INCORPORATION - Page 6
(ARDIS Telecom & Technologies, Inc.)
<PAGE>
Exhibit 3.2
-----------
AMENDED AND RESTATED
BYLAWS
of
DIAL-THRU INTERNATIONAL CORPORATION
adopted January 14, 2000
<PAGE>
AMENDED AND RESTATED
BYLAWS
of
DIAL-THRU INTERNATIONAL CORPORATION
(a Delaware corporation)
ARTICLE I
Offices
SECTION 1.1. The registered office of the Corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware.
SECTION 1.2. The Corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 2.1. Annual Meetings. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place within or without
the State of Delaware, and at such hour of the day as the Board of Directors
shall determine by resolution.
SECTION 2.2. Special Meetings. Special meetings of the stockholders for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by order of the Chairman, or if none
is appointed, the President, and shall be called by the Chairman or Secretary at
the request in writing of a majority of the Board of Directors or the whole
Executive Committee. Special meetings of the stockholders of the Corporation may
not be called by any other person or persons. Special meetings of the
stockholders shall be held at such place within or without the State of
Delaware, on such date, and at such time as may be designated by the person or
persons calling the meeting.
SECTION 2.3. Notice of Meetings. Written notice of every meeting of
stockholders, stating the time, place and purposes thereof, shall be given
personally or by mail at least ten (10), but not more than sixty (60), days
(except as otherwise provided by law) before the date of such meeting to each
person who appears on the stock transfer books of the Corporation as a
stockholder and who is entitled to vote at such meeting. If such notice is
mailed, it shall be directed to such stockholder at his address as it appears on
the stock transfer books of the Corporation.
________________________________________________________________________________
BYLAWS - Page 1
(Dial-Thru International Corporation)
<PAGE>
SECTION 2.4. Quorum. At any meeting of the stockholders the holders of a
majority of the shares of the Corporation entitled to vote at such meeting,
present in person or represented by proxy, shall constitute a quorum for all
purposes, except where otherwise provided by law or in the Certificate of
Incorporation. A quorum, once established, shall not be broken by the withdrawal
of enough votes to leave less than a quorum and the votes present may continue
to transact business until adjournment, provided that any action (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
SECTION 2.5. Adjournments. If at any meeting of stockholders a quorum shall
fail to attend in person or by proxy, the holders of a majority of the shares
present in person or by proxy and entitled to vote at such meeting may adjourn
the meeting from time to time until a quorum shall attend, and thereupon any
business may be transacted which might have been transacted at the meeting as
originally called. Notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken, provided, however, that if the adjournment is for more than thirty (30)
days or if after the adjournment a new record date is fixed, notice of the
adjourned date shall be given.
SECTION 2.6. Organization. The Chairman, if one is elected, and in his
absence the President, and in their absence the Vice President, shall call
meetings of the stockholders to order and shall act as chairman thereof. The
Secretary or an Assistant Secretary of the Corporation shall act as secretary at
all meetings of the stockholders when present, and, in the absence of both, the
presiding officer may appoint any person to act as secretary. The chairman of
any meeting of stockholders shall determine the order of business and the
procedure at the meeting, including such regulation of the manner of voting and
the conduct of discussion as he may deem appropriate in his discretion.
SECTION 2.7. Voting. At each meeting of the stockholders, each holder of the
shares of Common Stock shall be entitled to one vote on such matter for each
such share and may exercise such voting right either in person or by proxy
appointed by an instrument in writing subscribed by such stockholder or his duly
authorized attorney. No such proxy shall be voted or acted upon after three (3)
years from its date unless the proxy provides for a longer period. Voting need
not be by ballot. All elections of directors shall be decided by a plurality
vote and all questions decided and actions authorized by a majority vote, except
as otherwise required by law.
SECTION 2.8. Inspectors. At any meeting of stockholders, inspectors of
election may be appointed by the presiding officer of the meeting for the
purpose of opening and closing the polls, receiving and taking charge of the
proxies, and receiving and counting the ballots or the vote of stockholders
otherwise given. The inspectors shall be appointed by the presiding officer of
the meeting, shall be sworn to faithfully perform their duties, and shall in
writing certify to the returns. No candidate for election as director shall be
appointed or act as inspector.
SECTION 2.9. Stockholder List. At least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered
________________________________________________________________________________
BYLAWS - Page 2
(Dial-Thru International Corporation)
<PAGE>
in the name of such stockholder, shall be prepared and held open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours for said ten (10) days either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 2.10. Business to be Transacted at Meetings. At a meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a special meeting,
business must be specified in the notice of the meeting (or any supplement
thereto). To be properly brought before an annual meeting, business must be (a)
specified in the notice of the meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors or (c)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must, in addition to any requirements imposed by federal securities law or other
laws, have given timely notice thereof in writing to the secretary of the
Corporation. To be timely for an annual meeting, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, no later than ninety (90) days prior to the scheduled meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, if less than one hundred (100) days notice or
prior public disclosure of the date of the scheduled meeting is given, notice by
the stockholders must be so delivered or received not later than the close of
business on the tenth (10th) day following the earlier of the day on which such
notice of the date of the scheduled annual meeting was mailed or the day on
which public disclosure was made. A stockholder's notice to the secretary with
regard to an annual meeting shall set forth as to each matter that the
stockholder proposes to bring before the meeting, (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as they appear on
the Corporation's books, of the stockholders supporting such proposal, (c) the
class and number of shares of the Corporation that are beneficially owned by the
supporting stockholders on the date of the presenting stockholders' notice and
(d) any material interest of the presenting or supporting stockholders in such
business. The chairman of the meeting may refuse to bring before a meeting any
business not properly brought before the meeting in compliance with this
section.
ARTICLE III
Directors
SECTION 3.1. Functions and Number. The property, business and affairs of the
Corporation shall be managed and controlled by a board of directors, who need
not be stockholders, citizens of the United States or residents of the State of
Delaware. The number of members which shall constitute the Board of Directors
shall be such number, not less than three, determined by resolution of the Board
of Directors or by the stockholders at an annual or special meeting held for
that purpose, but no decrease in the Board of Directors shall have the effect of
shortening the term
________________________________________________________________________________
BYLAWS - Page 3
(Dial-Thru International Corporation)
<PAGE>
of an incumbent director. The first Board of Directors shall consist of five (5)
members, such number to constitute the first whole Board of Directors. The use
of the phrase "whole Board" herein refers to the total number of directors which
the Corporation would have if there were no vacancies. Except as otherwise
provided by law or in these Bylaws or in the Certificate of Incorporation, the
directors shall be elected by the stockholders entitled to vote at the annual
meeting of stockholders of the Corporation, and shall be elected to serve until
the next annual meeting of stockholders and until their successors shall be
elected and shall qualify.
SECTION 3.2. Removal. Any director may be removed, with or without cause, by
the affirmative vote of the holders of a majority of the then outstanding shares
of Common Stock.
SECTION 3.3. Vacancies. Unless otherwise provided in the Certificate of
Incorporation or in these Bylaws, vacancies among the directors, whether caused
by resignation, death, disqualification, removal, an increase in the authorized
number of directors or otherwise, may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
SECTION 3.4. Place of Meeting. The directors may hold their meetings and may
have one or more offices and keep the books of the Corporation (except as
otherwise may at any time be provided by law) at such place or places within or
without the State of Delaware as the Board may from time to time determine.
SECTION 3.5. Annual Meeting. The newly elected Board may meet for the purpose
of organization, the election of officers and the transaction of other business,
at such time and place within or without the State of Delaware as shall be fixed
as provided in Section 3.7 of this Article for special meetings of the Board of
Directors.
SECTION 3.6. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place within or without the State of Delaware as
the Board of Directors shall from time to time by resolution determine and no
notice of such regular meetings shall be required.
SECTION 3.7. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the direction of the Chairman or a majority of
the directors then in office. The Secretary or some other officer or director of
the Corporation shall give notice to each director of the time and place of each
special meeting either (a) by mailing the same at least five (5) days before the
meeting, (b) by delivery by personal delivery or courier the same not later than
the day before the meeting, or (c) by telefaxing, e-mailing, telexing,
telegraphing or telephoning the same not later than the day before the meeting,
at the residence address (or e-mail address, telephone number or facsimile
number) of each director or at his usual place of business. Special meetings of
the Board shall be held at such place within or without the State of Delaware as
shall be specified in the call for the meeting. Unless expressly required by
statute, by the Certificate of Incorporation or by the Bylaws, neither the
business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice of a meeting.
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SECTION 3.8. Quorum. Except as otherwise provided by law or in the
Certificate of Incorporation, a majority of the directors in office shall
constitute a quorum for the transaction of business. A majority of those present
at the time and place of any regular or special meeting, if less than a quorum
be present, may adjourn from time to time without notice, until a quorum be had.
The act of a majority of directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
provided by law or in the Certificate of Incorporation.
SECTION 3.9. Compensation. The Board of Directors shall have the authority to
fix by resolution the compensation of directors.
SECTION 3.10. Organization. At all meetings of the Board of Directors, the
Chairman, or in his absence, the President, or in his absence the Vice President
if he is a member of the Board, or in their absence, a chairman chosen by the
directors shall preside. The Secretary or an Assistant Secretary of the
Corporation shall act as secretary at all meetings of the Board of Directors
when present, and, in the absence of both, the presiding officer may appoint any
person to act as secretary.
SECTION 3.11. Telephone Meetings. Any member of the Board of Directors may
participate in any meeting of such Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in any meeting pursuant to
this provision shall constitute presence in person at such meeting.
SECTION 3.12. Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors, or any committee thereof, may be
taken without a meeting if all the members of the Board consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board.
SECTION 3.13. Nomination of Director Candidates. Subject to the rights of the
holders of Preferred Stock or any other class of capital stock of the
Corporation (other than Common Stock) or any series of any of the foregoing that
has been outstanding, nominations for the election of directors may be made by
the Board of Directors, by any duly appointed committee thereof or by any
stockholder entitled to vote for the election of directors. Any stockholder
entitled to vote for the election of directors at any meeting may nominate
persons for election as directors only if written notice of such stockholder's
intent to make such nomination is given, either by personal delivery or by
United States Mail, postage prepaid, to the Secretary of the Corporation not
later than ninety (90) days prior to the scheduled meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, if less than one hundred (100) days notice or prior public
disclosure of the date of the scheduled meeting is given, notice by the
stockholders must be so delivered or received not later than the close of
business on the tenth (10th) day following the earlier of the day on which such
notice of the date of the scheduled annual meeting was mailed or the day on
which public disclosure was made. Each such notice shall set forth: (a) the
name, age, business address and residence address of the person or persons
intended to be nominated; (b) a representation that the stockholder is a holder
of record of stock of the Corporation entitled to vote at such meeting and
intends to
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appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had such requirements been applicable and each nominee been
nominated, or intended to be nominated, by the Board of Directors; and (e) the
consent of each nominee to serve as a director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with this section.
ARTICLE IV
Committees
SECTION 4.1. Executive Committee. The Board of Directors, by a resolution
passed by a vote of a majority of the whole Board, may appoint an Executive
Committee of one or more directors, which to the extent permitted by law and in
said resolution shall, during the intervals between the meetings of the Board of
Directors, in all cases where special directions shall not have been given by
the Board, have and exercise the powers of the Board of Directors, including
those powers enumerated in these Bylaws which are not specifically reserved to
the Board of Directors, in the management of the property, business and affairs
of the Corporation; provided, however, that the Executive Committee shall not
have any power or authority to amend the Certificate of Incorporation, to adopt
any agreement of merger or consolidation, to recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, to recommend to the stockholders a dissolution of the
Corporation or a revocation of dissolution, to amend the Bylaws of the
Corporation, to declare a dividend, to authorize the issuance of stock or to
adopt a certificate of ownership and merger. The Executive Committee shall have
power to authorize the seal of the Corporation to be affixed to all papers which
may require it. The Board of Directors shall appoint the Chairman of the
Executive Committee. The members of the Executive Committee shall receive such
compensation and fees as from time to time may be fixed by the Board of
Directors.
SECTION 4.2. Alternates and Vacancies. The Board of Directors may designate
one or more directors as alternate members of the Executive Committee who may
replace any absent or disqualified member at any meeting of the Executive
Committee. In the absence or disqualification of a member of the Executive
Committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. All other
vacancies in the Executive Committee shall be filled by the Board of Directors
in the same manner as original appointments to such Committee.
SECTION 4.3. Committees to Report to Board. The Executive Committee shall
keep regular minutes of its proceedings and all action by the Executive
Committee shall be reported to the Board of Directors at its meeting next
succeeding such action.
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<PAGE>
SECTION 4.4. Procedure. The Executive Committee shall fix its own rules of
procedure, and shall meet where and as provided by such rules or by resolution
of the Board of Directors. The presence of a majority of the then appointed
number of each committee created pursuant to this Article IV shall constitute a
quorum and in every case an affirmative vote by a majority of the members of the
committee present and not disqualified from voting shall be the act of the
committee.
SECTION 4.5. Other Committees. From time to time the Board of Directors by a
resolution adopted by a majority of the whole Board may appoint any other
committee or committees for any purpose or purposes, to the extent lawful, which
shall have such powers as shall be determined and specified by the Board of
Directors in the resolution of appointment.
SECTION 4.6. Termination of Committee Membership. In the event any person
shall cease to be a director of the Corporation, such person shall
simultaneously therewith cease to be a member of any committee appointed by the
Board of Directors, or any subcommittee thereof.
ARTICLE V
Officers
SECTION 5.1. Executive Officers. The executive officers of the Corporation
may consist of a Chairman, a President and Chief Executive Officer, one or more
Vice Presidents, a Treasurer and a Secretary, all of whom shall be elected
annually by the Board of Directors. Unless otherwise provided in the resolution
of election, each officer shall hold office until the next annual election of
directors and until his successor shall have been qualified. Any two of such
offices may be held by the same person.
SECTION 5.2. Subordinate Officers. The Board of Directors may appoint one or
more Assistant Secretaries, one or more Assistant Treasurers and such other
subordinate officers and agents as it may deem necessary or advisable, for such
term as the Board of Directors shall fix in such appointment, who shall have
such authority and perform such duties as may from time to time be prescribed by
the Board.
SECTION 5.3. Compensation. The Board of Directors shall have the power to fix
the compensation of all officers, agents and employees of the Corporation, which
power, as to other than elected officers, may be delegated as the Board of
Directors shall determine.
SECTION 5.4. Removal. All officers, agents and employees of the Corporation
shall be subject to removal, with or without cause, at any time by affirmative
vote of the majority of the whole Board of Directors whenever, in the judgment
of the Board of Directors, the best interests of the Corporation will be served
thereby. The power to remove agents and employees, other than officers or agents
elected or appointed by the Board of Directors, may be delegated as the Board of
Directors shall determine.
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SECTION 5.5. Chairman. If a Chairman is elected, he shall be chosen from
among the members of the Board of Directors and shall preside at all meetings of
the directors and the stockholders of the Corporation. The Chairman shall be the
chief executive officer of the Corporation and shall have the general powers and
duties of supervision and management of the Corporation and shall have
supervisory power over the President and all other officers of the Corporation.
SECTION 5.6. The President. The President shall be the chief operating
officer of the Corporation. The President shall, in the absence of the Chairman,
preside at all meetings of the stockholders and directors at which he is
present. The President shall also perform such other duties as may from time to
time be assigned to him by the Chairman or the Board of Directors.
SECTION 5.7. Vice Presidents. Each Vice President shall perform such duties
and shall have such authority as from time to time may be assigned to him by the
Board of Directors, the Chairman or the President.
SECTION 5.8. The Treasurer. The Treasurer shall have the general care and
custody of all the funds and securities of the Corporation which may come into
his hands and shall deposit the same to the credit of the Corporation in such
bank or banks or depositaries as from time to time may be designated by the
Board of Directors or by an officer or officers authorized by the Board of
Directors to make such designation, and the Treasurer shall pay out and dispose
of the same under the direction of the Board of Directors. He shall have general
charge of all securities of the Corporation and shall in general perform all
duties incident to the position of Treasurer.
SECTION 5.9. The Secretary. The Secretary shall keep the minutes of all
proceedings of the Board of Directors and the minutes of all meetings of the
stockholders and also, unless otherwise directed by such committee, the minutes
of each standing committee, in books provided for that purpose, of which he
shall be the custodian; he shall attend to the giving and serving of all notices
for the Corporation; he shall have charge of the seal of the Corporation, of the
stock certificate books and such other books and papers as the Board of
Directors may direct; and he shall in general perform all the duties incident to
the office of Secretary and such other duties as may be assigned to him by the
Board of Directors.
SECTION 5.10. Vacancies. All vacancies among the officers for any cause shall
be filled only by the Board of Directors.
SECTION 5.11. Bonding. The Board of Directors shall have power to require any
officer or employee of the Corporation to give bond for the faithful discharge
of his duties in such form and with such surety or sureties as the Board of
Directors may deem advisable.
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<PAGE>
ARTICLE VI
Stock
SECTION 6.1. Form and Execution of Certificates. The shares of stock of the
Corporation shall be represented by certificates in such form as shall be
approved by the Board of Directors; provided that the Board of Directors of the
Corporation may provide by resolution that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation; and, notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and every holder of uncertificated shares shall be entitled to a
certificate or certificates representing his shares upon delivery of a written
request therefor to the Secretary of the Corporation. The certificates shall be
signed by both (a) the Chairman, the President or a Vice President and (b) the
Treasurer or the Secretary or an Assistant Treasurer or Assistant Secretary,
except that where any such certificates shall be countersigned by a transfer
agent and by a registrar, the signatures of any of the officers above specified,
and the seal of the Corporation upon such certificates, may be facsimiles,
engraved or printed. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of its
issue.
SECTION 6.2. Regulations. The Board of Directors may make such rules and
regulations consistent with any governing statute as it may deem expedient
concerning the issue, transfer and registration of certificates of stock and
concerning certificates of stock issued, transferred or registered in lieu or
replacement of any lost, stolen, destroyed or mutilated certificates of stock.
SECTION 6.3. Fixing of Record Date. For the purpose of determining the
stockholders entitled to notice of, and to vote at, any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a date as the record date for any such
determination of stockholders, and all persons who are stockholders of record on
the date so fixed, and no others, shall be entitled to notice of, and to vote
at, such meeting or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock or to take any other
lawful action, as the case may be. Such record date shall not be more than sixty
(60) days nor less than ten (10) days before the date of any such meeting, nor
more than sixty (60) days prior to any other action, provided that any record
date established by the Board of Directors may not precede the date of the
resolution establishing the record date. The record date for determining
stockholders entitled to consent to corporate actions in writing shall not be
more than ten (10) days after the date upon which the resolution fixing the
record date was adopted. If no record date is
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established prior to an action undertaken by consent, the record date shall be,
if no action of the Board of Directors is required, the first date on which a
signed written consent setting forth the action taken is delivered to the
corporation. If action by the Board of Directors is required, the record date
shall be the close of business on the day the board adopts the resolution taking
the prior action.
Section 6.4. Transfer Agent and Registrar. The Board of Directors may appoint
a transfer agent or transfer agents and a registrar or registrars for any or all
classes of the capital stock of the Corporation, and may require stock
certificates of any or all classes to bear the signature of either or both.
ARTICLE VII
Seal
SECTION 7.1. Seal. The seal of the Corporation shall be circular in form and
contain the name of the Corporation, the year of its organization, and the words
"CORPORATE SEAL, DELAWARE", which seal shall be in charge of the Secretary to be
used as directed by the Board of Directors.
ARTICLE VIII
Fiscal Year
SECTION 8.1. Fiscal Year. The fiscal year of the Corporation shall end
October 31 of each year unless otherwise fixed by resolution of the Board of
Directors.
ARTICLE IX
Waiver of Notice
SECTION 9.1. Waiver of Notice. Any person may waive any notice required to be
given by law, in the Certificate of Incorporation or under these Bylaws by
attendance in person, or by proxy if a stockholder, at any meeting, except when
such person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, or by a writing signed by the person or
persons entitled to said notice, whether before or after the time stated in said
notice, which waiver shall be deemed equivalent to such notice. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors, or members of a committee appointed by the Board
of Directors need be specified in any written waiver of notice.
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ARTICLE X
Checks, Notes, Drafts, Contracts, Voting of Securities, Etc.
SECTION 10.1. Checks, Notes, Drafts, Etc. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 10.2. Execution of Contracts, Deeds, Etc. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation, to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 10.3. Provision Regarding Conflicts of Interests. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof, or the shareholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 10.4. Voting of Securities Owned by the Corporation. Subject
always to the specific directions of the Board of Directors, any share or shares
of stock or other securities issued by any other corporation and owned or
controlled by the Corporation may be voted, whether by written consent as set
forth hereinbelow or at any meeting of such other corporation, by the Chairman
of the Corporation, or in the absence of the Chairman, by the President of the
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<PAGE>
Corporation, or in the absence of the Chairman, the President, by any Vice
President of the Corporation who may be present at such meeting or available to
sign such written consent. Whenever in the judgment of the Chairman, or in his
absence, of the President, or in his absence, of any Vice President, it shall be
desirable for the Corporation to execute a proxy or give a consent with respect
to any share or shares of stock or other securities issued by any other
corporation and owned by the Corporation, such proxy or consent shall be
executed in the name of the Corporation by the Chairman, the President or one of
the Vice Presidents of the Corporation without necessity of any authorization by
the Board of Directors. Any person or persons so designated as the proxy or
proxies of the Corporation shall have full right, power and authority to vote
the share or shares of stock or other securities issued by such other
corporation and owned by the Corporation.
ARTICLE XI
Indemnification
SECTION 11.1. Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is involved in any threatened, pending or
completed action suit or proceeding, whether civil, criminal or investigative (a
"proceeding"), by reason of the fact that he or a person for whom he is the
legal representative is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, trustee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise (including service with
respect to employee benefit plans) whether the basis of such proceeding is
alleged action in his official capacity as a director, officer, employee or
agent, or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by the Delaware General Corporation Law against all
expenses, liability and loss (including attorneys' fees, judgments, fines,
special excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
right shall be a contract right and shall include the right to require
advancement by the Corporation of attorneys' fees and other expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that the payment of such expenses incurred by a director or officer of
the Corporation in his capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of such proceeding, shall be made by the
Corporation only upon delivery to the corporation of an undertaking, by or on
behalf of such director or officer, to repay all amount so advanced if it should
be determined ultimately that such director or officer is not entitled to be
indemnified under this section or otherwise.
SECTION 11.2. Indemnification Not Exclusive. The indemnification and
advancement of expenses provided by this Article XI shall not be deemed
exclusive of any other rights to which a person seeking indemnification may be
entitled under the Certificate of Incorporation, any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
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SECTION 11.3. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including
service with respect to employee benefit plans) against any liability assessed
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of this Article XI.
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<PAGE>
Exhibit 4.3 This document constitutes part of a
- ----------- prospectus covering securities that
have been registered under the
Securities Act of 1933.
AMENDED AND RESTATED
DIAL-THRU INTERNATIONAL CORPORATION
STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions......................................... 1
1.2 Choice of Law....................................... 2
1.3 Headings............................................ 2
ARTICLE II
PURPOSE AND PARTICIPATION
2.1 Purpose............................................. 2
2.2 Participation....................................... 3
2.3 Notification of Award............................... 3
2.4 Copy of Plan........................................ 3
2.5 Limitation.......................................... 3
ARTICLE III
TERMS AND CONDITIONS OF OPTIONS
3.1 Board to Allot Shares............................... 3
3.2 Number of Shares.................................... 4
3.3 Term of Option...................................... 4
3.4 Termination of Option............................... 4
3.5 Exercise Price...................................... 5
3.6 Assignment of Options............................... 6
3.7 Adjustments......................................... 6
ARTICLE IV
EXERCISE OF OPTION
4.1 Exercise of Option.................................. 6
4.2 Issue of Share Certificates......................... 7
4.3 Condition of Issue.................................. 7
ARTICLE V
ADMINISTRATION
5.1 Administration...................................... 7
5.2 Interpretation...................................... 8
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 Prospective Amendment............................... 8
6.2 Retrospective Amendment............................. 8
6.3 Termination......................................... 8
6.4 Agreement........................................... 9
</TABLE>
<PAGE>
STOCK OPTION PLAN
ARTICLE I
DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Definitions
As used herein, unless anything in the subject matter or context is inconsistent
therewith, the following terms shall have the meanings set forth below:
a) "Administrator" means, initially, the secretary of the Issuer and
thereafter shall mean such director or other senior officer or employee of
the Issuer as may be designated as Administrator by the Board from time to
time;
b) "Award Date" means the date on which the Board awards a particular Option;
c) "Board" means the board of directors of the Issuer;
d) "Director" means any individual holding the office of director of the
Issuer;
e) "Employee" means any individual regularly employed on a full-time or part-
time basis by the Issuer (or any wholly-owned, direct or indirect
subsidiary of the Issuer) or other persons who either perform services for
the Issuer (or any wholly-owned, direct or indirect subsidiary of the
Issuer) on an ongoing basis or who have provided, or are expected to
provide, a service of value to the Issuer (or any wholly-owned, direct or
indirect, subsidiary of the Issuer);
f) "Exercise Notice" means the notice respecting the exercise of an Option, in
the form set out as Schedule "B" hereto, duly executed by the Option
Holder;
g) "Exercise Period" means the period during which a particular Option may be
exercised and is the period from and including the Award Date through to
and including the Expiry Date;
h) "Exercise Price" means the price at which an Option may be exercised as
determined in accordance with paragraph 3.5;
i) "Expiry Date" means the date determined in accordance with paragraph 3.3
and after which a particular Option cannot be exercised;
j) "Issuer" means Dial-Thru International Corporation, a Delaware corporation,
formerly known as ARDIS Telecom & Technologies, Inc., successor by merger
to Canmax, Inc.
k) "Market Value" means the closing price of the Issuer's Shares on the date
the Issuer's shared traded through the facilities of NASDAQ SmallCap Market
or OTC Bulletin Board immediately preceding a date of determination, unless
the Shares did not trade through the facilities of NASDAQ SmallCap Market
or OTC Bulletin Board on that day in which case it is the closing price of
the Issuer's Shares the last day they traded through the facilities of
NASDAQ SmallCap Market or OTC Bulletin Board;
1) "Option" means an option to acquire Shares, awarded to a Director or
Employee pursuant to the Plan;
m) "Option Certificate" means the certificate evidencing an Option;
n) "Option Holder" means a Director or Employee, or former Director or
Employee, who holds an unexercised and unexpired Option or, where
applicable, the Personal Representative of such person;
o) "Plan" means this Amended and Restated Dial-Thru International Corporation
Stock Option Plan;
<PAGE>
p) "Personal Representative" means:
i. in the case of a deceased Option holder, the executor or administrator
of the deceased duly appointed by a court or public authority having
jurisdiction to do so; and
ii. in the case of an Option Holder who for any reason is unable to manage
his or her affairs, the person entitled by law to act on behalf of
such Option Holder; and
q) "Sale Transaction" means any of the following events:
i. any consolidation or merger of the Issuer in which the Issuer is not
the continuing or surviving company or pursuant to which shares of
common stock of Issuer would be converted into cash, securities or
other property, other than a merger of the Issuer in which the holders
of the common stock of the Issuer immediately prior to the merger have
the same proportion of ownership of common stock of the surviving
company immediately after the merger or which would result in the
voting securities of the company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least
fifty percent of the total voting power represented by the voting
securities of the Issuer or such surviving entity outstanding
immediately following such merger or consolidation; or
ii. any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of in excess of fifty percent of the
assets of the Issuer.
r) "Share" or "Shares" means, as the case may be, one or more common shares,
par value $.001 per share, in the capital of the Issuer.
1.2 Choice of Law
-------------
The Plan is established under and the provisions of the Plan shall be
interpreted and construed in accordance with the laws of the State of Delaware.
1.3 Headings
--------
The headings used herein are for convenience only and are not to affect the
interpretation of the Plan.
ARTICLE II
----------
PURPOSE AND PARTICIPATION
-------------------------
2.1 Purpose
-------
The purpose of the Plan is to provide the Issuer with a share-related mechanism
to attract, retain and motivate qualified Directors and Employees, to reward
such of those Directors and
2
<PAGE>
Employees as may be awarded Options under the Plan by the Board from time to
time for their contributions toward the long term goals of the Issuer and to
enable and encourage such Directors and Employees to acquire Shares as long term
investments.
2.2 Participation
-------------
The Board shall, from time to time, in its sole discretion determine those
Directors and Employees, if any, to whom Options are to be awarded. If the
Board elects to award an Option to a Director, the Board shall, in its sole
discretion but subject to paragraph 3.2, determine the number of Shares to be
acquired on the exercise of such Option. If the Board elects to award an Option
to an Employee, the number of Shares to be acquired on the exercise of such
Option shall be determined by the Board in its sole discretion, taking into
account the following criteria:
a) the annual salary of the Employee as at the Award Date in relation to the
total annual salaries payable by the Issuer to all of its Employees as at
the Award Date;
b) the length of time that the Employee has been employed by the Issuer; and
c) the quality of work performed by the Employee.
2.3 Notification of Award
---------------------
Following the approval by the Board of the awarding of an Option, the
Administrator shall notify the Option Holder in writing of the award and shall
enclose with such notice the Option Certificate representing the Option so
awarded.
2.4 Copy of Plan
------------
Each Option Holder, concurrently with the notice of the award of the Option,
shall be provided with a copy of the Plan. A copy of any amendment to the shall
be promptly provided by the Administrator to each Option Holder.
2.5 Limitation
----------
The Plan does not give any Option Holder that is a Director the right to serve
or continue to serve as a Director of the Issuer nor does it give any Option
Holder that is an Employee the right to be or to continue to be employed by the
Issuer.
ARTICLE III
-----------
TERMS AND CONDITIONS OF OPTION
------------------------------
3.1 Board to Allot Shares
---------------------
The shares to be issued to Option Holders upon the exercise of Options shall be
allotted and authorized for issuance by the Board prior to the exercise thereof.
3
<PAGE>
3.2 Number of Shares
----------------
The Issuer shall not grant Options under the Plan which will, when exercised,
exceed 2,300,000 shares of Common Stock and shall not grant Options to any one
individual Director or Employee which will, when exercised, exceed five percent
(5%) of the issued and outstanding Shares of the Issuer.
If any Option expires or otherwise terminates for any reason without having been
exercised in full, the number of Shares in respect of which Option expired or
terminated shall again be available for the purposes of the Plan.
3.3 Term of Option
--------------
Subject to paragraph 3.4, the Expiry Date of an Option shall be the date so
fixed by the Board, provided that such date shall not be later than the tenth
anniversary of the Award Date of such Option.
3.4 Termination of Option
---------------------
An Option Holder may exercise an Option in whole or in part at any time or from
time to time during the Exercise Period provided that, with respect to the
exercise of part of an Option, the Board may at any time and from time to time
fix a minimum or maximum number of Shares in respect of which an Option Holder
may exercise part of any Option held by such Option Holder. Any Option or part
thereof not exercised within the Exercise Period shall terminate and become
null, void and of no effect as of 5:00 p.m. local time in Irving, Texas on the
Expiry Date. The Expiry Date of an Option shall be the date so fixed by the
Board, subject to earlier termination as provided below.
a) Death
In the event that the Option Holder should die while he or she is still a
Director (if he or she holds his or her Option as Director) or Employee (if
he or she holds his or her Option as Employee), the Expiry Date shall be
the first anniversary of the Option Holder's date of death; or
b) Ceasing to hold Office
In the event that the Option Holder holds his or her Option as Director of
the Issuer and such Option Holder ceases to be a Director of the Issuer
other than by reason of death, the Expiry Date of the Option shall be the
30th day following the date the Option Holder ceases to be a Director of
the Issuer as a result of:
i. ceasing to meet the qualifications under the laws of the State
of Delaware; or
ii. a resolution having been passed by the shareholders of the
Issuer or;
iii. by order of any regulatory body having jurisdiction to so order,
4
<PAGE>
in which case the Expiry Date shall be the date the Option Holder ceases to
be a Director of the Issuer; or
c) Ceasing to be Employed
In the event that the Option Holder holds his or her Option as an Employee
of the Issuer and such Option Holder ceases to be an Employee of the Issuer
other than by reason of death or a Sale Transaction, the Expiry Date of the
Option shall be the 30th day following the date the Option Holder ceases to
be an Employee of the Issuer unless the Option Holder ceases to be an
Employee of the Issuer as a result of:
i. termination for cause; or
ii. by the order of any regulatory body having jurisdiction to so
order,
in which case the Expiry Date shall be the date the Option Holder ceases to
be an Employee of the Issuer.
d) Sale Transaction
In the event that the Option Holder holds his or her Option as an Employee
of the Issuer and such Option Holder becomes an employee of the party (the
"Acquiror") continuing or surviving any merger or acquiring a material
portion of the assets of the Issuer in a Sale Transaction, the Expiry Date
shall be the second anniversary of the date of consummation of the Sale
Transaction.
e) Alteration of Vesting and Exercise Periods
Notwithstanding anything to the contrary contained in Section 3.4(a),
3.4(b), 3.4(c) or 3.4(d), the Board may, in its discretion, designate
shorter or longer periods to exercise Options following an Option Holder's
termination of employment; provided, however, that any shorter periods
determined by the Board shall be effective only if provided for in the
instrument that evidences the grant to the Option Holder of such Option, or
if such shorter period is agreed to in writing by the Option Holder.
Notwithstanding anything to the contrary contained herein, Options shall be
exercisable by an Option Holder following such Option Holder's termination
of employment only to the extent that installments thereof have become
exercisable on or prior to the date of such termination; provided that the
Board may, in its discretion, elect to accelerate the vesting of all or any
portion of any Options that have not vested on or prior to the date of such
determination.
3.5 Exercise Price
--------------
The price at which an Option Holder may purchase a Share upon the exercise of an
Option shall be the Market Value as of the Award Date.
5
<PAGE>
3.6 Assignment of Options
---------------------
Options may not be assigned or transferred, provided however that the Personal
Representative of an Option Holder may, to the extent permitted by paragraph 4.
1, exercise the Option within the Exercise Period.
3.7 Adjustments
-----------
If prior to the complete exercise of any Option the Shares are consolidated,
subdivided, converted, exchanged or reclassified or in any way substituted for
(collectively the "Event"), an Option, to the extent that it has not been
exercised, shall be adjusted by the Board in accordance with such Event in the
manner the Board deems appropriate. No fractional Shares shall be issued upon
the exercise of the Options and accordingly, if as a result of the Event, an
Option Holder would become entitled to a fractional share, such Option Holder
shall have the right to purchase only the next lowest whole number of shares and
no payment or other adjustment will be made with respect to the fractional
interest so disregarded.
ARTICLE IV
----------
EXERCISE OF OPTION
------------------
4.1 Exercise of Option
------------------
a) Exercise Price
An Option may be exercised only by the Option Holder or the Personal
Representative of any Option Holder. An Option Holder or the Personal
Representative of any Option Holder may exercise an Option in whole or in
part at any time or from time to time during the Exercise Period up to 5:00
p.m. local time in Irving, Texas on the Expiry Date by delivering to the
Administrator an Exercise Notice, the applicable Option Certificate and
either (a) a certified check or bank draft payable to Dial-Thru
International Corporation, or (b) such other consideration as the Board may
from time to time deem acceptable in a particular instance, in either case
in an amount or having a fair market value (as determined by the Board)
equal to the aggregate Exercise Price of the Shares to be purchased
pursuant to the exercise of the Option. In the discretion of this Board,
payments for purchase or exercise of Options may be made by (i) matured
capital stock of the Issuer (i.e., capital stock owned longer than six (6)
months) delivered and transferred to the Issuer by or on behalf of the
person exercising the Option and duly endorsed in blank or accompanied by
stock powers duly endorsed in blank, with signatures guaranteed in
accordance with the Securities Exchange Act of 1934, as amended, as
required by the Board (valued at the Market Value as of the exercise date)
or (ii) such other consideration as the Board may from time to time in the
exercise of its discretion deem acceptable in any particular instance;
provided, however, that the Board may, in the exercise of its discretion
(i) allow the exercise of Options in a broker-assisted or similar
transaction in which the exercise price is not received by the Issuer until
promptly after exercise, and/or (ii) allow the Issuer to loan the
applicable purchase or exercise price to the Option Holder, if the purchase
or exercise will be followed by a prompt sale of some
6
<PAGE>
or all of the underlying shares and a portion of the sales proceeds is
dedicated to full payment of the purchase or exercise price.
b) Withholding Taxes
Whenever the exercise of any Option granted under this Plan, or transfers
of any shares issued upon the exercise of any Option, gives rise to tax or
tax withholding liabilities or obligations, the Option Holder shall remit
to the Issuer, in addition to the payment of the exercise price, an amount
sufficient to satisfy any federal, state or local withholding tax
requirements prior to the issuance of such shares. The Board may, in the
exercise of its discretion, allow satisfaction of tax withholding
requirements by accepting delivery of stock of the Company (or by
withholding a portion of the stock otherwise issuable upon the exercise of
an Option) or such other consideration as the Board may, in its discretion,
deem acceptable.
4.2 Issues of Share Certificates
----------------------------
As soon as practicable following the receipt of the Exercise Notice, the
Administrator shall cause to be delivered to the Option Holder a certificate for
the Shares so purchased. If the number of Shares so purchased is less than the
number of Shares subject to the Option Certificate surrendered, the
Administrator shall forward a new Option Certificate to the Option Holder
concurrently with delivery of the aforesaid share certificate for the balance of
Shares available under the Option.
4.3 Condition of Issue
------------------
The issue of Shares by the Issuer pursuant to the exercise of an Option is
subject to this Plan and compliance with the laws, rules and regulations of all
regulatory bodies applicable to the issuance and distribution of such Shares and
to the listing requirements of any stock exchange or exchanges on which the
shares may be listed. The Option Holder agrees to comply with all such laws,
rules and regulations and agrees to furnish to the Issuer any information,
report and/or undertakings required to comply with and to fully cooperate with
the Issuer in complying with such laws, rules and regulations.
ARTICLE V
---------
ADMINISTRATION
--------------
5.1 Administration
--------------
The Plan shall be administered by the Administrator on the instructions of the
Board. The Board may make, amend and repeal at any time and from time to time
such regulations not inconsistent with the Plan as it may deem necessary or
advisable for the proper administration and operation of the Plan and such
regulations shall form part of the Plan. The Board may delegate to the
Administrator or any Director, officer or employee of the Issuer such
administrative duties and powers as it may see fit.
7
<PAGE>
5.2 Interpretation
--------------
The interpretation by the Board of any of the provisions of the Plan and any
determination by it pursuant thereto shall be final and conclusive and shall not
be subject to any dispute by any Option Holder. No member of the Board or any
person acting pursuant to authority delegated by it hereunder shall be liable
for any action or determination in connection with the Plan made or taken in
good faith and each member of the Board and each such person shall be entitled
to indemnification with respect to any such action or determination in the
manner provided for by the Issuer.
ARTICLE VI
----------
AMENDMENT AND TERMINATION
-------------------------
6.1 Prospective Amendment
---------------------
The Board may from time to time amend the Plan and the terms and conditions of
any Option thereafter to be granted and, without limiting the generality of the
foregoing, may make such amendment for the purpose of meeting any changes in any
relevant law, rule or regulation applicable to the Plan, any Option or the
Shares, or for any other purpose which may be permitted by all relevant laws,
rules and regulations provided always that any such amendment shall not alter
the terms or conditions of any Option or impair any right of any Option Holder
pursuant to any Option awarded prior to such amendment.
6.2 Retrospective Amendment
-----------------------
The Board may from time to time retrospectively amend the Plan and, with the
consent of the affected Option Holders, from time to time, retrospectively amend
the terms and conditions of any Options which have been theretofore granted,
including, without limitation, amendments to (a) accelerate or extend the
vesting or exercise period of any Option in whole or in part or (b) adjust or
reduce the exercise price of Options held by an Option Holder by cancellation of
such Options and granting of Options at a lower exercise price or by
modification, extension or renewal of any Options.
6.3 Termination
-----------
The Board may terminate the Plan at any time provided that such termination
shall not alter the terms or conditions of any Option or impair any right of any
Option Holder pursuant to any Option awarded prior to the date of such
termination and notwithstanding such termination the Issuer, such Options and
such Option Holders shall continue to be governed by the provisions of the Plan.
8
<PAGE>
6.4 Agreement
---------
The Issuer and every person to whom an Option is awarded hereunder shall be
bound by and subject to the terms and conditions of the Plan. In case of any
conflict between the terms of the Plan or any Option, on the one hand, and any
employment agreement between an Option Holder and the Issuer (or any of its
subsidiaries), on the other hand, the terms and conditions of the employment
agreement shall apply with respect to those items specifically addressed in the
employment agreement.
9
<PAGE>
This document constitutes part of a
prospectus covering securities that
have been registered under the
Securities Act of 1933.
SCHEDULE "A"
Stock Option Plan
-----------------
TO: The Administrator, Stock Option Plan
c/o Dial-Thru International Corporation
8100 Jetstar, Suite 100
Irving, Texas 75063
The undersigned hereby irrevocably gives notice, pursuant to Dial-Thru
International Corporation (the "Company") Stock Option Plan (the "Plan"), of the
exercise of the Option to acquire and hereby subscribes for (cross out
inapplicable item):
(a) all of the Shares; or
(b) ______ of the Shares
which are the subject of the Option Certificate attached hereto.
The undersigned tenders herewith the sum of (a) either (i) a certified check or
bank draft payable to Dial-Thru International Corporation in an amount, (ii)
shares common stock of the Company that have been held for more than six (6)
months having an Market Value as of the date of exercise, or (iii) such other
consideration approved by the Board having an aggregate value (as determined by
the Board), in either such case equal to the aggregate Exercise Price of the
aforesaid shares plus (b) an amount sufficient to satisfy any federal, state or
local withholding tax requirements arising from the exercise of the Option,
payable by certified check or bank draft or, upon the approval by the Board of
Directors of the Company in its discretion, by delivery of shares of common
stock of the Company (or by withholding a portion of the stock otherwise
issuable in connection with the Option) or by the delivery of such other
consideration as the Board, in its discretion, may deem acceptable. The
undersigned hereby directs the Company to issue the certificate evidencing said
shares in the name of the undersigned to be mailed to the undersigned at the
following address:
____________________________________________
____________________________________________
____________________________________________
DATED the ___________ day of ______________, 2000.
____________________________________________
Signature of Option Holder
____________________________________________
Name of Option Holder
(Print)
<PAGE>
Exhibit 21.1
- ------------
LIST OF SUBSIDIARIES
--------------------
RDST, Inc. (Texas)
Canmax Retail Systems, Inc. (Texas)
Dial-Thru.com (Delaware)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in (1) the Registration
Statement on Form S-8 (Registration No. 333-86749) pertaining to 1,975,000
shares of Dial-Thru International Corporation (formerly ARDIS Telecom &
Technologies, Inc.) common stock issuable pursuant to its Amended Stock Option
Plan and certain compensation contracts, and (2) the Registration Statement on
Form S-8 (Registration No. 333-23313) pertaining to 1,200,000 shares of Dial-
Thru International Corporation (formerly ARDIS Telecom & Technologies, Inc.)
common stock issuable pursuant to its Amended Stock Option Plan, and (3) the
Registration Statement on Form S-3 (Registration No. 333-33523) pertaining to
863,364 shares of Dial-Thru International Corporation (formerly ARDIS Telecom &
Technologies, Inc.) common stock, of our report dated January 7, 2000, with
respect to the financial statements of Dial-Thru International Corporation and
Subsidiaries for the year ended October 31, 1999.
/s/ KING GRIFFIN & ADAMSON P.C.
King Griffin & Adamson P.C.
Dallas, Texas
January 27, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-23313) pertaining to 1,200,000 shares of common stock
issuable pursuant to the Amended and Restated Dial-Thru International
Corporation Stock Option Plan, the Registration Statement (Form S-8
No. 333-86744) pertaining to 1,975,000 shares of common stock issuable pursuant
to the Amended and Restated Dial-Thru International Corporation Stock Option
Plan and certain employment contracts, and the Registration Statement (Form S-3
No. 333-33523) pertaining to 863,364 shares of Dial-Thru International
Corporation common stock of our report dated December 18, 1997, with respect to
the consolidated financial statements of Dial-Thru International Corporation
included in its Annual Report (Form 10-K) for the year ended October 31, 1999.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Dallas, Texas
January 26, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF EARNINGS, AND SCHEDULE
II VALUATION AND QUALIFYING ACCOUNTS AS OF AND FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1999 SHOWN ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 846,141
<SECURITIES> 0
<RECEIVABLES> 479,589
<ALLOWANCES> 181,675
<INVENTORY> 141,017
<CURRENT-ASSETS> 2,290,780
<PP&E> 1,512,666
<DEPRECIATION> 91,338
<TOTAL-ASSETS> 4,466,789
<CURRENT-LIABILITIES> 1,039,396
<BONDS> 0
0
0
<COMMON> 6,881
<OTHER-SE> 2,858,512
<TOTAL-LIABILITY-AND-EQUITY> 4,466,789
<SALES> 3,116,911
<TOTAL-REVENUES> 3,116,911
<CGS> 2,982,290
<TOTAL-COSTS> 4,028,312
<OTHER-EXPENSES> (174,604)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,836
<INCOME-PRETAX> (3,814,923)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,814,923)
<DISCONTINUED> 5,528,303
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,713,380
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.25
</TABLE>
