As Filed with the Securities and Exchange Commission on February 14, 1997
Registration No. 333-
- ------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Form SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PATCOMM CORPORATION
--------------------------------------------
(Name of small business issuer in its charter)
Nevada 3663 11-3124068
- --------------------------- ----------------- -----------------
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Classification Identification No.)
Code Number)
Patcomm Corporation
7 Flower Field, M100
St. James, NY 11780
(516) 862-6511
(Address and telephone number of principal executive offices)
---------------------
7 Flower Field, M100
St. James, NY 11780
(Address of principal place of business)
Copies of all communications to: Copies of all communicatons to:
Henry F. Schlueter, Esq. John E. Lawlor, Esq.
Charles L. Borgman, Esq. Attorney at Law
Schlueter & Associates, P.C. 129 Third Street
1050 17th St., Suite 1700 Mineola, New York 11501
Denver, Colorado 80265 (516) 248-7700
(303) 292-3883
--------------
Frank Delfine
7 Flower Field, M100
St. James, NY 11780
(516) 862-6511
(Name, address and telephone number of agent for service)
---------------------------
Approximate date of proposed sale to public:
As soon as practicable after effective date.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [ X ]
<TABLE>
<CAPTION>
Calculation of Registration Fee
==========================================================================================================
Amount Amount of
Title of each class of securities to be Offering price Agregate registration
to be registered registered per unit (1) offering price (1) fee
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<S> <C> <C> <C> <C>
Common Stock 1,265,000 $5.00 $ 6,325,000 $1,917
Representative's Warrants 126,000 $0.0010 $ 126.50 $ 0
Common Stock (2) 126,500 $6.00 $ 759,000 $ 230
- ----------------------------------------------------------------------------------------------------------
Total Registration Fee: $7,084,126.50 $2,147
==========================================================================================================
(Footnotes on following page)
</TABLE>
<PAGE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Represents shares issuable upon exercise of the Representative's Warrants.
Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Representative's Warrants.
-------------------------------------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
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<TABLE>
<CAPTION>
Cross Reference Sheet
Form SB-2
Item No. Sections in Prospectus
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<S> <C> <C>
Front of the Registration Statement and Outside Front
1 Cover of Prospectus. . . . . . . . . . . . . . . . . . . . . CoverPage
2 Inside Front and Outside Back Cover Pages of
Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . Inside Front Cover Pages (i)(ii); and Outside Back
Cover Page
3 Summary Information and Risk Factors. . . . . . . . . . . . Prospectus Summary; Risk Factors
4 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Use of Proceeds
5 Determination of Offering Price. . . . . . . . . . . . . . . Cover Page; Underwriting
6 Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors; Dilution
7 Selling Security Holders. . . . . . . . . . . . . . . . . . Not Applicable
8 Plan of Distribution. . . . . . . . . . . . . . . . . . . . Prospectus Summary; Underwriting
9 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . Litigation
10 Directors, Executive Officers, Promoters and Control
Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . Management
11 Security Ownership of Certain Beneficial Owners and Principal Shareholders
Management. . . . . . . . . . . . . . . . . . . . . . . . .
12 Description of Securities. . . . . . . . . . . . . . . . . . Description of Securities
13 Interest of Named Experts and Counsel. . . . . . . . . . . . Not Applicable
14 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities. . . . . . . Statement as to Indemnification
15 Organization within Last Five Years. . . . . . . . . . . . The Company; Management - Certain Transactions
16 Description of Business. . . . . . . . . . . . . . . . . . . Prospectus Summary; Risk Factors; Business
17 Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Financial
Operation. . . . . . . . . . . . . . . . . . . . . . . . . . Condition.and Results of Operations
18 Description of Property. . . . . . . . . . . . . . . . . . . Business - Properties
19 Certain Relationships and Related Transactions. . . . . . . . Management - Certain Transactions
20 Market for Common Equity and Related Stockholder Market for Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . Matters
21 Executive Compensation. . . . . . . . . . . . . . . . . . . Management - Executive Compensation
22 Financial Statements. . . . . . . . . . . . . . . . . . . . Index to Financial Statements
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23 Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . Not Applicable
24 Indemnification of Directors and Officers. . . . . . . . . Indemnification of Directors and Officers
25 Other Expenses of Issuance and Distribution. . . . . . . . Other Expenses of Issuance and Distribution
26 Recent Sales of Unregistered Securities. . . . . . . . . . Recent Sales of Unregistered Securities
27 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . Exhibits
28 Undertakings. . . . . . . . . . . . . . . . . . . . . . . . Undertakings
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</TABLE>
<PAGE>
PATCOMM CORPORATION
1,265,000 Shares of Common Stock
Patcomm Corporation (the "Company") is hereby offering a minimum of
1,000,000 shares (the "Minimum Offering") and a maximum of 1,265,000 shares (the
"Maximum Offering") of Common Stock (the "Common Stock"), $0.001 par value, at a
public offering price of $5.00 per share.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that any market will develop or, if a
market should develop, that it will continue. The public offering price of the
Common Stock has been arbitrarily determined by the Company and Andrew Garrett,
Inc., the representative (the "Representative") of the several underwriters (the
"Underwriters") and bears no relationship to the Company's present assets, book
value, earnings (as there are none), stockholders' equity, or any other
statistical criterion of value. It is anticipated that the Common Stock will be
traded on the National Association of Securities Dealers, Inc. Small Cap
MarketSM ("NASDAQ") under the symbol "PCOM". See "Risk Factors--No Prior Public
Market," "Market for Common Equity and Related Stockholder Matters," and
"Underwriting."
This offering should be considered only by persons who can afford the loss
of their entire investment. See "Risk Factors."
---------------------------------
THESE SECURITIES INVOLVE A
HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION.
(See "RISK FACTORS" and "DILUTION.")
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Assumed Price Underwriting Proceeds to
to Public Commissions(1) Company(1)(2)(3)
- --------------------------------------------------------------------------------
Per Share $5.00 $0.50 $4.50
- --------------------------------------------------------------------------------
Total Minimum $5,000,000 $500,000 $4,500,000
- --------------------------------------------------------------------------------
Total Maximum $6,325,000 $632,500 $5,692,500
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(1) The Common Stock is being offered by the Underwriters on a "best efforts
basis" for a period of 45 days from the date hereof, which period may be
extended for additional periods not to exceed a total of 45 days by
agreement among the Company and the Underwriters. Pending sale of the
Minimum Offering, all proceeds will be held in escrow by European American
Bank, a New York banking corporation (the "Escrow Agent") for this
offering. Funds will be deposited in such escrow account no later than
noon on the business day following receipt. In the event that the Minimum
Offering is not sold within the 45-day offering period (unless extended),
this offering will terminate and all funds will be returned promptly to
subscribers by the Escrow Agent, without any deduction therefrom or
interest thereon.
(2) Excludes (i) payment by the Company of a non-accountable expense allowance
equal to 3% of the gross proceeds of the offering payable to the
Representative on the closing date of this offering; and (ii) additional
compensation to the Representative through the sale to the Representative,
for nominal consideration of $100 ($126.50 if the Maximum Offering is
sold), of warrants (the "Representative's Warrants") entitling the holder
thereof to purchase 100,000 shares of Common Stock (126,500 shares if the
Maximum Offering is sold), subject to adjustment, at a price of $6.00 per
share (120% of the $5.00 per share offering price) for a period of four
years commencing one year from the date of this Prospectus. The Company
has agreed to indemnify the
(Footnotes continued on following page)
ANDREW GARRETT, INC.
The date of this Prospectus is ___________, 1997
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Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting other expenses payable by the Company estimated at
$399,662 (minimum) to $439,413 (maximum), including, among others,
registration and filing fees, professional fees, printing expenses, and the
non-accountable expense allowance payable to the Representative which will
range from $150,000 (minimum) to $189,750 (maximum). Total expenses of the
offering, including underwriting commissions, should approximate
$899,662($1,071,913 if the Maximum Offering is sold), for estimated net
proceeds ("Estimated Net Proceeds") to the Company of $4,100,338
($5,253,087, if the Maximum Offering is sold). See "Use of Proceeds" and
"Underwriting."
The shares of Common Stock are offered by the Underwriters subject to prior
sale when, as, and if issued and delivered by the Company, and subject to the
right of the Underwriters to reject any order in whole or in part,
notwithstanding the tender of payment by check or otherwise. It is expected that
delivery of certificates for the shares will be made on or about _________,
1997.
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a registration statement on Form SB-2 (herein,
together with all amendments thereto, called the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities offered hereby. This Prospectus, which is a part of the
Registration Statement, omits certain information contained in the Registration
Statement. The Registration Statement and exhibits thereto may be examined free
of charge and copied at the office of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60621-2511 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Furthermore, copies of such materials can be obtained from
the Public Reference Section of the Commission, Washington, D.C., at prescribed
rates. References in this Prospectus to various documents, statutes,
regulations, and agreements do not purport to be complete and are qualified in
their entirety by reference to such documents, statutes, regulations, and
agreements.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by independent accountants.
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<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY............................................ 4
RISK FACTORS.................................................. 8
USE OF PROCEEDS............................................... 12
DIVIDEND POLICY............................................... 12
CAPITALIZATION................................................ 13
DILUTION...................................................... 14
SELECTED FINANCIAL DATA....................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 17
BUSINESS...................................................... 19
MANAGEMENT.................................................... 24
EXECUTIVE COMPENSATION........................................ 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 27
PRIOR OFFERINGS............................................... 27
PRINCIPAL SHAREHOLDERS........................................ 28
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS................................. 29
DESCRIPTION OF SECURITIES..................................... 31
UNDERWRITING.................................................. 32
LITIGATION.................................................... 34
LEGAL MATTERS................................................. 34
EXPERTS....................................................... 34
ADDITIONAL INFORMATION........................................ 35
STATEMENT AS TO INDEMNIFICATION............................... 35
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by more detailed
information and the financial statements appearing elsewhere in this Prospectus.
Unless the context otherwise requires, all references in this Prospectus to the
"Company" refer to Patcomm Corporation. Except where otherwise indicated, all
share and per share data in this Prospectus assume no exercise of the
Representative's Warrants to purchase up to 126,500 shares of Common Stock and
no issuance of shares of Common Stock under either the Company's Stock Option
Plans or outstanding stock options or warrants.
The Company
Patcomm Corporation (the "Company") was organized under the laws of the
State of Nevada on March 12, 1992. The Company is engaged in the development and
marketing of a new line of products for the amateur radio communications market,
incorporating a new architecture by which many traditional hardware functions
are replaced by software. The Company has sold 21 units of its first product,
the PC1610(TM) HF transceiver, placed one at no cost, and has circulated three
units for experimentation with both operators and distributors. The Company
recently completed the design and testing of its newer model transceiver, the
model PC16000(TM), which is intended to replace the model PC1610(TM), and has
begun to ship the PC16000(TM) in small quantities. See "Business--Products."
The Company's executive offices are located at 7 Flower Field, M100, St.
James, New York 11780. Its telephone number is (516) 862-6511.
Development of the Company's Products and Business. In the early stages of
amateur radio development, almost every station was made up of a separate
receiver and transmitter. As technology evolved, the "transmitter" and
"receiver" were integrated into a single unit called the "transceiver." The
introduction of the integrated circuit into the communications industry resulted
in transceivers which could perform more functions for the same cost and which
also were more compact. More recently, microcomputer technology has given birth
to the "smart" transceiver. "Smart" is common jargon in the electronics industry
for using software to perform logical functions in electronic equipment at high
speeds. An important benefit of "smart" technology is that it generally results
in lower cost.
The Company's founders have developed a new architecture for transceiver
design which advances the concept of integration by including a computer
platform within the transceiver/receiver. This concept is called by the Company
the Power Integration Principle or PIP(TM). Integrating a computer within the
transceiver is a difficult task because a transceiver is designed to detect very
low level electronic signals in the environment and a computer is
(electronically) an extremely noisy device. Therefore, the integration of the
computer and the transceiver presented a significant technological challenge to
the Company's engineering staff. The Company has successfully solved the
technological problems associated with integration of the computer and the
transceiver through sophisticated engineering and design. To date, the Company's
primary activities have been devoted to achieving this technological
breakthrough. The Company is positioned to take advantage of its technology and
commence the next major phase of its development, which is the marketing of its
integrated transceiver and computer products.
The Company's founders believe that in order for the Company to
successfully market its products, those products must provide increased function
at lower cost. Management of the Company believes that the Company's competitors
in the amateur radio ("HAM") industry have historically added functions to their
products at higher costs to the consumer, which is contrary to the trend in
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<PAGE>
other areas of the consumer electronics industry. The Company's technology
enables the Company to offer increased functions at lower cost per function.
This can be expected to give the Company a competitive advantage, allowing the
Company to gain market share and to become a significant force in the more than
one billion dollar a year HAM radio industry.
Many of the features incorporated in the Company's technology are based on
simpler hardware accompanied by sophisticated software. The selected software
and hardware residing on the common computerized "platform" will make up the
"footprint" for the Company's various mainline products. The performance, cost,
and model of the product depend on the variety and sophistication of each of the
selected hardware and software features. Additional economic opportunities are
available to the Company in the aftermarket as consumers add or update software
and/or hardware to existing equipment.
The new architecture developed by the Company will offer HAM operators (and
eventually commercial users as well) an unusual combination of features: (i) a
computerized platform common to all models designed to accept a software driven
architecture; (ii) the ability to mix, upgrade, and/or add new features to
existing equipment for maximum flexibility and/or expandability; (iii) special
emphasis on user friendliness; and (iv) special capabilities such as a Morse
code decoder that automatically converts code to text and text to code. These
product characteristics rely significantly on the application of microprocessor
and software technology that has not previously been introduced in the
marketplace by established manufacturers.
Management believes that intellectual property protection is an important
element of the Company's strategy, and that patent protection is one method for
defending the Company's products and market. Accordingly, the Company has chosen
an entry point that would strategically give its products the greatest patent
protection at an economical cost. The Company's initial patent employs an
interesting and strategically exclusive feature, in that the Company makes the
only transceiver that can be directly controlled by a computer keyboard. Other
competitive products require that an external computer such as a PC be used in
order to perform this function. The Company's approach will result in
significant cost savings to the user, and is the subject of a recently granted
(Company owned) U.S. Patent.
The Company has not historically produced or sold any of its products in
commercial quantities, although the Company has recently begun to ship its
PC16000(TM) in quantities which are approaching commercial quantities. The
proceeds of this offering will be used, in part, for production, testing,
marketing, and selling the model 16000(TM).
The Company's strategy for growth is to aggressively market its products to
existing amateur radio enthusiasts making equipment upgrade purchases and to
three significant categories of new entrants into amateur radio - younger users,
new retirees, and handicapped individuals. See "Business--Market Strategy."
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The Offering
Securities Offered by the Company .... 1,000,000 (minimum) to 1,265,000
(maximum) shares of $0.001 par value
Common Stock. See "Description of
Securities--Common Stock."
Offering Price ..................... $5.00 per share
Common Stock Outstanding
Prior to the Offering .............. 996,498 shares
Common Stock to be Outstanding
After the Offering(1) .............. 1,996,498 shares if only the Minimum
Offering is sold
2,261,498 shares if the Maximum Offering
is sold
Use of Proceeds ...................... The estimated net proceeds of $4,100,338
(minimum) to $5,253,087 (maximum) are
intended to be used to: (i) hire a chief
financial officer, a controller, and
five additional accounting and
administrative staff persons; (ii) hire
a director of marketing and seven
additional sales and marketing staff
persons, and a purchasing manager (iii)
hire 24 additional technical persons for
quality control and research and
development; (iv) acquire the necessary
components and other raw materials to
support the Company's anticipated sales;
(v) conduct marketing and promotional
activities; (vi) purchase or lease
equipment and machinery; and (vii)
general corporate purposes, including
working capital and the hiring of
additional personnel, and the possible
investment in, strategic acquisition of,
or joint ventures with, complementary
businesses, technologies, or product
lines. See "Use of Proceeds."
Risk Factors ......................... This offering involves a high degree of
risk. See "Risk Factors."
Proposed Trading Symbol .............. PCOM
- -----------------------------
(1) Excludes (i) up to 126,500 shares of Common Stock issuable upon exercise of
the Representative's Warrants to be issued in conjunction with this
offering; (ii) 58,252 shares of Common Stock issuable upon the exercise of
currently outstanding common stock purchase warrants; (iii) 180,000 shares
of Common Stock issuable upon the exercise of currently outstanding stock
options; and (iv) 450,000 shares of Common Stock reserved for issuance
under the Company's Stock Option Plans. See "Market for Common Equity and
Related Stockholder Matters--Common Stock Outstanding or Reserved for
Issuance," "Underwriting--Representative's Warrants," and "Executive
Compensation--Option Plans."
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Summary Financial Information
The summarized financial information set forth below and for the fiscal
years ended December 31, 1995 and 1994 is derived from the audited financial
statements of the Company. The financial data included below at and for the nine
months ended September 30, 1996 are unaudited. See "Selected Financial Data."
<TABLE>
<CAPTION>
Income Statement Data Year Ended Nine Months Ended
December 31, September 30,
--------------------- ------------------------
1995 1994 1996 1995
---- ---- ---- ----
(Audited) (Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $15,975 $22,596 $20,821 $8,321
Cost of sales 38,843 18,579 94,360 21,082
Gross profit (22,868) 4,017 (73,539) (12,761)
Income (loss) from
operations (215,063) (227,906) (299,847) (106,581)
Net income (loss) (215,880) (227,496) (300,472) (106,581)
Earnings (loss) per share (0.34) (0.36) (0.35) (0.17)
Weighted average number
of common shares outstanding(1) 637,250 628,667 850,388 633,083
Balance Sheet Data At December 31, 1995 At September 30, 1996
------------------------ -------------------------
Actual Actual As Adjusted
(Audited) (Unaudited) (Unaudited)
Minimum(2) Maximum(3)
Working capital $(61,387) $137,855 $4,238,193 $5,390,942
Total assets 90,841 251,194 4,351,532 5,504,281
Capital lease obligations 2,363 1,488 1,488 1,488
Stockholders' equity (388,216) 188,934 4,289,272 5,442,021
</TABLE>
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(1) Excludes (i) up to 126,500 shares of Common Stock issuable upon exercise
of the Representative's Warrants to be issued in conjunction with this
offering; (ii) 58,252 shares of Common Stock issuable upon the exercise of
currently outstanding common stock purchase warrants; (iii) 180,000 shares
of Common Stock issuable upon the exercise of currently outstanding stock
options; and (iv) 450,000 shares of Common Stock reserved for issuance
under the Company's Stock Option Plans. See "Market for Common Equity and
Related Stockholder Matters--Common Stock Outstanding or Reserved for
Issuance," "Underwriting--Representative's Warrants," and "Executive
Compensation--Option Plans."
(2) Assumes receipt of net proceeds from the offering of $4,100,338.
(3) Assumes receipt of net proceeds from the offering of $5,253,087.
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RISK FACTORS
Investment in the securities offered hereby involves a high degree of risk.
Prospective investors should carefully consider, together with the other
information appearing in this Prospectus, the following factors, among others,
in evaluating the Company and its business before purchasing the securities
offered by this Prospectus.
Risks Pertaining to the Company
Stockholders' Deficit; Going Concern Qualification. As of September 30,
1996, the Company had an accumulated deficit of $997,451. The independent
auditors' report accompanying the Company's balance sheet at December 31, 1995
notes that the balance sheet has been prepared "assuming that the Company will
continue as a going concern", which contemplates that the Company will realize
its assets and liquidate its liabilities in the ordinary course of business.
However, the Company has not generated positive cash flow from operations and
there can be no assurance that this trend will not continue. Profitable
operations are dependent upon, among other factors, the Company's ability to
obtain equity or debt financing and its ability to successfully market its
products. The Company is dependent on the net proceeds of this offering for
operating capital. See "Use of Proceeds," "Management's Discussion and Analysis
or Plan of Operation," and the Financial Statements, including the Notes
thereto, included as a part of this Prospectus.
Limited Operating History; Start-Up Enterprise; High Risk Investment. The
Company was incorporated under the laws of the State of Nevada on March 12,
1992. To date, the Company's activities have been primarily limited to the
development, design, and manufacture of its first product and the raising of
capital. The Company has conducted limited sales operations and earned limited
revenues and is a development stage company.
Since the Company has not conducted significant sales operations and has
engaged in only limited production operations, no historical "track record"
information or financial data can be provided upon which a prospective investor
can make an informed judgment as to the future prospects of the Company. The
Company faces all of the risks inherent in a new business and those risks
specifically inherent in the type of business in which the Company is engaged,
namely, the development and marketing of a high technology product that has
never been assembled and sold by the Company in large quantities. Accordingly,
the success of the Company is dependent on management's ability to complete the
development of, and to market and distribute, the Company's proposed products,
which may be dependent on various factors that are beyond the control of the
Company. The purchase of Common Stock therefore must be regarded as the placing
of funds at a high risk in a new or "start-up" venture with all the unforeseen
costs, expenses, problems, and difficulties to which such ventures are subject.
There can be no assurance that the Company will be able to develop and to market
and distribute its products or operate at a profit.
Dependence on Key Personnel. The Company's future performance will depend
to a significant extent upon the efforts and abilities of certain members of
senior management as well as upon the Company's ability to attract and retain
qualified engineering, technical, design, marketing, and production personnel.
In particular, the Company is largely dependent upon the continued efforts of
Frank Delfine, the Company's President and Treasurer, and Alexander Adelson, the
Chairman of the Board of Directors and Secretary of the Company. Mr. Delfine is
involved in the daily operations of the Company, whereas Mr. Adelson is involved
primarily with the Company's overall strategic planning and financial matters.
To the extent that the services of Mr. Delfine or Mr. Adelson would be
unavailable to the Company, the Company would be required to obtain other
personnel to perform the duties that they otherwise would perform. There can be
no assurance that the Company would be able to employ another qualified person
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or persons, with the appropriate background and expertise, to replace Mr.
Delfine or Mr. Adelson on terms suitable to the Company. Furthermore, the
Company does not maintain key person life insurance on either Mr. Delfine or Mr.
Adelson, although the Company intends to obtain key person life insurance on Mr.
Delfine in the amount of $1,000,000 prior to the date that the offering to which
this Prospectus relates is commenced. The Company recently has entered into
employment agreements with Messrs. Adelson and Delfine providing annual salaries
and incentive compensation based on the Company's net profits. The Company will
have to compete with other larger companies for marketing and other personnel,
and there can be no assurance that the Company will be able to attract or retain
such personnel. See "Management" and "Executive Compensation."
Competition. The Company will be competing with other companies that
provide similar, though not identical, products. The radio communications
industry is highly competitive, and many of the companies with which the Company
will compete have substantially greater technical, financial, and marketing
resources than the Company. Management believes that the principal factors that
will determine the Company's competitive position will include ergonomic
friendliness, reliability, technological advancements, quality, customer
service, and price. Management believes that its research and development
capabilities, concentration on increased production efficiencies, commitment to
customer service, and product innovation will enable the Company to compete
effectively. However, there can be no assurance that the Company's products will
be viewed favorably by prospective purchasers when compared with its
competitors' products or that they will be competitive in the face of advances
in product technology developed by the Company's competitors. See
"Business--Competition."
No Preemptive Rights. Shareholders do not have preemptive rights to
purchase additional shares of Common Stock. Consequently, persons who purchase
Common Stock in this offering will have no preemptive rights to purchase Common
Stock in any future offerings of Common Stock that may occur.
Patents. As of the date of this Prospectus, the Company has obtained one
patent that relates to its technology. Although a patent has been granted, there
is no assurance that such patent will not be attacked by third parties or that,
if any such attack were made, it would not be successful. The costs involved in
defending a patent or prosecuting a patent infringement action would be
substantial. At present the Company does not have the resources to pursue such
an action. In addition, it cannot be assured that a competitor could not design
a product that is the functional equivalent of the Company's product, without
infringing on the Company's patent.
No Dividends Paid. The Company has not paid cash dividends on its Common
Stock and management does not anticipate that the Company will pay any dividends
in the foreseeable future. See "Dividend Policy."
Possible Issuance of Preferred Stock. The Company is authorized to issue up
to 10,000,000 shares of preferred stock. The preferred stock may be issued in
one or more series, the terms of which may be determined at the time of issuance
by the Board of Directors, without further action by the Company's shareholders,
and may include voting rights, preferences as to dividends and liquidation,
conversion and redemption rights, and sinking fund provisions as determined by
the Board of Directors. Although the Company has no present plans to issue any
shares of preferred stock, the issuance of preferred stock in the future could
adversely affect the rights of the holders of Common Stock and reduce the value
of the Common Stock.
Dependence on Single Assembly Location. All of the Company's assembly
operations are performed at the Company's facility in St. James, Long Island,
New York. The Company currently maintains $56,020 of property damage insurance
for losses relating to its St. James facility, including business income and
extra expense coverage, which amounts could be reduced as a result of
deductibles and co-insurance calculations. Nevertheless, material damage to, or
the loss of, the Company's facility due to fire, severe weather, flood, or other
act of God or cause, even if insured against, would have a material adverse
effect on the Company's financial condition, business, and prospects.
-9-
<PAGE>
Risks Pertaining to this Offering
Control by Existing Shareholders. After completion of this offering, the
Company's existing shareholders will beneficially own or control approximately
49.90% of the outstanding shares of Common Stock of the Company if only the
Minimum Offering is sold and 44.06% if the Maximum Offering is sold. The
Company's Articles of Incorporation do not provide for cumulative voting in the
election of directors. As a result, the Company's current shareholders will be
in the position to elect all of the Board of Directors and, therefore, to
control the business and affairs of the Company including certain significant
corporate actions such as acquisitions, the sale or purchase of assets, the
issuance and sale of the Company's securities at such prices as the Board of
Directors may determine, and transactions with affiliates. The directors, in
turn, appoint all of the Company's officers. Pursuant to Nevada law, amendment
of the Articles of Incorporation to provide for cumulative voting would require
the affirmative vote of a majority of the shares entitled to vote thereon;
therefore, purchasers of the Common Stock offered hereby would not hold
sufficient votes to effect such an amendment. See "Principal Shareholders" and
"Description of Securities."
No Assurance of Public Market for Securities. Prior to this offering, there
has been no public market for the Company's Common Stock. No assurance can be
given that a trading market for the Common Stock will develop or, if developed,
that it will continue. Therefore, purchasers of the Common Stock offered hereby
may have difficulty selling such Common Stock should they desire to do so.
Immediate Substantial Dilution/Purchase of Common Stock by Insiders and
Prior Investors at Below Offering Price. The shares of Common Stock held by
certain of the Company's current shareholders were purchased for prices
significantly lower than the offering price herein. As of September 30, 1996,
the Company's net tangible book value per share of Common Stock was $0.19. Based
on certain assumptions, purchasers of the Common Stock offered hereby will
experience immediate substantial dilution of $2.85 (57.04%) per share if only
the Minimum Offering is sold herein and $2.59 (51.8%) per share if the Maximum
Offering is sold. See "Dilution."
Use of Proceeds. The proceeds of this offering have been allocated only
generally and the Board of Directors has the discretion to vary the actual
application of the funds. Accordingly, investors will entrust their funds with
the Company's management on whose judgment the investors must depend, with only
limited information about management's specific intentions. See "Use of
Proceeds."
Determination of Offering Price. The offering price of the Common Stock has
been arbitrarily determined through negotiation between the Company and the
Representative. The offering price of the Common Stock does not necessarily bear
any relationship to the assets, operating results, book value, or stockholders'
equity of the Company or any other statistical criterion of value. There can be
no assurance that the Common Stock will trade in the future at market prices in
excess of, or equal to, the offering price herein. See "Underwriting--Pricing of
the Offering."
No Commitment to Purchase Common Stock. The Underwriters are offering the
Common Stock on a "best efforts basis." No person, including the Company or the
Underwriters, has any obligation to purchase all or any portion of the Common
-10-
<PAGE>
Stock. Therefore, subscribers to the Common Stock may lose the use of their
funds used to purchase such securities for the duration of the escrow period, 45
days, and for up to 45 additional days if the escrow period is extended, even
though the offering is not completed and no Common Stock is sold. See
"Underwriting."
Underwriters' Influence on the Market. It is anticipated that all of the
securities offered hereby will be sold to customers of the Underwriters. Such
customers subsequently may engage in transactions for the sale or purchase of
such securities through or with the Underwriters. Although they have no legal
obligation to do so, the Underwriters, from time to time, may become market
makers and may otherwise effect transactions in such securities. To the extent
the Underwriters do so, they may be influential in any market that might develop
and the degree of participation by the Underwriters may significantly affect the
price and liquidity of the Company's securities. Such market making activities,
if commenced, may be discontinued at any time or from time to time by the
Underwriters without obligation or prior notice. Depending on the nature and
extent of the Underwriters' market making activities and retail support of the
Company's securities at such time, the Underwriters' discontinuance could
adversely affect the price and liquidity of the securities.
Shares Eligible for Future Sale. Following this offering but without giving
effect to the exercise of the Representative's Warrants, the 58,252 currently
outstanding Common Stock purchase warrants, or any of the 180,000 currently
outstanding stock options, or the issuance of any of the 450,000 shares of
Common Stock reserved for issuance under the Company's Stock Option Plans, there
will be 1,996,498 shares of Common Stock issued and outstanding if only the
Minimum Offering is sold (2,261,498 if the Maximum Offering is sold). Of these
shares, 1,000,000 shares of Common Stock at the minimum and 1,265,000 shares of
Common Stock at the maximum will be "free trading" (assuming that the shares are
not acquired by affiliates of the Company) and the balance will be "restricted
securities" as that term is defined in Rule 144 promulgated under the Securities
Act. An aggregate of approximately 788,000 of the restricted securities are
currently eligible for resale pursuant to Rule 144 and will be freely tradable
in the public market (except by affiliates of the Company). However, the
Representative has recommended that the holders of as many shares as possible of
the 788,000 shares of Common Stock eligible for resale under Rule 144 enter into
an agreement with the Representative under which they will agree not to sell any
of the restricted securities which they hold for a two-year period following the
date of this Prospectus, without the consent of the Representative in order to
reduce the market overhang created by these securities. All of the Company's
officers and directors have entered into a lock-up agreement with the
Representative. Therefore, 627,039 of the 788,000 shares that are currently
eligible for resale pursuant to Rule 144 are subject to the lock-up. Sales of
substantial amounts of Common Stock under Rule 144 or otherwise into the public
market could adversely affect the prevailing market price for the Common Stock,
if such a market should ever develop. See "Market for Common Equity and Related
Stockholder Matters--Shares Eligible for Future Sale."
Maintenance Criteria for NASDAQ Small Cap Market Securities. The Company
has applied for inclusion of the Common Stock for trading on the NASDAQ Small
Cap Market ("NASDAQ"). In order to continue to be included on NASDAQ, a company
must maintain a minimum $2 million in total assets, $1 million of capital and
surplus, a $200,000 market value of public float, 300 shareholders, and a
minimum bid price of $1.00 per share. The failure to meet these maintenance
criteria in the future would result in the discontinuance of the inclusion of
the Company's securities on NASDAQ, which could adversely affect the market
price of the Company's securities and the ability of shareholders of the Company
to dispose of their securities.
Recently Organized Representative. This is the first underwriting managed
by the Representative of the Underwriters, Andrew Garrett, Inc. This limited
experience could adversely impact the development and maintenance of a trading
market in the securities offered hereby.
-11-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company are estimated to be approximately $4,100,338
if the Minimum Offering of 1,000,000 shares is sold ($5,253,087 if the Maximum
Offering of 1,265,000 shares is sold) after deducting the Underwriters'
commissions and other estimated offering expenses payable by the Company.
The Company expects to use approximately $1,371,000 of the net proceeds to
hire additional personnel, including a chief financial officer/controller, a
director of marketing, a purchasing manager, seven sales and marketing persons,
five additional accounting and administrative staff persons, and twenty-four
additional technical persons for quality control and research and development.
In addition, the Company expects to use approximately $1,000,000 of the proceeds
to purchase or lease machinery and equipment, $750,000 of the proceeds to
acquire the components and other raw materials necessary to support the
Company's anticipated sales, and $500,000 for marketing and promotion of the
Company's products. The balance of the proceeds will be used for working capital
and general corporate purposes, including hiring additional personnel and the
possible investment in, strategic acquisition of, or joint ventures with,
complementary businesses, technologies, or product lines. As of the date of this
Prospectus the Company has no plans, arrangements, understandings, or
commitments with respect to any such material investments, acquisitions, or
joint ventures, nor is the Company engaged in negotiations with respect to any
such matter. There can be no assurance that any such investments, acquisitions,
or joint ventures will become available on terms acceptable to the Company. See
"Business--Business Strategy."
The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this offering based on current planning and business
conditions. The Company reserves the right to change such uses when and if
market conditions change or unexpected changes in operating conditions or
results occur. The amounts actually expended for each use may vary significantly
depending upon a number of factors, including future sales growth and the amount
of cash generated by the Company's operations. Net proceeds not immediately
required for the purposes described above will be invested principally in U.S.
government securities, short-term certificates of deposit, money market funds,
or other short-term, interest-bearing securities.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and does not
contemplate paying cash dividends on its Common Stock in the foreseeable future,
since it will use all of its earnings, if any, to finance expansion of its
operations. Future dividends will depend on earnings, if any, of the Company,
its financial requirements, and other factors including statutory limitations on
the Company's ability to pay dividends under Nevada law.
-12-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, as adjusted to give effect to the sale of the Minimum and
Maximum Offering at an offering price of $5.00 per share (and after deducting
underwriting commissions and estimated offering expenses payable by the
Company).
<TABLE>
<CAPTION>
September 30, 1996
------------------
Actual As adjusted
------ -----------
Minimum(1) Maximum(2)
<S> <C> <C> <C>
Stockholders' equity:
Common Stock, $0.001 par value;
10,000,000 shares authorized;
996,498 shares issued and outstanding
at September 30, 1996; 2,096,498
issued and outstanding, as adjusted
for Minimum Offering; 2,261,498
issued and outstanding
as adjusted for Maximum Offering(3) ................ $ 996 $ 1,996 $ 2,261
Paid in capital........................................ 1,148,311 5,247,649 6,400,133
Accumulated deficit.................................... (997,450) (997,450) (997,450)
Common Stock subscribed................................ 37,077 37,077 37,077
---------- ----------- ----------
Total stockholders' equity............................. $ 188,934 $ 4,289,272 $5,442,020
=========== =========== ==========
</TABLE>
- -------------------------------------------
(1) Assumes receipt of net proceeds from the offering of $4,100,338.
(2) Assumes receipt of net proceeds from the offering of $5,253,087
(3) Excludes (i) up to 126,500 shares of Common Stock issuable upon exercise
of the Representative's Warrants to be issued in conjunction with this
offering; (ii) 58,252 shares of Common Stock issuable upon the exercise of
currently outstanding common stock purchase warrants; (iii) 180,000 shares
of Common Stock issuable upon the exercise of currently outstanding stock
options; and (iv) 450,000 shares of Common Stock reserved for issuance
under the Company's Stock Option Plans. See "Market for Common Equity and
Related Stockholder Matters--Common Stock Outstanding or Reserved for
Issuance," "Underwriting--Representative's Warrants," and "Executive
Compensation--Option Plans."
-13-
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at September 30,
1996, was $187,275 or $0.19 per share. Based upon an offering price of $5.00 per
share, the net tangible book value per share will increase as a result of the
sale of the Minimum Offering to approximately $2.15 (without adjustment for
other changes in net tangible book value subsequent to September 30, 1996),
resulting in an immediate substantial dilution to new shareholders of $2.85 per
share (57.0%). If the Maximum Offering is sold herein, the net tangible book
value per share will increase to approximately $2.41 (without adjustment for
other changes in net tangible book value subsequent to September 30, 1996),
resulting in an immediate substantial dilution to new shareholders of $2.59 per
share (51.8%). Dilution is the reduction in value of the investor's investment
measured by the difference between the price per share in the public offering
and the net tangible book value per share at September 30, 1996, plus the
increase attributable to purchases by shareholders in this offering. "Net
tangible book value per share" represents the amount of total tangible assets,
less total liabilities, divided by the number of shares of Common Stock
outstanding. The following table illustrates the per share effect of this
dilution on purchasers in this offering if either the Minimum or the Maximum
Offering is sold. See "Description of Securities" and "Financial Statements."
<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
---------------- ----------------
<S> <C> <C> <C> <C>
Public Offering Price Per Share $5.00 $5.00
Net Tangible Book Value Per
Share at September 30, 1996(1) $0.19 $0.19
Increase Per Share Attributable
to Purchases by New Shareholders $1.96 $2.22
----- -----
Pro Forma Net Tangible Book Value
Per Share After Offering(2) $2.15 $2.41
----- -----
Dilution to New Shareholders $2.85 $2.59
===== =====
Percent of Offering Price 57.0% 51.8%
===== =====
</TABLE>
- --------------------------------------
(1) Amount results from subtracting the total liabilities and intangible assets
of the Company from its total assets and dividing the remainder by the
number of shares of Common Stock outstanding.
(2) Includes the net tangible book value of $187,275 at September 30, 1996,
plus estimated net proceeds of this offering, after payment of expenses and
underwriting commissions, of $4,100,338 if only the Minimum Offering is
sold and $5,253,087 if the Maximum Offering is sold. Does not include (i)
100,000 shares (126,500 shares if the Maximum Offering is sold) underlying
the Representative's Warrants; (ii) 58,252 shares of Common Stock issuable
upon the exercise of currently outstanding common stock purchase warrants;
(iii) 180,000 shares of Common Stock issuable upon the exercise of
currently outstanding stock options; or (iv) 450,000 shares of Common Stock
reserved for issuance under the Company's Stock Option Plans. See "Market
for Common Equity and Related Stockholder Matters--Common Stock Outstanding
or Reserved for Issuance," "Underwriting--Representative's Warrants," and
"Executive Compensation--Option Plans."
Based upon the sale of 1,000,000 shares of Common Stock at an offering
price of $5.00 per share to the investors in this offering, investors in this
offering will own approximately 50.1% of the issued and outstanding Common Stock
(approximately 55.9% of the issued and outstanding shares of Common Stock if the
Maximum Offering is sold). This compares with 996,498 shares of Common Stock
-14-
<PAGE>
held by existing shareholders of the Company, for which the Company was paid an
aggregate consideration of $1,148,311 upon initial issuance, or an average of
approximately $0.87 per share, and which will constitute approximately 49.9% of
the issued and outstanding Common Stock following this offering (approximately
44.1% if the Maximum Offering is sold). Except as otherwise stated, the
foregoing information assumes no exercise of outstanding options or warrants and
no exercise of the Representative's Warrants. To the extent that currently
outstanding options or warrants are exercised, there may be further dilution to
new investors.
-15-
<PAGE>
SELECTED FINANCIAL DATA
The selected financial information set forth below is derived from the
audited financial statements of the Company, which have been prepared in
accordance with generally accepted accounting principles. The audited financial
statements at January 31, 1994 and 1995 and for the fiscal years ended January
31, 1994 and 1995 have been audited by Winter, Scheifley & Associates, P.C. and
appear elsewhere herein. The financial data included below at and for the nine
months ended September 30, 1995 and 1996 are unaudited and include, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation of financial position and
results of operations. Operating results for the nine months ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. The selected financial data is qualified in its
entirety by reference to, and should be read in conjunction with, the Financial
Statements, related Notes, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Balance Sheet Data At December 31, 1995 At September 30, 1996
---------------------- ---------------------
(Audited) (Unaudited)
<S> <C> <C>
Working capital $(61,387) $137,855
Total assets 90,841 251,194
Capital lease obligations 2,363 1,488
Stockholders' equity (388,216) 188,934
Income Statement Data Year Ended Nine Months Ended
December 31, September 30,
----------------------- -------------------------
1995 1994 1996 1995
---- ---- ---- ----
(Audited) (Audited) (Unaudited) (Unaudited)
Sales $15,975 $22,596 $20,821 $8,321
Cost of sales 38,843 18,579 94,360 21,082
Gross profit (22,868) 4,017 (73,539) (12,761)
Selling, general and administrative 164,927 146,088 220,422 86,988
Research and development 27,268 85,835 5,886 6,832
Income (loss) from
operations (215,063) (227,906) (299,847) (106,581)
Interest income 14 410 -- --
Interest expense (831) -- 625 --
Net income (loss) (215,880) (227,496) (300,472) (106,581)
Earnings (loss) per share (0.34) (0.36) (0.35) (0.17)
Weighted average number
of common shares outstanding 637,250 628,667 850,388 633,083
</TABLE>
- --------------------
(1) Excludes (i) up to 126,500 shares of Common Stock issuable upon exercise
of the Representative's Warrants to be issued in conjunction with this
offering; (ii) 58,252 shares of Common Stock issuable upon the exercise of
currently outstanding common stock purchase warrants; (iii) 180,000 shares
of Common Stock issuable upon the exercise of currently outstanding stock
options; and (iv) 450,000 shares of Common Stock reserved for issuance
under the Company's Stock Option Plans. See "Market for Common Equity and
Related Stockholder Matters--Common Stock Outstanding or Reserved for
Issuance," "Underwriting--Representative's Warrants," and "Executive
Compensation--Option Plans."
-16-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
OVERVIEW
Patcomm Corporation is a technology company dedicated to the amateur radio
and related products industry. The Company has chosen to concentrate on the most
dominant product activity of the amateur radio field, transceiver and ancillary
support products. The competitive principle around which the Company's
technology is based is the replacement of traditional hardware functions with
software, thus reducing cost of goods while allowing equivalent or greater
sophistication. The Company's fundamental design strategy is the integration of
a computer with a transceiver. Further, the Company has successfully obtained a
patent protecting its use of a computer keyboard for controlling a transceiver,
thus creating an ergonomic interface that combines "computer culture" with
"amateur radio culture." The Company's products are described in the "Products
Description" section. The Company is currently engaged in the transition from a
development stage company to a manufacturing and marketing entity.
From its inception the Company has dedicated its resources primarily to
market research and technical development activities. This has involved raising
capital, recruiting personnel, system design, software development, prototype
building, prototype and beta site testing, manufacturing prototype testing,
market measurement and reaction, and promotional activities. The Company has
also leased or purchased assets for use in its operations. And finally, the
Company has engaged in minor manufacturing and sales activities. Management is
attempting to determine the best way to make and sell the Company's product
concepts.
In view of the Company's limited operating history, an evaluation of its
prospects must be considered in view of the difficulties and risks associated
with development stage entities transitioning into operating entities. In order
to become a viable business entity, the Company must project itself into the
amateur radio marketplace as an innovative and credible source of competitive
products. The Company must be equally recognized by end customers, distributors,
media entities, and industry institutions. In order to achieve this goal the
Company must strive to be a state of the art technology provider. The Company's
fiscal year ends December 31.
RESULTS OF OPERATIONS
The following table sets forth selected income data as a percentage of net
sales for the periods indicated.
-17-
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
Year ended December 31, September 30,
------------------------------- --------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 82.22 243.15 253.36 453.19
--------- --------- --------- ----------
Gross profit 17.78 (143.15) (153.36) (353.19)
General and administrative 646.52 1,032.41 1,045.40 1,433.27
Research and development 379.87 170.69 82.11 28.27
--------- --------- ---------- ----------
Income(loss) from operations (1,008.61) (1,346.25) (1,280.87) (1,461.54)
Interest income 1.81 0 0 0
Interest expense 0 5.20 0 3.00
--------- --------- ---------- ----------
Net income (loss) (1,006.80) (1,351.45) (1,280.87) (1,817.74)
</TABLE>
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended September
30, 1995
Sales for the nine months ended September 30, 1996, were $20,821, an
increase of $12,500, or 150.22%, as compared to the period ended September 30,
1995. Cost of sales for the nine months ended September 31, 1996, was $94,360,
an increase of $73,278, or 347.58%, as compared to the period ended September
30, 1995. General and administrative expenses for the nine months ended
September 30, 1996 were $220,422, an increase of $133,434, or 153.37%, as
compared to the period ended September 30, 1995. Research and development
expenses for the nine months ended September 30, 1996 were $5,886, a decrease of
$946, or 13.85%, as compared to the period ended September 30, 1995. Interest
expense for the nine months ended September 30, 1996, was $625, an increase of
$625, as compared to the period ended September 30, 1995. This increase occurred
because the Company did not have any outstanding indebtedness during the prior
fiscal year.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Sales for the year ended December 31, 1995, were $15,975, a decrease of
$6,621, or 29.30%, as compared to the year ended December 31, 1994. Cost of
sales for the year ended December 31, 1996, was $38,843, an increase of $20,264,
or 109.07%, as compared to the year ended December 31, 1994. General and
administrative expenses for the year ended December 31, 1995 were $164,927, an
increase of $18,839, or 12.89%, as compared to the year ended December 31, 1994.
Research and development expenses for the year ended December 31, 1995 were
$27,268, a decrease of $58,567, or 68.23%, as compared to the year ended
December 31, 1994. Interest income for the year ended December 31, 1995, was
$14, an decrease of $396, or 96.58%, as compared to the year ended December 31,
1994. Interest expense for the year ended December 31, 1995, was $831, an
increase of $831, as compared to the year ended December 31, 1994. This increase
occurred because the Company did not have any outstanding indebtedness during
the prior fiscal year.
Because the Company is a start-up stage company, the financial results for
prior operating periods are not necessarily indicative of future financial
results.
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has been financed through private sales of royalty
interests and common stock purchase warrants, private sales of the Company's
Common Stock, and loans from "insiders." Cash provided by revenues has been
insignificant.
-18-
<PAGE>
The net proceeds to the Company from the sale of shares of Common Stock in
this offering are estimated to be $4,100,338 if the Minimum Offering is raised
($5,253,087 if the Maximum Offering is raised). The Company intends to use
$1,000,000 of the net proceeds to purchase new machinery and equipment. The
balance of the net proceeds is expected to be used to hire additional personnel,
for marketing and promotion, general corporate purposes, and working capital.
The Company believes that the net proceeds from the offering will be sufficient
to meet cash requirements for the next 18 months. If such cash flows are not
sufficient to meet the Company's needs, it may seek additional cash through the
sale of equity and/or debt instruments, and/or attempt to obtain credit.
BUSINESS
Introduction
The Company was formed in 1992 to develop and market a new line of products
and related services for the amateur radio communications market and eventually
for related commercial markets. Utilizing technology developed by the Company's
founders, Alexander Adelson and Frank Delfine, the Company has developed new
architecture for integrating a computer (and the required software) with a
transceiver used by amateur radio (HAM) operators. Further, it has succeeded in
gaining intellectual property protection covering the use of computer and
similar keyboards for directly controlling amateur radio transceivers (US Patent
#5,566,205). This integration significantly reduces the cost of a state of the
art transceiver while retaining many complex functions that are part of the
current technology. The Company plans to use a portion of the proceeds of this
offering to hire additional personnel to market and distribute its principal
product and develop additional products and services.
Industry Overview
For over 20 years the amateur radio industry has been characterized by
stable but modest growth, with a customer base comprised primarily of
conservative, dedicated, well educated, and above average income individuals.
The typical amateur radio operator is between 40 and 60 years of age and has
been licensed for a period of 15 to 30 years. However, the industry is currently
experiencing growth with the average number of licenses issued to amateur
operators per year increasing over the last five years. This increase in
licenses is due, in part, to a rapid increase in the number of "new" retirees
each year. Existing operators typically become more actively involved upon
retirement and others will try the activity for the first time upon retirement.
The increase is also due, in part, to the creation of the Codeless License Class
by the FCC in February 1991, which has made obtaining a license easier and has
attracted younger, more technically oriented users, lowering the average age of
operators during the last few years.
Notwithstanding dramatic technological improvements in virtually every
other area of communications, there has not been a major technological
breakthrough in amateur radio equipment in approximately ten years. The set of
electronic equipment an amateur radio operator uses to receive and transmit
radio signals is commonly referred to as a "station." In the early stages of
amateur radio development, almost every "station" was made up of a separate
receiver and transmitter. As technology evolved, the transmitter and receiver
were combined into a single unit called a "transceiver." The introduction of the
integrated circuit into the communications industry resulted in transceivers
which could perform more functions for the same cost and which also were more
compact. More recently, microcomputer technology has given birth to the "smart"
transceiver. In the jargon of the electronics industry, "smart" equipment
utilizes a microprocessor located inside such equipment to assist in the
performance of numerous electronic functions--including highly complex functions
at very high speeds. Accordingly, the user receives the benefit of additional,
useful functions at a relatively low incremental cost. The next step in the
technological evolution is the most significant to date--the evolution from
microprocessor to the complete integration of the transceiver with the
processing capabilities of a computer and keyboard. The Company's products and
services are focused on this technological advance.
-19-
<PAGE>
Market Strategy
The Company's strategy is to capitalize on its advanced technology and the
increasing costs of some significant competitors to gain market share and
ultimately establish a leading role in the expanding amateur radio operator
business and related wireless commercial uses. By converting hardware functions
to software functions, the integration of the transceiver and the computer
results in a transceiver which can perform more functions for the same cost.
Company marketing studies indicate that such a reduction in cost per function is
very attractive both to long time operators who are looking for less costly ways
to upgrade their equipment and to the younger, more technology minded buyers
just starting out in amateur radio activities. Management also believes that the
Company can provide a family of technically advanced products at a lower cost
than the three Japanese companies which have traditionally held a dominant
position in the U.S. (See "-- Competition," below.). Those providers are
experiencing increased costs due to unfavorable currency exchange rates. Thus,
management believes that the Company has a unique opportunity to establish
market share through technically advanced products while having a cost advantage
over some of the traditional leaders in the marketplace.
The Company will seek to utilize its advanced technology to establish
market share in the existing amateur radio operator markets and to develop new
market segments. The largest existing market consists of established HAM
operators who can be approached through conventional media technologies to
purchase system upgrades. The Company believes that new, younger operators and
new retirees comprise a significant expanding market in which the Company can
establish significant market share through aggressive, innovative marketing. In
addition, the Company will capitalize on its unique software architecture to
market to physically impaired operators as a specialty niche market.
The Company's market study also indicates that the current median price for
a full featured HF (high frequency) transceiver is $2,103. This medium priced,
medium featured transceiver leads the pack in high volume sales by the major
manufacturers. The PC16000(TM) transceiver, a direct challenge to this product
type, is anticipated to be sold for approximately $1,600. The Company intends to
develop a high end unit which will fall into the $3,500 category.
The Company intends to market its products to commercial and institutional
users who require the same HF operating spectrum as amateur radio operators as
well as the same sort of equipment attributes, utilities, and features. Such
users include the Civil Air Patrol (CAP), missionary communications, high seas
nautical communications, and certain government communications. Products sold to
these types of commercial users will require "type acceptance" by the FCC,
unlike amateur radio products which are certified by manufacturers to be built
in accordance with established FCC standards. The Company believes that its
integrating architectural concept, because it shifts so many functional burdens
to software instead of hardware, should also give the Company a cost edge in
this marketplace. The Company has not yet determined the demand for its
products, but believes that there are significant opportunities because of the
overall size of the commercial market.
The Company also plans to enter the VHF market. Again, using the economic
advantages of its architecture, the Company intends to make a two band (six
meters/two meters) multi-mode (CW, SSB, FM, and AM) portable transceiver (not a
hand held).
-20-
<PAGE>
Products
The Company's business plan for the amateur radio business focuses
initially on the PC16000(TM) transceiver which has been completed and tested and
is now being marketed. This is an advanced up-conversion general coverage high
frequency transceiver that utilizes DSP (digital signal processing) to provide
excellent filtering characteristics (equal or better than expensive crystal
filters) at a low cost. This product is being priced by the Company at
approximately $1,600, which is less than a comparable product offered by
competitors. Additional features such as IF shift and AM/FM modes are included.
This unit also contains digital decoding/sending modes (CW/RTTY/ASCII) as well
as software upgrades to support advanced digital error correcting modes such as
AMTOR and PACTOR. Transmitter power is rated at average 100 watts continuous
output power.
The Company is also in the process of developing the following additional
products:
PC1600R(TM) - A receiver only device aimed at the serious SWL (Shortwave
Listener) market. This receiver is identical to the receiver included in the
PC16000(TM) and contains all the same digital decoding modes (CW/RTTY/ASCII).
PC160000(TM) - A high end, high frequency transceiver with all the features
of the PC16000(TM), plus dual receivers and built-in full screen display to
support additional digital modes such as PACKET. The Company is also developing
additional software and upgrade components for its products and will also
include multiple DSP (Digital Signal Processing) filters. The transmitter will
be rated at 150 watts continuous output.
PC1600V(TM) - A VHF transceiver designed for simplex operation on the two
and six meter bands using CW/SSB and Digital Mode operation. The transmitter
will be medium power. It will be capable of 50 watts continuous power output.
The unit will support CW/RTTY/ASCII digital modes with software upgrade
capability for AMTOR/PACTOR and PACKET utilities.
PC-AT16 - Automatic Antenna Tuner for the HF Bands. Designed to be used
with the PC-1610/PC-16000 or any other HF transceiver (including competition).
This unit allows the operator to tune his antenna system automatically (instead
of turning knobs and switches and watching meters) by simply pressing a single
button. The match is made in a matter of seconds automatically.
The Company is also developing software and upgrade components for its
products. One version will add AMTOR/PACTOR operation to the PC16000(TM) and the
PC160000(TM). These are digital modes that are error correcting, providing error
free communications by re-transmitting lost data as a background task which is
totally transparent to the user. Another version will add AMTOR/PACTOR as well
as PACKET to the PC1600V(TM). PACKET requires full screen display, creating
another opportunity to sell additional hardware. Upgrades will be offered for
existing systems as they become available much like software upgrades in the
business productivity software world.
The FCC has set forth certain technical standards to which a transmitted
amateur signal must conform. These standards set some basic guidelines for
minimum signal quality in the transmitted signal. The "image" of the amateur
operator is projected in the quality of the signal that he broadcasts. This
signal is the only thing that the rest of the world hears when the operator is
on the air. A high quality, properly formed signal is much easier to listen to
for long periods of time. This is also true of the quality of the signal that
the receiver produces. A receiver which produces noisy, distorted audio will
tend to create a high level of fatigue very quickly for its operator. Such poor
quality results in a bad reputation for the unit by both the operator and the
listener. The Company intends to manufacture only high quality units that
produce high quality signals which exceed all FCC specifications.
-21-
<PAGE>
Technology Protection
The Company intends to rely on a combination of patents, copyrights, and
trademarks to protect proprietary product design, software codes, and product
and service identification. The registration of a trademark does not in itself
restrict others from offering similar competing products but does restrict
others from using a deceptively similar name or mark to identify their product.
Patents. An application has recently been granted to the Company by the
U.S. Patent Office regarding certain aspects of the Company's technology. The
Company received a Notice of Allowance from the United States Patent and
Trademark Office with respect to such application on October 15, 1996 (patent
number 5,566,205). The Company intends to file additional patent applications as
other products are developed. Until such time as a patent issues, the Company
will not have the right to bring a patent infringement action against a third
party that makes a product or uses a technology identical or similar to the
Company's product or technology. Even if a patent is granted, there is no
assurance that such patent will not be attacked by third parties or if any such
attack were made, that it would not be successful. The costs involved in
defending a patent or prosecuting a patent infringement action would be
substantial. At present the Company does not have the resources to pursue such
an action. In addition, even if a patent issues, it cannot be assured that a
competitor could not design a product that is the functional equivalent of the
Company's product, without infringing on the Company's patent.
Trademarks. The Company has registered the following trademarks under
applicable federal law:
PC1610(TM)
PC16100(TM)
PC16000R(TM)
PC16000(TM)
PC160000(TM)
PC16000V(TM)
PIP(TM)
Although management believes that the Company's software and trademarks are
adequately protected for their intended purposes, there can be no assurance that
such trademarks will not be attacked by third parties or that, if any such
attack were made it would not be successful. The costs involved in defending a
patent, trademark, or copyright or prosecuting infringement action relating to a
copyright, trademark, or patent would be substantial. At present the Company
does not have the resources to pursue such an action.
Competition
The amateur radio marketplace is currently dominated by four large
manufacturers, including Kenwood, Yaesu, Icom, and Ten-Tec, of which Ten-Tec is
the only significant U.S. manufacturer, the others being Japanese. In addition,
there are a number of smaller Japanese manufacturers who, taken together,
comprise a fifth category of competitors. The Company has conducted focus group
studies to determine the market shares held by these four largest manufacturers
and the group of smaller Japanese manufacturers as a separate category.
Based on these focus group studies, these competitors, as a group, appear
to have the following market shares of the following amateur radio products:
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<PAGE>
Product Market Share
------- ------------
HF Transceiver Equipment 40%
VHF Transceiver Equipment 19%
Linear Amplifiers 10%
Digital Communications Accessories
(Morse, RTTY, ASCII and AMTOR Equipment
& Terminals) 9%
Antennas and accessories 12%
Operating adjuncts (Keyers, paddles, software, etc.) 10%
Employees
The Company employs seven full-time employees and two part-time employees.
The Company has also employed outside consultants on a contractual basis in
connection with its research and development and may continue this practice.
The Company attempts to maintain amiable and communicative relations with
its employees. The Company is not a party to any labor contracts or collective
bargaining agreements. The Company has experienced no labor stoppages in recent
years and management believes that relations with its employees are
satisfactory. The Company believes there is an adequate supply of suitable labor
available.
Research and Development and Product Design
The Company intends to invest money in an ongoing research and development
program along with the subsequent product design program. This is fundamental
with any high tech company. One can never sit on the laurels of a successful
product and not reach to the next step, or competition will put a quick end to a
successful market cycle.
Seasonality
The Company's products are subject to two types of seasonal variation.
First is the normal year end holiday buying activity and the spring seasonal
activity increase. The second fluctuation is peculiar to this industry. HF
communication is subject to sunspot activity since reduced sunspot activity
results in poor radio reception quality. A sunspot cycle is approximately 11
years. As these cycles end there is reduced sales activity due to generally poor
communication quality. Fortunately we are just entering an upswing of a new
sunspot cycle. The Company's backlog as of any given date is not a meaningful
measure of the Company's future business because the Company's customers
generally require rapid shipment of orders.
Properties
The Company maintains its headquarters and offices in a rented 2800 square
foot facility in the St. James area of Long Island, New York. It leases the
space on a one year renewable basis with an average 3% to 4% yearly increase.
The cost currently is $12.42 per square foot which includes power, water, heat,
air conditioning, and taxes. The property is leased from an unrelated third
party.
This facility is adequate for the Company's short term plans; however,
there have been conversations with the present landlord to expand, as required,
within the present facility to accommodate increased sales activity as demand
builds up. The Company enjoys a good relationship with the landlord.
-23-
<PAGE>
Government/Environmental Regulation
The Company is subject to various federal, state, and local environmental
laws and regulations. Management believes that the Company's operations
currently comply in all material respects with applicable laws and regulations.
Management is not aware of any current or future environmental laws and
regulations that could have a material impact on the Company.
MANAGEMENT
The founders and promoters, directors, and executive officers of the
Company, their ages and present positions are as follows:
Name Age Position
- ---- --- --------
Frank Delfine 42 Founder and Promoter, President, Treasurer,
and Director
Alexander Adelson 61 Founder and Promoter, Secretary, Chairman of
the Board of Directors
John Dibble 43 Director
Bruce Cowen 43 Director
James Messing 52 Director
Each director is serving a term of office which will continue until the
next annual meeting of shareholders, and until the election and qualification of
his successor. Set forth below is biographical information with respect to the
Company's founders and promoters and each officer and director.
Frank Delfine, founder and promoter, has been President, Treasurer, and a
director of the Company since inception. Mr. Delfine has over 19 years
experience as an Electronic Design Engineer with diverse experience in various
fields. He has been part of the RTS Research Lab, Inc. technology resource group
for the past 18 years. RTS Research Lab, Inc. is a privately held technology
resource group providing technology and marketing services to the electronic and
optical industries. Since 1984, Mr. Delfine has run his own technology
consulting firm serving high technology companies. In addition, Mr. Delfine has
been an amateur radio operator for 32 years, and holds a General Class license
as well as a First Class FCC Commercial license. Mr. Delfine currently devotes
his full-time to the business and affairs of the Company.
Alexander Adelson, founder and promoter, has been Chairman of the Board and
Secretary of the Company since inception. Mr. Adelson is President and Chairman
of the Board of RTS Research Lab, Inc., a position he has held since October
1974. Mr. Adelson is also Chief Technical Consultant and a member of the Board
of Directors for Base Ten Systems, Inc., a publicly held, 30 year old company
(NASDAQ NMS: BASEA). Base Ten Systems, Inc. is a diversified technology company
engaged in the design and manufacture of weapons control systems, medical
software, and secure communication technology. Mr. Adelson held a similar
position for Symbol Technologies, Inc. from 1977 through 1989. Symbol
Technologies is the leading manufacturer in the world of hand held laser
scanning equipment.
John Dibble has been a director of the Company since July 1992. Mr. Dibble
founded Aminetech, Inc. in 1988, which has created several gas treatment
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<PAGE>
products and he currently serves as President of that company. From 1974 to
1988, he worked at Union Carbide Corp. in research and development, serving in
various positions including the position of technology manager for a newly
created gas treating chemicals business group where over a dozen new products
were introduced to refineries, natural gas, and ammonia plants.
Bruce Cowen has been a director of the Company since January 1996. Mr.
Cowen is President and a director of TRC Companies, a publicly held company
(NYSE: TRR) that provides environmental engineering and consulting services to
private sector and government clients and manufactures and sells a line of
real-time airborne particulate and asbestos measurement instruments. Since 1992,
Mr. Cowen has also been the chairman of the Finance Committee of Base Ten
Systems, Inc. and recently joined the Board of Directors of that company.
James Messing has been a director of the Company since April 1996. Mr.
Messing has spent 28 years on Wall Street with the investment banking firms of
Salomon Brothers and CS First Boston in all areas of capital markets, including
trading, sales, and new product development. Mr. Messing currently is a
principal in his own investment banking firm.
The directors of the Company are elected annually and serve until their
successors take office or until their death, resignation, or removal. The
executive officers serve at the pleasure of the Board of Directors.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Chief Executive
Officer and the President of the Company for services rendered to the Company
during the last three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation
Name ---------------------------------------------------
and Fiscal year Other
principal ended annual
position December 31, Salary Bonus compensation
-------- ------------ ------ ----- ------------
<S> <C> <C> <C> <C>
Frank Delfine, 1995 $46,000 $-0- $-0-
President, Treasurer, 1994 $51,000 $-0- $-0-
and Director 1993 $69,000 $-0- $-0-
Alexander Adelson, 1995 $ -0- $-0- $-0-
Chairman of the Board 1994 $ -0- $-0- $-0-
and Secretary 1993 $36,000(1) $-0- $-0-
</TABLE>
- -----------------------
(1) Payments made pursuant to a consulting arrangement with Mr. Adelson.
Employment Agreements
The Company has entered into an employment agreement with Mr. Frank
Delfine, its President, providing for the payment of an annual salary of $88,000
for the years commencing January 1, 1997 and 1998. In addition, the agreement
provides for the payment of incentive compensation in the amount of 3% of the
Company's net income (after tax), if any, up to $1,499,000 and 1% of all net
income (after tax), if any, in excess of $1,500,000.
Effective January 1, 1997, the Company entered into an employment agreement
with Mr. Alexander Adelson, the Chairman of its Board of Directors, providing
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<PAGE>
for the payment of a salary of $1,000 per month in exchange for up to two days
of service to the Company per month by Mr. Adelson. In addition, the agreement
provides for the payment of incentive compensation in the amount of 3% of the
Company's net income (after tax), if any, up to $1,499,000 and 1% of all net
income (after tax), if any, in excess of $1,500,000.
Directors
Directors are not compensated for their services as directors; however,
they are reimbursed for all reasonable expenses incurred in connection
therewith.
Option Plans
The Board of Directors of the Company has adopted an Incentive Stock Option
Plan (the "Qualified Plan") which provides for the grant of options to purchase
an aggregate of not more than 300,000 shares of the Company's Common Stock. The
purpose of the Qualified Plan is to make options available to management and
employees of the Company in order to provide them with a more direct stake in
the future of the Company and to encourage them to remain with the Company. The
Qualified Plan provides for the granting to management and employees of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code").
The Board of Directors of the Company has adopted a Non-Qualified Stock
Option Plan (the "Non-Qualified Plan") which provides for the grant of options
to purchase an aggregate of not more than 150,000 shares of the Company's Common
Stock. The purpose of the Non-Qualified Plan is to provide certain key
employees, independent contractors, technical advisors, and directors of the
Company with options in order to provide additional rewards and incentives for
contributing to the success of the Company. These options are not incentive
stock options within the meaning of Section 422 of the Code.
The Qualified Plan and the Non-Qualified Plan (the "Stock Option Plans")
will be administered by a committee (the "Committee") appointed by the Board of
Directors which determines the persons to be granted options under the Stock
Option Plans and the number of shares subject to each option. No options granted
under the Stock Option Plans will be transferable by the optionee other than by
will or the laws of descent and distribution and each option will be
exercisable, during the lifetime of the optionee, only by such optionee. Any
options granted to an employee will terminate upon his ceasing to be an
employee, except in limited circumstances, including death of the employee, and
where the Committee deems it to be in the Company's best interests not to
terminate the options.
The exercise price of all incentive stock options granted under the
Qualified Plan must be equal to the fair market value of the underlying shares
on the date of grant as determined by the Committee, based on guidelines set
forth in the Qualified Plan. The exercise price may be paid in cash or (if the
Qualified Plan shall meet the requirements of rules adopted under the Securities
Exchange Act of 1934) in Common Stock or a combination of cash and Common Stock.
The term of each option and the manner in which it may be exercised will be
determined by the Committee, subject to the requirement that no option may be
exercisable more than 10 years after the date of grant. With respect to an
incentive stock option granted to a participant who owns more than 10% of the
voting rights of the Company's outstanding capital stock on the date of grant,
the exercise price of the option must be at least equal to 110% of the fair
market value on the date of grant and the option may not be exercisable more
than five years after the date of grant. The exercise price of all stock options
granted under the Non-Qualified Plan must be equal to at least 80% of the fair
market value of such shares on the date of grant as determined by the Committee,
based on guidelines set forth in the Non-Qualified Plan.
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<PAGE>
As of the date of this Prospectus, no options have been granted under
either the Qualified Plan or the Non-Qualified Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has received periodic cash advances from Mr. Alexander Adelson,
its secretary and a founder, promoter, and director. The Company also received
periodic cash advances from Mr. Frank Delfine its president and a founder,
promoter, and director. The Company did not enter into a formal agreement with
either Mr. Adelson or Mr. Delfine respecting these cash advances. As of December
31, 1995, the advances aggregated $35,500 from Mr. Adelson and $6,300 from Mr.
Delfine. The Company has executed promissory notes with each of Messrs. Adelson
and Delfine, which require the payment of the principal amount of these
advances, together with interest at the rate of 5% per annum, compounded
quarterly, on the unpaid principal balances, not later than December 31, 1998.
On July 26, 1995, the Company executed a promissory note to Bruce Cowen, a
director of the Company, in the principal amount of $20,000. This promissory
note requires the payment of the principal balance thereof, together with
accrued interest at the rate of 10% per annum, at the earlier of: (i) June 30,
1996; or (ii) the time that the Company receives net proceeds in excess of
$100,000 from the sale of its Common Stock to investors who were not security
holders of the Company as of July 26, 1995. Interest is payable on the unpaid
principal balance of this promissory note on September 30, 1995, December 31,
1995, March 31, 1996 and June 30, 1996. Management intends to renegotiate the
terms of this promissory note so that maturity will be extended to the time the
offering proceeds from this Offering are received by the Company.
Effective September 30, 1996, the Board of Directors granted stock options
to Alexander Adelson and Frank Delfine. Mr. Adelson and Mr. Delfine were each
granted a stock option to purchase 15,000 shares of Common Stock (30,000 shares
in the aggregate) at an exercise price of $2.60 per share. In addition,
effective November 30, 1996, the Board of Directors granted each of Messrs.
Adelson and Delfine stock options to purchase 75,000 shares of Common Stock
(150,000 shares in the aggregate) at an exercise price of $7.00 per share. The
Board of Directors believes that the exercise price of the stock options, in
each case, was in excess of the fair market value of the Company's Common Stock
at the time that such options were granted. However, the $7.00 exercise price
for the options granted effective November 30, 1996, was determined in
negotiations with the Representative of the Underwriters.
PRIOR OFFERINGS
On October 12, 1992, the Company raised $370,000 by selling 37 units (the
"Units") at $10,000 per Unit. Each Unit was comprised of a 0.1% royalty interest
(each a "Royalty Interest") in gross sales revenues (aggregating 3.7% per annum
of the Company's gross revenues from sales in royalty payments to the holders of
the 37 Royalty Interests) and 3,750 Common Stock purchase warrants (the
"Warrants"). Each Warrant, when issued, entitled the holder thereof to purchase
one share of the Company's Common Stock at a price of $4.00 per share. The
Warrants expire on December 31, 1997.
In December 1994, the Company raised $140,000 pursuant to a private
offering and sale of 28,000 shares of the Company's Common Stock. The proceeds
were used for: (i) marketing of the product recently developed by the Company;
(ii) further research and development of products; and (iii) working capital.
Between January and June 1996, the Company raised $300,000 pursuant to a
private offering and sale of 100,000 shares of Common Stock. The proceeds have
been and are to be used for: (i) the purchase of finished goods inventory; (ii)
marketing and advertising; (iii) salaries; and (iv) working capital.
-27-
<PAGE>
In June 1996, the Company reduced the exercise price of the Warrants to
$2.60 per share of Common Stock for an interim period of time by means of a
private offering to the holders of the Warrants. The Company also solicited the
holders of the Royalty Interests to convert their Royalty Interests to shares of
Common Stock. All of the Royalty Interests were converted into 185,000 shares of
Common Stock pursuant to that offering. In connection with that offering,
Messrs. Delfine and Adelson agreed that any person who previously exercised his
or her Warrants at the stated exercise price of $4.00 per share would receive
additional shares of Common Stock, such shares to be transferred to such persons
by Messrs. Delfine and Adelson from their personal holdings of Common Stock and
in such numbers as to make the effective exercise price of those Warrants $2.60
per share. In addition, Messrs. Delfine and Adelson agreed that persons who
purchased shares of Common Stock for $5.00 per share in the 1994 private
offering would receive additional shares, such shares to be transferred to such
persons by Messrs. Delfine and Adelson from their personal holdings of Common
Stock and in such numbers as to make the effective purchase price of those
shares $3.00 per share. The shares transferred to such prior investors, an
aggregate of 28,763 shares, were transferred without consideration of any kind
for such transfer. Pursuant to that private offering, the Company issued an
additional 61,748 shares of Common Stock and Messrs. Delfine and Adelson
transferred an aggregate of 28,763 shares of Common Stock (including 1,333
shares of Common Stock transferred to Mr. Adelson who had invested in the
offering at $5.00 per share on the same terms as the other investors).
PRINCIPAL SHAREHOLDERS
The Company is authorized to issue 10,000,000 shares of Common Stock,
$0.001 par value, and 10,000,000 shares of preferred stock, $0.01 par value. As
of the date of this Prospectus, there are 996,498 shares of the Company's Common
Stock issued and outstanding. No shares of preferred stock are issued and
outstanding. The table below sets forth the stock ownership as of September 30,
1996, of each person known by the Company to be the beneficial owner of more
than 5% of the Company's $0.001 par value Common Stock, of all directors
individually, and of all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Shares to be Beneficially Shares to be Beneficially
Shares Beneficially Owned After Minimum Owned After Maximum
Name and Address Owned Prior to Offering Offering(1) Offering(1)
of Beneficial Owner Number Percent Number Percent Number Percent
------------------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Alexander M. Adelson(2),(3) 353,951 32.57% 353,951 16.96% 353,951 15.05%
Frank Delfine(2),(4) 350,619 32.27% 350,619 16.80% 350,619 14.91%
Bruce Cowen(2) 25,875 2.59% 25,875 1.29% 25,875 1.14%
John Dibble(2),(5) 42,131 4.19% 42,131 2.10% 42,131 1.85%
James Messing(2),(6) 43,894 4.40% 43,894 2.19% 43,894 1.94%
Officers and Directors 816,470 68.84% 816,470 37.35% 816,470 33.31%
as a Group (5 persons)
-28-
</TABLE>
<PAGE>
- ---------------------------------
(1) Excludes (i) up to 126,500 shares of Common Stock issuable upon exercise of
the Representative's Warrants to be issued in conjunction with this
offering; (ii) 58,252 shares of Common Stock issuable upon the exercise of
currently outstanding common stock purchase warrants; (iii) 180,000 shares
of Common Stock issuable upon the exercise of currently outstanding stock
options; and (iv) 450,000 shares of Common Stock reserved for issuance
under the Company's Stock Option Plans. See "Market for Common Equity and
Related Stockholder Matters--Common Stock Outstanding or Reserved for
Issuance," "Underwriting--Representative's Warrants," and "Executive
Compensation--Option Plans."
(2) The address for the officers and directors of the Company is 7 Flower
Field, M100, St. James, NY 11780
(3) Includes options to purchase 75,000 shares of the Company's Common Stock
which are exerciseable at $7.00 per share, and options to purchase 15,000
shares of the Company's Common Stock which are exerciseable at $2.60 per
share.
(4) Includes options to purchase 75,000 shares of the Company's Common Stock
which are exerciseable at $7.00 per share, and options to purchase 15,000
shares of the Company's Common Stock which are exerciseable at $2.60 per
share.
(5) Includes warrants to purchase 9,431 shares of the Company's Common Stock
which are immediately exerciseable at $4.00 per share.
(6) Includes shares of the Company's Common Stock owned of record by Mr.
Messing's wife. Mr. Messing may be deemed to be the beneficial owner of the
shares held by his wife.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that any market will develop or, if a market
should develop, that it will continue. Subsequent to completion of this
offering, it is anticipated that the Common Stock will be listed on the National
Association of Securities Dealers, Inc.'s Small Cap Market.
Common Stock Outstanding or Reserved for Issuance.
As of the date of this Prospectus, the Company has 996,498 shares of Common
Stock outstanding. The number of holders of record of the Company's Common Stock
is 51.
The Company has reserved 300,000 shares of Common Stock for issuance upon
exercise of options which may be granted pursuant to the Company's Qualified
Stock Option Plan, 150,000 shares of Common Stock for issuance upon exercise of
options which may be granted pursuant to the Company's Non-Qualified Stock
Option Plan, 58,252 shares of Common Stock for issuance upon exercise of the
remaining outstanding Warrants, 180,000 shares of Common Stock for issuance upon
exercise of outstanding stock options, and 126,500 shares of Common Stock for
issuance to the Representative upon exercise of the Representative's Warrants
being issued in connection with this offering. See "Shares Eligible for Future
Sale," below.
Shares Eligible for Future Sale
After completion of this offering but without giving effect to the exercise
of the Representative's Warrants or the issuance of any shares of Common Stock
reserved for issuance under the Company's Stock Option Plans or pursuant to the
exercise of any of the 58,252 currently outstanding Warrants or any of the
180,000 currently outstanding stock options, the Company will have 1,996,498
shares of Common Stock outstanding if the Minimum Offering is sold and 2,261,498
shares of Common Stock outstanding if the Maximum Offering is sold. Of these,
the 1,000,000 shares sold in the Minimum Offering or 1,265,000 shares sold in
the Maximum Offering will be freely tradable (except by affiliates of the
Company) without restriction or further registration under the Securities Act.
The balance will be "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act. An aggregate of approximately 788,000 of
the restricted securities (which are held by approximately eighteen (18)
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<PAGE>
beneficial owners) are currently eligible for resale pursuant to Rule 144 and
will be freely tradable in the public market (except by affiliates of the
Company). However, the Representative has recommended that holders of as many
shares as possible of the 788,000 shares of Common Stock eligible for resale
under Rule 144 enter into an agreement with the Representative under which they
will agree not to sell any of the restricted securities which they hold for a
two-year period following the date of this Prospectus, without the consent of
the Representative (the "Lock-Up"). The remaining 208,498 shares of Common Stock
are "restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act and may only be sold in the public market pursuant to
an effective registration statement or in accordance with Rule 144. All of the
Company's officers and directors have entered into the Lock-Up agreement
referenced above. Accordingly, 627,039 shares of the 788,000 that are currently
eligible for resale pursuant to Rule 144 are subject to the Lock-Up. The
Representative has no general policy, plans, arrangements, understandings, or
commitments with respect to the early release of the Lock-Up; however, investors
are cautioned that the Representative in its sole discretion, and without notice
to the public, may elect to release all or part of the shares subject to the
Lock-Up prior to the expiration of the Lock-Up period. The early releases of the
Lock-Up and subsequent sale of those shares could have a depressive effect upon
the trading price of the Common Stock. Following the expiration of the Lock-Up,
all of the shares that are the subject of the Lock-Up will be eligible for
resale pursuant to Rule 144 promulgated pursuant to the Securities Act, subject
in some cases to compliance with certain volume limitations imposed pursuant to
Rule 144 and to applicable state securities laws.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned his or
her shares for at least two years, including affiliates of the Company, would be
entitled to sell within any three-month period a number of shares equal to the
greater of 1% of the then outstanding shares of Common Stock of the Company
(approximately 22,614 if the Maximum Offering is sold or 20,964 if the Minimum
Offering is sold) or the average weekly trading volume of the Company's Common
Stock during the four calendar weeks preceding the filing of the required notice
of such sale. Sales under Rule 144 are also subject to certain waiver of sale
restrictions, notice requirements, and the availability of current public
information about the Company. Sales of substantial numbers of shares of Common
Stock pursuant to a registration statement, Rule 144, or otherwise could
adversely affect the market price of the Common Stock, should such a market
develop.
The Company has reserved 450,000 shares of Common Stock for issuance upon
exercise of options which may be granted pursuant to the Company's Stock Option
Plans, 58,252 shares of Common Stock for issuance upon exercise of the currently
outstanding Warrants, 180,000 shares of Common Stock for issuance upon exercise
of currently outstanding stock options, and 126,500 shares of Common Stock for
issuance to the Representative upon exercise of the Representative's Warrants.
The Warrants are exercisable at $4.00 per share of Common Stock until December
31, 1997. Neither the Warrants nor the shares of Common Stock underlying the
Warrants are being registered pursuant to the Registration Statement of which
this Prospectus is a part. The Representative's Warrants are exercisable at
$6.00 per share of Common Stock for a period of four years commencing one year
from the date of this Prospectus. The Representative's Warrants carry certain
registration rights. The exercise prices of the Warrants and the
Representative's Warrants are subject to adjustment under certain circumstances.
If the holders of the Representative's Warrants exercise their warrants and
their registration rights relating to the underlying Common Stock, they will own
registered shares which will be freely transferable and tradable without
restriction or further registration under the Securities Act. See
"Underwriting."
-30-
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company's authorized capital consists of 10,000,000 shares of Common
Stock, par value $0.001 per share.
Holders of Common Stock are entitled to one vote for each whole share on
all matters to be voted upon by shareholders, including the election of
directors. Holders of Common Stock do not have cumulative voting rights in the
election of directors. All shares of Common Stock are equal to each other with
respect to liquidation and dividend rights. Holders of Common Stock are entitled
to receive dividends if and when declared by the Company's Board of Directors
out of funds legally available therefor under Nevada law. In the event of the
liquidation of the Company, all assets available for distribution to the holders
of the Common Stock are distributable among them according to their respective
holdings. Holders of Common Stock have no preemptive rights to purchase any
additional, unissued shares of Common Stock. All of the outstanding shares of
Common Stock of the Company are, and those to be issued pursuant to this
offering will be, fully paid and nonassessable.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of preferred
stock, par value $0.01 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights,
and sinking fund provisions.
No shares of preferred stock will be outstanding as of the closing of this
offering, and the Company has no present plans for the issuance thereof. The
issuance of any such preferred stock could adversely affect the rights of the
holders of the Common Stock and therefore, reduce the value of the Common Stock.
Common Stock Purchase Warrants
The Company currently has outstanding 58,252 Common Stock Purchase Warrants
which were issued in connection with a prior offering of the Company's
securities. Each Warrant entitles the holder thereof to purchase one share of
the Company's Common Stock for $4.00 per share. The Warrants are exercisable
until December 31, 1997. The Warrants are not redeemable. The exercise price of
and the number of shares of Common Stock to be obtained upon exercise of the
Warrants are subject to adjustment in certain circumstances including (i) the
payment of a stock dividend; (ii) a forward or reverse stock split; (iii) a
consolidation or combination involving the Common Stock; and (iv) a
reclassification or recapitalization involving the Common Stock.
Neither the Warrants nor the shares of Common Stock issuable upon exercise
of the Warrants are being registered pursuant to the Registration Statement of
which this Prospectus is a part.
Transfer Agent
Corporate Stock Transfer, Inc., 370 - 17th Street, Suite 2350, Denver,
Colorado 80202 has been retained to serve as the transfer agent and registrar
for the Company's Common Stock.
Reports to Shareholders
The Company intends to furnish annual reports to shareholders which include
audited financial statements reported on by its independent accountants. The
Company will comply with the periodic reporting requirements imposed by the
Securities Exchange Act of 1934.
-31-
<PAGE>
UNDERWRITING
The Company has entered into an Underwriting Agreement with Andrew Garrett,
Inc. Under the terms of the Underwriting Agreement, the Company has employed the
Underwriters as its exclusive agents to sell up to 1,265,000 shares of Common
Stock at an offering price of $5.00 per share on a "best efforts" basis. A
minimum of 1,000,000 shares of Common Stock must be sold by the Underwriters in
order to break escrow and close this offering. Therefore, if 1,000,000 shares of
Common Stock are not sold within 45 days from the date of this Prospectus
(unless extended for additional periods not to exceed 45 days by mutual
agreement between the Company and the Underwriters), all monies received will be
refunded without any deduction for commissions or expenses, and without any
interest thereon. All proceeds from the sale of the 1,000,000 shares of Common
Stock will be promptly transmitted to an escrow account at European American
Bank, a New York banking corporation, (the "Escrow Agent") entitled "Patcomm
Corporation Escrow Account." Until such time as the funds have been released
from escrow and certificates for the shares of Common Stock delivered to the
purchasers thereof, such purchasers, if any, will be deemed subscribers and not
shareholders.
The Underwriters intend to offer a portion of the shares offered hereby
through selected licensed security dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD"), and allocate to such dealers
such portions of the commission and the Representative's Warrants as the
Representative may determine. The Underwriters intend to enter into written
dealer agreements with such other securities dealers regarding this offering as
they deem appropriate.
The Underwriters are to receive a sales commission of ten percent ($0.50
per share sold). In addition, upon the sale of at least 1,000,000 shares offered
hereby, the Company has agreed to pay to the Representative a non-accountable
expense allowance of 3% of the gross proceeds of the offering ($150,000 or
$189,500 if the Maximum Offering is sold), of which none has been paid. Any
other expenses of the Representative which exceed the non-accountable expense
allowance will be borne by the Representative. To the extent that the expenses
of the Representative are less than the non-accountable expense allowance, the
excess may be deemed to be additional compensation to the Representative. The
Company has agreed to pay the expenses connected with qualifying the shares for
sale in various states that the Representative may designate.
The Representative has required officers and directors of the Company, who
hold, in the aggregate, 627,039 shares of Common Stock, to agree not to sell or
otherwise dispose of any of their shares for a period of up to two years after
the date of this Prospectus without the prior written consent of the
Representative. Such agreements will be enforceable only by the parties thereto
and not by other shareholders and may be amended or rescinded, in whole or in
part, at any time.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
-32-
<PAGE>
Representative's Warrants
The Company has agreed to sell to the Representative, at the closing of
this offering and for a purchase price of $0.001 per warrant, warrants (the
"Representative's Warrants") to purchase one share of Common Stock for each 10
shares sold in the offering. For a period of one year following the date of this
Prospectus, the Representative's Warrants are restricted from sale, transfer,
assignment, or hypothecation, except to the Underwriters and persons who are
officers or partners of the Underwriters. In addition, neither the
Representative's Warrants nor the underlying shares of Common Stock may be sold
without registration or an exemption from the registration provisions of the
Securities Act. The Representative's Warrants are exercisable at a price of 120%
of the public offering price (i.e., $6.00 per share, assuming a price of $5.00
per share in this offering) for a period of four years beginning one year from
the date of this Prospectus. The exercise period may not be extended. The
exercise price of the Representative's Warrants and the number of shares of
Common Stock underlying said Representative's Warrants are subject to adjustment
under certain circumstances to prevent dilution to the holders in the event of
stock dividends, stock splits, or stock combinations or upon a sale of assets,
merger, or consolidation.
The Representative and persons to whom the Representative may transfer the
Representative's Warrants have the right to join in any registration statement
or offering filed by the Company under the Securities Act to register the
Representative's Warrants and underlying securities for a period of four years
commencing one year from the date of this Prospectus. In addition, for a period
of four years commencing one year from the date of this Prospectus, the Company
has agreed, upon request of the holders of not less than 50% of the
Representative's Warrants or underlying securities, to file, not more than once,
a registration statement under the Securities Act registering or qualifying the
Representative's Warrants and/or the underlying shares of Common Stock at the
Company's expense. All expenses of such registration or qualification (except
for selling commissions and expenses and fees and expenses of counsel for the
selling security holders) including, but not limited to, legal, accounting,
state and federal filing fees, and the cost of printing prospectuses, will be
borne by the Company, which will be a substantial cost to the Company.
Both the Representative's Warrants and any profits realized by the
Representative on the sale of the shares of Common Stock underlying the
Representative's Warrants may be considered additional underwriting
compensation.
Pricing of the Offering
Prior to this offering, there has been no public market for the securities
of the Company and there can be no assurance that a market will develop
following the offering. The initial public offering price of the Common Stock
has been determined by negotiation between the Representative and the Company
and does not reflect an evaluation of the Company's securities by any
statistical valuation method. Among the factors considered in determining the
initial public offering price and the number of shares offered were the history
of, and the prospects for the Company, assessment of the Company's management,
its past and present operations, its past and present earnings and the prospects
for future earnings of the Company, the general condition of the securities
markets at the time of the offering, and other factors deemed relevant.
Accordingly, the offering price set forth on the cover page of this Prospectus
should not be considered an indication of the actual value of the Company or the
securities. The price bears no relation to the Company's assets, book value,
earnings, or net worth or any other generally accepted criterion of value. No
assurance can be given that any purchaser of Common Stock will be able to sell
any of his or her Common Stock, in any public market or otherwise, or at any
particular price.
-33-
<PAGE>
Recently Organized Representative
The underwriting of this offering is being managed by the Representative,
Andrew Garrett, Inc. This offering constitutes the first public offering of
securities managed by the Representative. The Representative's limited
experience could adversely impact the development and maintenance of a trading
market in the securities offered hereby.
LITIGATION
The Company is not aware of any material pending litigation to which the
Company is or may be a party, nor is it aware of any pending or contemplated
proceedings against it by governmental authorities. The Company knows of no
legal proceedings pending or threatened, or judgments entered against, any
director or officer of the Company, or legal proceeding to which any director,
officer, or security holder of the Company is a party adverse to, or has a
material interest adverse to, the Company.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters in connection herewith will be passed upon for the Company by Schlueter
& Associates, P.C., Denver, Colorado. Certain legal matters in connection with
the offering will be passed upon for the Underwriters by John E. Lawlor, Esq.,
Attorney at Law, Mineola, New York.
EXPERTS
The financial statements of the Company at December 31, 1995 and for the
periods ended December 31, 1994 and 1995 included in this Prospectus have been
audited by Winter, Sheifley, and Associates, P.C., as indicated in their report
with respect thereto, and are included herein in reliance upon such report and
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the shares of Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits
thereto, as permitted by the rules and regulations of the Commission. For
further information, copies of the Registration Statement may be obtained upon
payment of prescribed fees or examined without charge at the Commission's
principal office in Washington, D.C. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
-34-
<PAGE>
After consummation of this offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and, in connection therewith, will file reports, proxy and information
statements, and other information with the Commission. Such materials filed by
the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the Regional Offices of
the Commission located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60621-2511 and 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of such materials also can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
STATEMENT AS TO INDEMNIFICATION
The Articles of Incorporation of the Company contain provisions whereby the
Company shall, to the maximum extent permitted by Nevada law, indemnify its
officers and directors, former officers and directors, or persons who act or
acted at the Company's request as a director or officer of a company of which
the Company is or was a shareholder or creditor, and their heirs and legal
representatives.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933, and is therefore unenforceable.
-35-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Patcomm Corporation
We have audited the accompanying balance sheet of Patcomm Corporation (a
development stage Company) as of December 31, 1995, and the related statements
of operations, stockholders' equity, and cash flows for each of the two 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates 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 financial position of Patcomm Corporation (a
development stage Company) as of December 31, 1995, and the results of its
operations, and its cash flows for each of the two years then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, substantial doubt exists about the Company's continued
existence should it be unable to complete its proposed financing and market its
products. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Winter, Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
April 16, 1996
(Except for Note 10, for which
the date is December 31, 1996)
F-1
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Balance Sheet
December 31, 1995
ASSETS
------
Current assets:
Cash $ 1,363
Inventory 43,944
--------
Total current assets 45,307
Property and equipment, at cost, net of
accumulated depreciation of $45,681 43,875
Other assets 1,659
--------
$ 90,841
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of capital lease obligations $ 1,335
Current portion of loans payable to stockholders 71,800
Accounts payable 16,303
Accrued expenses 17,256
--------
Total current liabilities 106,694
Capital lease obligations 2,363
Commitments
Royalty interests 370,000
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized,
no shares issued and outstanding
Common Stock, $.001 par value,
10,000,000 shares authorized,
649,750 shares issued and outanding 650
Additional paid-in capital 308,113
Deficit accumulated during the development shage (696,979)
--------
(388,216)
---------
$ 90,841
========
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statement of Operations
For The Years Ended December 31, 1995 and 1994
and Inception (March 12, 1992) to December 31, 1995
Year Ended Year Ended Inception to
December 31, December 31, December 31,
1995 1994 1995
---- ---- ----
<S> <C> <C> <C>
Sales $ 15,975 $ 22,596 $ 43,111
Cost of sales 38,843 18,579 64,805
--------- --------- ---------
Gross profit (22,868) 4,017 (21,694)
Other costs and expenses:
General and administrative 164,927 146,088 337,057
Research and development 27,268 85,835 344,825
--------- --------- ---------
192,195 231,923 681,882
--------- --------- ---------
Income (loss) from operations (215,063) (227,906) (703,576)
Other income and (expense):
Interest income 14 410 7,428
Interest expense (831) -- (831)
--------- --------- ---------
(817) 410 6,597
--------- --------- ---------
Net income (loss) $(215,880) $(227,496) $(696,979)
--------- --------- ---------
Earnings (loss) per share:
Net income (loss) ($ 0.34) ($ 0.36) ($ 1.15)
--------- --------- ---------
Weighted average shares outstanding 637,250 628,667 605,417
--------- --------- ---------
See accompanying notes to financial statements
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
Inception (March 12, 1992) to December 31, 1995
Deficit
Accumulated
Common Stock Additional During the
----------------------- Paid-in Development
Shares Amount Capital Stage Total
------ ------ ------- ------------ -----
<S> <C> <C> <C> <C> <C>
Shares issued for equipment at $.11
per share March, 1992 550,000 $ 550 $ 60,345 $ -- $ 60,895
Shares issued for services at $.11
per share March, 1992 53,000 53 5,815 -- 5,868
Net (loss) for the year -- -- -- (44,631) (44,631)
--------- --------- --------- --------- ---------
Balance, December 31, 1992 603,000 603 66,160 (44,631) (22,132)
Net (loss) for the year -- -- -- (208,972) (208,972)
--------- --------- --------- --------- ---------
Balance, December 31, 1993 603,000 603 66,160 (253,603) (186,840)
Shares issued for cash at $5.00
per share March, 1994 28,000 28 139,972 -- 140,000
Officer's capital contribution -- -- 10,000 -- 10,000
Net loss for the year -- -- -- (227,496) (227,496)
--------- --------- --------- --------- ---------
Balance, December 31, 1994 631,000 631 216,132 (481,099) (264,336)
Exercise of warrants at $4.00
per share September
to December, 1995 18,750 19 74,981 -- 75,000
Officer's salary contributed to capital -- -- 17,000 -- 17,000
Net loss for the year -- -- -- (215,880) (215,880)
--------- --------- --------- --------- ---------
Balance, December 31, 1995 649,750 $ 650 $ 308,113 $(696,979) $(388,216)
--------- --------- --------- --------- ---------
See accompanying notes to financial statements
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statements of Cash FLlows
Years Ended December 31, 1995 and 1994
and Inception (March 12, 1992) to December 31, 1995
Year Ended Year Ended Inception to
December 31, December 31, December 31,
1995 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $(215,880) $(227,496) $(696,979)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 13,984 12,919 48,592
Officer's contribution of salary to capital 17,000 -- 17,000
Stock issued for services -- -- 5,868
Changes in assets and liabilities:
(Increase) decrease in inventory (11,387) (26,057) (43,944)
(Increase) decrease in other assets -- (80) (2,544)
Increase (decrease) in accounts payable
and accrued expenses 9,228 23,631 33,559
--------- --------- ---------
Total adjustments 28,825 10,413 58,531
--------- --------- ---------
Net cash provided by (used in) operating
activities (187,055) (217,083) (638,448)
--------- --------- ---------
Cash flows from investing activities:
Acquisition of plant and equipment (4,867 (9,221) (25,996)
--------- --------- ---------
Net cash provided by (used in) investing
activities (4,867 (9,221) (25,996)
--------- --------- ---------
Cash flows from financing activities:
Officer's capital contribution -- 10,000 10,000
Common stock issued for cash 75,000 140,000 225,000
Issuance of royalty interests and
warrants for cash -- -- 370,000
Repayment of capital leases -- -- (993)
Increase in stockholder loans 71,800 -- 61,800
--------- --------- ---------
Net cash provided by (used in) financing
activities 146,800 150,000 665,807
--------- --------- ---------
Increase (decrease) in cash (45,122) (76,304) 1,363
Cash and cash equivalents,
beginning of period 46,485 122,789 --
--------- --------- ---------
Cash and cash equivalents,
end of period $ 1,363 $ 46,485 $ 1,363
========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 831 $ -- $ 831
Cash paid for income taxes $ -- $ -- --
Non-cash investing and financing activities:
Acquisition of equipment with capital leases $ 2,026 $ -- $ 4,691
Acquisition of equipment with common stock $ -- $ -- $ 60,895
See accompanying notes to financial statements
F-5
</TABLE>
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1995
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Patcomm Corporation, formerly Patriot Communications Technology, Inc. (the
"Company"), was organized under the laws of the State of Nevada on March 12,
1992. The Company is engaged in the development and marketing of a new line of
products for the amateur radio communications market, incorporating a new
architecture by which many traditional hardware functions are replaced by
software. To date, the Company has not realized significant sales from planned
principal operations and is considered a development stage company as defined by
generally accepted accounting principles.
Estimates:
Management of the Company uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that management uses.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Inventory consists of work in process ($10,458)
and raw materials ($33,486).
Fixed assets:
The company depreciates its office equipment utilizing the straight line method
over periods of five to seven years.
Net loss per share:
The net loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. Common
stock equivalents are excluded from the computation as their effect would be
anti-dilutive.
Cash and cash equivalents:
Cash and cash equivalents consist of cash and other highly liquid debt
instruments with original maturities of less than three months.
Revenue recognition: The company recognizes revenue from the sale of its
products upon shipment.
Research and development costs: Research and development costs are charged to
expense as incurred.
F-6
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1995
(Continued)
Financial instruments: The Company's short term financial instruments consist of
cash and cash equivalents, accounts and loans payable. The carrying amounts of
such financial instruments approximate fair market value because of the short
term maturities of these instruments.
Note 2. FIXED ASSETS
Fixed assets consist of the following at December 31, 1995:
Equipment and furniture $ 89,556
Accumulated depreciation (45,681)
--------
$ 43,874
========
Depreciation charged to operations was $13,984 and $12,919 during 1995 and 1994.
Note 3. STOCKHOLDER LOANS
The Company has received short-term financing from various stockholders
aggregating $71,800 as of December 31, 1995. These loans are unsecured, bear
interest at 10% per annum and are due during June, 1996 except for one loan in
the amount of $10,000, which was forgiven by the note holder in connection with
his exercise of stock purchase warrants subsequent to December 31, 1995.
Note 4. STOCKHOLDERS EQUITY
Common stock:
At inception, the Company issued 550,000 shares of its common stock to two of
its officers and directors in exchange for equipment having a fair value of
$60,895.
During October, 1992 the Company issued 53,000 shares of its common stock for
services valued at $5,868.
During March, 1994 the Company issued 28,000 shares of its common stock for cash
aggregating $140,000. Additionally during the year ended December 31, 1994 the
Company received a $10,000 cash capital contribution from an officer.
During the period from September to December 1995, the Company issued 18,750
shares of its common stock for cash aggregating $75,000 pursuant to the exercise
of stock purchase warrants issued in connection with the royalty interests
described in Note 6.
F-7
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1995
(Continued)
Also during 1995 the Company agreed to convert $17,000 of salary accrued to the
benefit of an of officer to additional paid in capital.
During the periods covered by these financial statements the Company issued
shares of common stock without registration under the Securities Act of 1933.
Although the Company believes that the sales did not involve a public offering
of its securities and that the Company did comply with the "safe harbor"
exemptions from registration under section 4(2), it could be liable for
rescission of the sales if such exemptions were found not to apply. The Company
has not received a request for rescission of shares nor does it believe that it
is probable that its shareholders would pursue rescission nor prevail if such
action were undertaken.
Note 5. ROYALTY lNTERESTS
During September, 1992 through December, 1992, the Company sold 37 units of its
securities pursuant to a private placement at $ 10,000 per unit for total
proceeds of $370,000. Each unit consists of one convertible royalty interest and
warrants to purchase 3,750 shares of $.001 par value common stock of the
Company. Each royalty interest entitles the holder to receive payments equal to
0.1% per annum of the Company's gross revenues from sales. Each royalty interest
shall automatically convert into 5,000 shares of common stock, subject to
adjustment in certain events upon the earlier of (i) such time as cumulative
royalty payments have been paid on the royalty interest in an amount equal to
150% of the initial investment; or (ii) the closing on a public offering of
common stock with gross proceeds of $5,000,000 or more. In addition, each
royalty interest is convertible, at any time at the option of the holder
thereof, into 5,000 shares of common stock, subject to adjustment in certain
events.
Each Warrant has entitled the holder to purchase one share of common stock at
$4.00 per share, subject to adjustment in certain events, at any time prior to
December 31, 1995. Effective December 31, 1995 the Board of Directors extended
the exercise period for these warrants to December 31, 1997. The Warrants may be
redeemed by the Company at $.01 per Warrant, upon 30 days prior written notice.
As of December 31, 1995, 18,750 warrants had been exercised for total proceeds
of $75,000.
F-8
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1995
(Continued)
Note 6. INCOME TAXES
The Company has adopted Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes. Deferred income taxes may arise from temporary
differences resulting from income and expense items reported for financial
accounting and tax purposes in different periods. Deferred taxes are classified
as current or non-current, depending on the classifications of the assets and
liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are classified as
current or non-current depending on the periods in which the temporary
differences are expected to reverse. The deferred tax asset related to the
operating loss carryforward has been fully reserved. The increase in the
deferred tax asset account for the year ended December 31, 1995 was
approximately $73,400.
The Company currently has operating loss carryforwards aggregating approximately
$690,000 which expire as follows: 2007 $44,000, 2008 $209,000, 2009 $227,000,
and 2010 $210,000.
Note 7. CAPlTAL LEASES
The Company leases certain office equipment under capital leases expiring in
December, 1997 and March, 1999. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset. The assets are amortized over a 7 year period.
Amortization of assets under capital leases is included in depreciation expense.
Following is a summary of property held under capital leases:
Office equipment $4,691
Accumulated amortization 905
------
$3,786
======
Minimum future lease payments under capital leases as of December 31, 1995 are
as follows:
1996 $1,944
1997 1,944
1998 720
1999 180
-------
4,788
Amount representing interest (1,090)
------
Present value of minimum lease payments 3,698
Current portion (1,335)
------
$2,363
======
Interest rates on capitalized leases approximate 20% per annum.
F-9
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1995
(Continued)
Note 8. OPERATING LEASE
The Company leases its facility under an agreement expiring during August, 1996
which provides for monthly rent payments of $1,628. Rent expense was $21,014 and
$22,412 for the years ended December 31, 1994 and 1995.
Minimum future rental payments under non-cancelable operating leases are as
follows:
Year ended December 31, 1996: $13,000
Note 9. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a "going concern"
basis which contemplates the realization of assets and the liquidation of
liabilities in the ordinary course of business.
The Company has incurred an operating losses during the years ended December
31,, 1994 and 1995 aggregating $195,880 and $247,496 and since inception of
$696,910 and has negative working capital of $51,388 at December 31, 1995.
During the periods presented the Company has not generated positive cash flow
from operations and there can be no assurance that the trend will not continue.
Profitable operations are dependent upon, among other factors, the Company's
ability to obtain equity or debt financing and its ability to successfully
market its products.
The Company is unable to project a level of revenue which would allow a reversal
of its history of operating losses in the near future. In this regard the
Company has undertaken the raising of additional equity capital. In addition,
the Company is seeking to expand its customer base and attempting to lower its
operating expenses.
Note 10 SUBSEQUENT EVENTS
During the period from January to June 1996 the Company issued 100,000 shares of
its $.001 par value common stock in exchange for cash aggregating $300,000
pursuant to a private placement.
During June 1996 the Company decided to reduce the exercise price of its
outstanding warrants to $2.60 per share of common stock temporarily for a period
of 30 days (unless extended by the Company's directors) pursuant to a private
offering to the holders of the warrants. In connection with this offering,
certain officers of the Company agreed that any person who previously exercised
their warrants at $4.00 per share would receive additional shares directly from
those owned by the officers so that their effective exercise price would be
reduced to $2.60 per share.
F-10
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1995
(Continued)
In addition, these officers agreed that any person who previously purchased
shares at $5.00 per share would receive additional shares from those owned by
the officers so that their effective purchase price would be reduced to $3.00
per share. The officers transferred an aggregate of 24,917 shares in connection
with the above.
The Company also solicited the holders of royalty interests described in Note 5
to convert their royalty interests into common stock. Through September 1996,
the full amount of royalty interests ($370,000) were converted into 180,000
shares of common stock.
During September 1996, the Company granted stock options to certain of its
officers to acquire 30,000 shares of common stock exercisable at $2.60 per
share. In addition, effective December 31, 1996, the Company granted these
officers options to purchase 150,000 shares of common stock exercisable at $7.00
per share.
During September 1996, the Company entered into an employment agreement with one
of its officers which provides for an annual salary of $70,000 in 1996 and
$80,000 for 1997 and 1998. The agreement also provides for bonus payments of 3%
of net profits up to $1,500,000 and 1% of net profits above that amount during
the term of the agreement.
During September 1996, the Company adopted an incentive stock option plan which
provides for the granting of options to purchase up to 300,000 shares of common
stock by eligible employees. In addition the Company adopted a non-qualified
stock option plan which provides for the granting of options to purchase up to
150,000 shares of common stock by eligible employees
At December 31, 1996, the Company intends to file a registration statement on
Form SB-2 with the Securities and Exchange Commission whereby it will attempt to
register 1,265,000 shares of common stock for sale to the public at a proposed
offering price of $5.00 per share.
F-11
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Balance Sheet
September 30, 1996
(Unaudited)
Assets
------
Current Assets:
Cash $ 166,070
Inventory 32,557
-----------
Total current assets 198,627
Property and Equipment, net 50,908
Other Assets:
Intangible assets, net 1,659
-----------
$ 251,194
===========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 1,940
Accrued expenses 500
Current portion of capital lease obligation 1,532
Current portion of loans payable - shareholders 56,800
-----------
Total current liabilities 60,772
Capital lease obligations 1,488
Commitments
Stockhoilders' equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares outstanding --
Common stock, $.001 par value, 10,000,000
shares authorized, 996,498 shares issued and outstanding 996
Paid in capital 1,148,311
Common stock subscriptions 37,078
Deficit accumulated furing the development stage (997,451)
-----------
188,934
Total liabilities and stockholders' equity $ 251,194
===========
See notes to unaudited condensed financial statements
F-12
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statements of Operations
For the Nine Months ended September 30, 1996 and 1995
and the Period from Inception (March 12, 1992) to September 30, 1996
(Unaudited)
Inception to
September 30,
1996 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net Sales $ 20,821 $ 8,321 $ 63,932
Cost of sales 94,360 21,082 159,165
----------- ----------- -----------
Gross profit (73,539) (12,761) (95,233)
Research and development 5,886 6,832 350,711
Selling, general and administrative expenses 220,422 86,988 557,476
----------- ----------- -----------
(Loss) from operations (299,847) (106,581) (1,003,423)
Other income and (expense):
Interest income -- -- 7,428
Interest expense (625) -- (1,456)
----------- ----------- -----------
Net (loss) $ (300,472) $ (106,581) $ (997,451)
=========== =========== ===========
Net (loss) per share $ (.35) $ (.17) $ (1.34)
=========== =========== ===========
Weighted average shares $ 850,388 $ 633,083 $ ( 742,402)
=========== =========== ===========
</TABLE>
See notes to unaudited financial statements
F-13
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statement of Stockholders' Equity
for the Period from January 1, 1996 to September 30, 1996
(Unaudited)
Deficit
Accumulated
During the Common
Common Stock Paid in Development Stock
------------------------- Capital Stage Subscriptions Total
Shares Amount
------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 649,750 $ 650 $ 308,113 $ (696,979) $ (388,216)
Shares issued pursuant to a
private placement at $3.00
per share (January to September
1996 100,000 100 299,900 300,000
Shares issued pursuant to
warrant conversions at
$2.60 per share (January to
September, 1996) 61,748 61 160,484 160,545
Conversion of royalty
interests (June 1996) 185,000 185 369,815 370,000
Common stock subscriptions $ 37,077 37,077
Net loss for the period (300,472) (300,472)
---------- ---------- ---------- ---------- ---------- ----------
Balance September 30, 1996 996,498 $ 996 $1,148,311 $ (997,451) $ 37,077 $ (188,934)
========== ========== ========== ========== ========== ==========
See notes to unaudited financial statements
F-14
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statements of Cash Flows
For the Nine Months ended September 30, 1996 and 1995
and the Period from Inception (March 12, 1992) to September 30, 1996
(Unaudited)
Inception to
September 30,
1996 1995 1996
---- ---- ----
<S> <C> <C> <C>
Operating activities: $ (319,929) $ (135,086) $ (958,377)
Investing activities:
Acquisition of plant and equipment (7,308) (373) (33,304)
----------- ----------- -----------
Net cash (used in) investing activities (7,308) (373) (33,304)
----------- ----------- -----------
Financing activities:
Officers capital contribution -- -- 10,000
Common stock issued for cash 492,622 70,000 717,622
Issuance of royalty interests and
warrants for cash -- -- 370,000
Repayment of capital leases (678) (823) (1,671)
Increase (decrease) in stockholder loans -- 20,000 61,800
----------- ----------- -----------
Net cash provided by financing activities 491,944 89,177 1,157,751
Net increase (decrease) in cash and
cash equivalents 164,707 (46,282) 166,070
Beginning cash and cash equivalents 1,363 46,486 --
----------- ----------- -----------
Ending cash and cash equivalents $ 166,070 $ 204 $ 166,070
=========== =========== ===========
See notes to unaudited condensed financial statements
</TABLE>
F-15
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
September 30, 1996
Note 1. Basis of Presentation
- -----------------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Item 310 of Regulation S-B. They do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year. The accompanying financial statements should be read in conjunction
with the Company's audited financial statements for the year ended December 31,
1995 included elsewhere in this Form SB-2.
Note 2. Stockholders' Equity
- ----------------------------
During the period from January to June 1996 the Company issued 100,000 shares of
its $.001 par value common stock in exchange for cash aggregating $300,000
pursuant to a private placement.
During June 1996 the Company decided to reduce the exercise price of its
outstanding warrants to $2.60 per share of common stock temporarily for a period
of 30 days (unless extended by the Company's directors) pursuant to a private
offering to the holders of the warrants. In connection with this offering,
certain officers of the Company agreed that any person who previously exercised
their warrants at $4.00 per share would receive additional shares directly from
those owned by the officers so that their effective exercise price would be
reduced to $2.60 per share.
In addition, these officers agreed that any person who previously purchased
shares at $5.00 per share would receive additional shares from those owned by
the officers so that their effective purchase price would be reduced to $3.00
per share. The officers transferred an aggregate of 28,763 shares in connection
with the above.
The Company also solicited the holders of royalty interests, as described in
Note 5 to the Company's annual financial statement included elsewhere herein, to
convert their royalty interests into common stock. Through September 1996, the
full amount of royalty interests ($370,000) were converted into 185,000 shares
of common stock.
F-16
<PAGE>
During September 1996, the Company granted stock options to certain of its
officers to acquire 30,000 shares of common stock exercisable at $2.60 per
share. In addition, effective December 31, 1996, the Company granted these
officers options to purchase 150,000 shares of common stock exercisable at $7.00
per share.
During December 1996, the Company entered into employment agreements with two of
the Company's officers. One of these agreements provides for an annual salary of
$12,000 (for devoting up to two days per month to the Company), and the other
provides for an annual salary of $88,000. Each of the agreements also provides
for bonus payments of 3% of net income after tax up to $1,499,000 and 1% of net
income after tax above that amount during the term of the agreement.
During September 1996, the Company adopted an incentive stock option plan which
provides for the granting of options to purchase up to 300,000 shares of common
stock by eligible employees. In addition the Company adopted a non-qualified
stock option plan which provides for the granting of options to purchase up to
150,000 shares of common stock by others.
Note 3. Inventory
- -----------------
Inventory consists principally of work in process.
Patcomm Corporation
(A Development Stage Company)
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In accordance with the Nevada Revised Statutes ("NRS"), the Registrant has
included a provision in its Articles of Incorporation to limit the personal
liability of its directors for violations of their fiduciary duty. The provision
eliminates such directors' liability to the Registrant or its stockholders for
monetary damages, except for (i) any breach of the director's duty of loyalty to
the Registrant or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
unlawful payment of dividends or unlawful stock purchases or redemptions; or
(iv) any transaction from which a director derived an improper personal benefit.
The Articles of Incorporation of the Registrant provide for the
indemnification of every person who was or is a party or is threatened to be
made a party to, or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or a person of whom he is the legal representative is or was an officer of the
Registrant or is or was serving at the request of the Registrant as a director
or officer of another corporation, or as its representative in a partnership,
joint venture, trust or other enterprise, to the fullest extent permitted by the
NRS, against all expenses, liability and loss for and (including attorneys'
fees, judgment, fines and amounts paid or to be paid in settlement), reasonably
incurred or suffered by him in connection therewith. In addition, the Articles
of Incorporation of the Registrant provide that the Registrant may purchase and
maintain insurance on behalf of any person who is or was an officer, employee or
agent of the Registrant for any liability asserted against such person and
liability and expenses incurred by him in any such capacity or arising out of
such status, whether or not the Registrant has the authority to indemnify such
person.
In general terms, NRS Section 78.751 allows indemnification of any person
who was, is or is threatened to be made a party to an action, suit or proceeding
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person, provided such
person acted in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. NRS Section 78.752 also permits the Registrant, under certain
circumstances, to obtain insurance or make other financial arrangements to fund
payments for liabilities and expenses incurred by directors, officers, employees
and agents whether or not the Registrant has the authority to indemnify such
person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933, and is therefore unenforceable.
II-1
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
Estimates of fees and expenses incurred or to be incurred in connection
with the issuance and distribution of securities being registered, other than
underwriting commissions are as follows:
Securities and Exchange Commission filing fee $ 2,147
National Association of Securities Dealers, Inc. filing fee $ 1,208
NASDAQ Small Cap Market Listing Fee $ 16,307
State Securities Laws (Blue Sky) fees and expenses $ 25,000
Representative's Non-Accountable Expense Allowance $ 189,750
Transfer Agent's fees $ 10,000
Printing and mailing costs and fees $ 30,000
Legal fees and costs $ 125,000
Accounting fees and costs $ 30,000
Miscellaneous expenses $ 10,000
----------
TOTAL $ 439,413
==========
Item 26. Recent Sales of Unregistered Securities
The Registrant has sold the following unregistered securities during the
past three years.
1. Pursuant to a Confidential Private Placement Memorandum dated April 28,
1994, the Registrant sold an aggregate of 28,000 shares of its $0.001 par value
Common Stock to a total of 13 persons. These shares were sold for an aggregate
of $140,000.00 in cash, or $5.00 per share.
No underwriter, broker, or dealer, in its capacity as such, was involved in
any of the above sales of the Registrant's unregistered securities, and no
underwriting discounts, commissions, or brokerage fees were paid with respect to
such transactions.
The Registrant considers that the above transactions are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemptions under Sections 4(2) and 3(b) of such Act as
sales of securities not involving a public offering. Management of the
Registrant has represented that the persons who paid cash for their securities
in the foregoing transactions possessed material information concerning the
Registrant and were in a position to obtain from the Registrant information
necessary to verify such information. All such persons were offered the
opportunity to obtain information from the Registrant in order to evaluate the
merits and risks of the proposed investment. In addition, all such persons were
informed that they were obtaining "restricted securities" as defined in Rule 144
under the Act, that such shares cannot be transferred without appropriate
registration or exemption therefrom, that they must bear the economic risk of
the investment for an indefinite period of time, and that the Registrant would
restrict the transfer of the securities in accordance with such restrictions. In
addition, each certificate representing shares purchased in the above
transactions bears the standard restrictive legend.
2. At various times between September and December 1995, the Registrant
issued an aggregate of 18,750 shares of its $0.001 par value Common Stock to a
total of 5 persons upon exercise of 18,750 outstanding Common Stock Purchase
Warrants at an exercise price of $4.00 per share, for an aggregate of $75,000 in
cash.
II-2
<PAGE>
No underwriter, broker, or dealer, in its capacity as such, was involved in
any of the above sales of the Registrant's unregistered securities, and no
underwriting discounts, commissions, or brokerage fees were paid with respect to
such transactions.
The Registrant considers that the above transactions are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemptions under Sections 4(2) and 3(b) of such Act as
sales of securities not involving a public offering. Management of the
Registrant has represented that the persons who paid cash for their securities
in the foregoing transactions possessed material information concerning the
Registrant and were in a position to obtain from the Registrant information
necessary to verify such information. All such persons were offered the
opportunity to obtain information from the Registrant in order to evaluate the
merits and risks of the proposed investment. In addition, all such persons were
informed that they were obtaining "restricted securities" as defined in Rule 144
under the Act, that such shares cannot be transferred without appropriate
registration or exemption therefrom, that they must bear the economic risk of
the investment for an indefinite period of time, and that the Registrant would
restrict the transfer of the securities in accordance with such restrictions. In
addition, each certificate representing shares purchased in the above
transactions bears the standard restrictive legend.
3. Pursuant to a Confidential Private Placement Memorandum dated January
29, 1996, the Registrant sold an aggregate of 100,000 shares of its $0.001 par
value Common Stock to a total of 14 persons. These shares were sold for an
aggregate of $300,000.00 in cash, or $3.00 per share.
The shares were offered and sold by Andrew Garrett, Inc., as Placement
Agent. The Placement Agent was paid a commission equal to 10% of the purchase
price of each share sold, or an aggregate of $30,000.00, and a non-accountable
expense allowance equal to 3% of the purchase price of each share sold, or an
aggregate of $9,000.00.
The Registrant considers that the above transactions are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemptions under Sections 3(b), 4(2), and 4(6) of such
Act as sales of securities not involving a public offering. Management of the
Registrant has represented that the persons who paid cash for their securities
in the foregoing transactions possessed material information concerning the
Registrant and were in a position to obtain from the Registrant information
necessary to verify such information. All such persons were offered the
opportunity to obtain information from the Registrant in order to evaluate the
merits and risks of the proposed investment. In addition, all such persons were
informed that they were obtaining "restricted securities" as defined in Rule 144
under the Act, that such shares may not be transferred without appropriate
registration or exemption therefrom, that they must bear the economic risk of
the investment for an indefinite period of time, and that the Registrant would
restrict the transfer of the securities in accordance with such restrictions. In
addition, each certificate representing shares purchased in the above
transactions bears the standard restrictive legend.
4. Pursuant to a Confidential Private Placement Memorandum dated May 25,
1996, the Registrant issued an aggregate of 246,748 shares of its $0.001 par
value Common Stock to a total of 19 persons upon the exercise of outstanding
Common Stock Purchase Warrants and conversion of royalty interests as described
below. An aggregate of 61,748 shares were issued upon exercise of 61,748
outstanding Common Stock Purchase Warrants at an exercise price of $2.60 per
share, for an aggregate of $160,545 in cash or forgiveness of debt. The
remaining 185,000 shares were issued upon conversion of 37 outstanding Royalty
Interests for no additional consideration. The Royalty Interests were originally
sold to investors in 1992.
II-3
<PAGE>
No underwriter, broker, or dealer, in its capacity as such, was
involved in any of the above sales of the Registrant's unregistered securities,
and no underwriting discounts, commissions, or brokerage fees were paid with
respect to such transactions.
The Registrant considers that the above transactions are exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemptions under Sections 4(2), 3(b), and 4(6) of such
Act as sales of securities not involving a public offering. Management of the
Registrant has represented that the persons who paid cash (and forgave debt) for
their securities in the foregoing transactions possessed material information
concerning the Registrant and were in a position to obtain from the Registrant
information necessary to verify such information. All such persons were offered
the opportunity to obtain information from the Registrant in order to evaluate
the merits and risks of the proposed investment. In addition, all such persons
were informed that they were obtaining "restricted securities" as defined in
Rule 144 under the Act, that such shares may not be transferred without
appropriate registration or exemption therefrom, that they must bear the
economic risk of the investment for an indefinite period of time, and that the
Registrant would restrict the transfer of the securities in accordance with such
restrictions. In addition, the shares which were issued upon conversion of the
outstanding Royalty Interests were exchanged by the issuer with its existing
security holders exclusively and no commission or other remuneration was paid or
given, directly or indirectly, for soliciting such exchange. Each certificate
representing shares issued in the above transactions bears the standard
restrictive legend.
Item 27. Exhibits
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement with Andrew Garrett, Inc.(2)
1.2 Form of Agreement Among Underwriters(2)
1.3 Form of Selected Dealers Agreement(2)
3.1 Articles of Incorporation of the Registrant, as amended(2) 3.2 Bylaws
of the Registrant, as amended(2)
4.1 Form of Common Stock Share Certificate(1)
4.2 Form of Representative's Warrant(2)
5.1 Opinion of Schlueter & Associates, P.C. (2)
10.1 Form of Lock Up Agreement between the Representative and Officers and
Directors of the Registrant and certain Affiliates(1)
10.2 Employment Agreement between the Company and Mr. Frank Delfine(1)
10.3 Employment Agreement between the Company and Mr. Alexander Adelson(1)
10.4 Form of Escrow Agreement between the Company, the Underwriters, and
European American Bank(2)
23.1 Consent of Winter, Scheifley & Associates, P.C. (1)
- ------------------------------------
(1) Filed herewith
(2) To be filed by amendment
II-4
<PAGE>
Item 28. Undertakings
With regard to the securities of the Registrant being registered pursuant
to Rule 415 under the Securities Act of 1933, the Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the Registration Statement; and
(iii) To include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933, to treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement Common Stock certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of New
York, New York, on February 13, 1997.
PATCOMM CORPORATION
By: /s/ Alexander M. Adelson
----------------------------------------
Alexander M. Adelson, Chairman of the Board
In accordance with the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
February 13, 1997
/s/ Alexander Adelson Chairman of the Board of Directors -----------------
- --------------------------
Alexander Adelson
February 13 1997
/s/ Frank Delfine President, and a Director ----------------
- --------------------------
Frank Delfine
Director ----------------
- -------------------------
John Dibble
Director -----------------
- -------------------------
Bruce Cowen
February 13, 1997
/s/ James Messing Director -----------------
- -------------------------
James Messing
</TABLE>
II-6
PATCOMM CORPORATION
Incorporated under the Laws of the State of Nevada
SEE REVERSE FOR
CERTAIN DEFINITIONS
-------------------
CUSIP
-------------------
This Certifies That
is the owner of
fully paid and non-assessable Common Shares of
PATCOMM CORPORATION
transferable only on the books of the Company by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be subject to all the provisions of the Articles of Incorporation, to all
of which the holder by acceptance hereby assents.
IN WITNESS WHEREOF, the company has caused this Certificate to be signed in
facsimile by its duly authorized officers and the facsimile seal of the Company
to be duly affixed hereto.
This Certificate is not valid unless duly countersigned by the Transfer
Agent and Registrar.
Dated:
- ------------------------------ --------------------------------
Secretary President
Countersigned:
CORPORATE STOCK TRANSFER INC.
370 - 17TH Street, Suite 2350, Denver, Colorado 80202
By
--------------------------------------------------
Transfer Agent Authorized Signature
<PAGE>
PATCOMM CORPORATION
Corporate Stock Transfer, Inc.
Transfer Fee: $12.00 Per Certificate
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN Com UNIF GIFT MIN ACT - ............... Custodian for............
(Cust.) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of Act of.....................................................
survivorship and not as tenants (State)
in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received ................ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
Please print or type name and address of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within named
Corporation, with full power of substitution in the premises.
Date 19
---------------- -------------
SIGNATURE GUARANTEED: X
--------------------------------
X
--------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER. THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan
Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.
LOCK-UP LETTER
Andrew Garrett, Inc.
310 Madison Avenue, Suite 406
New York, New York 10017
Gentlemen:
In connection with your acting as the Representative of the underwriters in
the public offering (the "Offering") of securities of Patcomm Corporation (the
"Company"), and in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which the undersigned
acknowledges, the undersigned hereby agrees that (i) he has not taken and will
not take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the securities offered, (ii) he
waives any registration rights he may have with respect to the Offering, and
(iii) for a period of two years after the effective date of the Registration
Statement relating to the Offering he will not, directly or indirectly, issue,
offer, sell (including any short sale), grant any option for the sale of,
acquire any option to dispose of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of, any shares of Common Stock of the Company, or
securities convertible into or exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of such Common Stock or any
beneficial interest therein held by the undersigned as of the date the
Registration Statement relating to the Offering becomes effective, without the
prior written consent of Andrew Garrett, Inc.
Notwithstanding the restrictions contained herein, the undersigned may
transfer shares of Common Stock or securities convertible into or exercisable to
purchase shares of Common Stock:
(a) in accordance with the terms and conditions of the Underwriting
Agreement;
(b) to his spouse, parent, sibling or lineal descendants, or to any trust
for the benefit of such persons; or
(c) to any distributee, legatee or devisee of the undersigned who acquires
it shares by will or operation of law upon the death or dissolution of
the undersigned.
As a condition to a transfer to be made pursuant to paragraphs (b) or (c),
the transferee shall agree in writing to be bound by the terms of this agreement
to the same extent as the undersigned, but only through and until the date the
undersigned will be bound by the foregoing provisions (i.e., two years after the
effective date of the Registration Statement relating to the Offering). The
undersigned consents to the placement of a legend on the certificate(s)
evidencing ownership of Common Stock or other securities held by the undersigned
consistent with the foregoing, if requested by the Representative.
Very truly yours,
Date: Name:
------------------------------- ----------------------------
FORM OF
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective this 1st day
of January, 1997, by and between Patcomm Corporation, a Nevada corporation (the
"Company"), and Frank Delfine, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and services of
Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and the
Company is willing to employ Executive, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as its President and
Chief Operating Officer, subject to the supervision and direction of the
Company's Board of Directors.
2. Term. The term of this Agreement shall be for a period of three (3)
years commencing on the date hereof, unless terminated earlier pursuant to
Section 9 below; provided, however, that Executive's obligations in Section 8
below shall continue in effect after such termination.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of Eighty-Eight
Thousand Dollars ($88,000) per annum, payable monthly in equal installments (the
"Base Salary"). The amount of the Base Salary may be increased at any time and
from time to time by the Board of Directors of the Company, and may be adjusted
annually by the Board of Directors in its sole discretion.
3.2 Incentive Bonus. In addition to the Base Salary, Executive shall be
eligible for an incentive bonus ("Incentive Bonus") each year in an amount
calculated as follows: (i) 3% of net income (after tax) for net income between
$1.00 and $1,499,000, plus (ii) 1% of net income (after tax) on amounts in
excess of $1,499,000. The Incentive Bonus shall be based upon the Company's
financial results as reflected in the audited Financial Statements of the
Company, and shall be paid, if earned, within 30 days after such Financial
Statements have been released in final form by the Company's accountants.
3.3 Additional Benefits. In addition to the Base Salary and the Incentive
Bonus, Executive shall be entitled to all other benefits of employment provided
to the employees of the Company.
3.4 Reimbursement. Executive shall be reimbursed for all reasonable
"out-of-pocket" business expenses for business travel and business entertainment
incurred in connection with the performance of his under this Agreement (1) so
long as such expenses constitute business deductions from taxable income for the
Company and are excludable from taxable income to the Executive under the
governing laws and regulations of the Internal Revenue Code (provided, however,
that Executive shall be entitled to full reimbursement in any case where the
Internal Revenue Service may, under Section 274(n) of the Internal Revenue Code,
disallow to the Company some percentage of meals and entertainment expenses);
and (2) to the extent such expenses do not exceed the amounts allocable for such
expenses in budgets that are approved from time to time by the Company. The
reimbursement of Executive's business expenses shall be upon monthly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
<PAGE>
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as may be
assigned to him from time to time by the Company's Board of Directors
commensurate with his experience and responsibilities in the position for which
he is employed pursuant to Section 1 above. Such duties shall be exercised
subject to the control and supervision of the Board of Directors of the Company.
4.2 General Specification of Duties. Executive's duties shall include, but
not be limited to, the duties and performance goals as follows:
(1) act as the President and Chief Operating Officer of the Company and
perform all duties, functions and responsibilities generally associated with
such positions;
(2) execute on behalf of the Company, in his capacity as President and
Chief Operating Officer, such documents as are required in the normal course of
business and as are requested by the Board of Directors;
(3) employ, pay, supervise and discharge all employees of the Company, and
determine all matters with regard to such personnel, including, without
limitation, compensation, bonuses and fringe benefits, all in accordance with
the Annual Plan (as defined in Section 4.3);
(4) establish procedures for implementing the policies established by the
Company;
(5) cause the Company to be operated in compliance with all legal
requirements;
(6) use best efforts to operate the Company in such a manner as to meet the
goals and objectives established in the Annual Plan approved by the Board of
Directors, as such may be amended from time to time with the concurrence of the
Board of Directors; and
(7) cause to be prepared, as directed by the Board of Directors, financial
statements, tax returns and other similar items respecting the operation of the
Company.
The foregoing specifications are not intended as a complete itemization of
the duties which Executive shall perform and undertake on behalf of the Company
in satisfaction of his employment obligations under this Agreement.
4.3 Annual Plan.
(1) Executive shall submit to the Board of Directors for its approval, not
later than 60 days before the beginning of each calendar year, an annual
business plan for the Company (the "Annual Plan"). The Annual Plan shall be
revised by Executive and submitted to the Board of Directors for its review (and
approval in the case of material changes from the approved Annual Plan) from
time to time during each year to reflect changes in the Annual Plan because of
operations or otherwise. Each Annual Plan shall include the following
information:
-2-
Delfine Employment Agreement
<PAGE>
(a) an annual forecast of income and expenses for the operation of the
company;
(b) a cash flow budget, estimate of profit, and source and use of cash
statements for the operation of the Company; and
(c) a payroll and staffing plan and budget for the operation of the
Company.
(2) During each year, Executive in the performance of his duties under this
Agreement shall use his best efforts to comply or cause compliance with the
applicable Annual Plan and budgets and shall not (except for emergency
expenditures or special circumstances requiring an unanticipated expenditure)
deviate materially from any expense category set forth in the Annual Plan, incur
any material additional expense or change materially the manner of operation of
the Company, without the approval of the Board of Directors.
4.4 Executive's Devotion of Time. Executive hereby agrees to devote his
full time, abilities and energy to the faithful performance of the duties
assigned to him and to the promotion and forwarding of the business affairs of
the Company, and not to divert any business opportunities from the Company to
himself or herself or to any other person or business entity.
4.5 Conflicting Activities.
(1) Executive shall not, during the term of this Agreement, be engaged in
any other business activity without the prior consent of the Board of Directors
of the Company; provided, however, that this restriction shall not be construed
as preventing Executive from investing his personal assets in passive
investments in business entities which are not in competition with the Company
or its affiliates, or from pursuing business opportunities as permitted by
paragraph 4.5(b).
(2) Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or anticipated
future business of the Company, in a manner consistent with the best interests
of the Company and with his duties under this Agreement. Should Executive
discover a business opportunity that does not relate to the current or
anticipated future business of the Company, he shall first offer such
opportunity to the Company. Should the Board of Directors of the Company not
exercise its right to pursue this business opportunity within a reasonable
period of time, not to exceed sixty (60) days, then Executive may develop the
business opportunity for himself; provided, however, that such development may
in no way conflict or interfere with the duties owed by Executive to the Company
under this Agreement. Further, Executive may develop such business opportunities
only on his own time, and may not use any service, personnel, equipment,
supplies, facility, or trade secrets of the Company in their development. As
used herein, the term "business opportunity" shall not include business
opportunities involving investment in publicly traded stocks, bonds or other
securities, or other investments of a personal nature.
5. Not Used in this Agreement
6. Severance. So long as this Agreement is in effect, Executive shall be
entitled to severance benefits equal to one weeks Base Salary for each full year
of service to the Company up to a maximum of eight weeks based upon Executive's
first day of employment by the Company and without regard to the date of
execution of this Agreement. These benefits shall not include maintenance of any
life insurance policy or disability policy on Executive, or any medical or
health insurance policies or plans on Executive or his family except as required
under applicable law.
-3-
Delfine Employment Agreement
<PAGE>
7. Confidentiality of Trade Secrets and Other Materials.
7.1 Trade Secrets. Other than in the performance of his duties hereunder,
Executive agrees not to disclose, either during the term of his employment by
the Company or at any time thereafter, to any person, firm or corporation any
information concerning the business affairs, the trade secrets or the customer
lists or similar information of the Company.
7.2 Ownership of Trade Secrets; Assignment of Rights. Executive hereby
agrees that all know-how, documents, reports, plans, proposals, marketing and
sales plans, client lists, client files and materials made by him or by the
Company are the property of the Company and shall not be used by him in any way
adverse to the Company's interests. Executive shall not deliver, reproduce or in
any way allow such documents or things to be delivered or used by any third
party without specific direction or consent of the Board of Directors of the
Company. Executive hereby assigns to the Company any rights which he may have in
any such trade secret or proprietary information.
8. Termination.
8.1 Basis for Termination.
(1) Executive's employment hereunder may be terminated at any time by
mutual agreement of the parties.
(2) This Agreement shall automatically terminate on the last day of the
month in which Executive dies or becomes permanently incapacitated. "Permanent
incapacity" as used herein shall mean mental or physical incapacity, or both,
reasonably determined by the Company's Board of Directors based upon a
certification of such incapacity by, in the discretion of the Company's Board of
Directors, either Executive's regularly attending physician or a duly licensed
physician selected by the Company's Board of Directors, rendering Executive
unable to perform substantially all of his duties hereunder and which appears
reasonably certain to continue for at least six consecutive months without
substantial improvement. Executive shall be deemed to have "become permanently
incapacitated" on the date the Company's Board of Directors has determined that
Executive is permanently incapacitated and so notifies Executive.
(3) Executive's employment may be terminated by the Company "with cause,"
effective upon delivery of written notice to Executive given at any time
(without any necessity for prior notice) if any of the following shall occur:
(a) any action by Executive which would be grounds for termination
under applicable law (currently covering any willful breach of duty,
habitual neglect of duty, and continued incapacity);
(b) any material breach of Executive's obligations in Sections 4 or 7
above; or
(c) any material acts or events which inhibit Executive from fully
performing his responsibilities to the Company in good faith, such as (i) a
felony criminal conviction; (ii) any other criminal conviction involving
Executive's lack of honesty or Executive's moral turpitude; (iii) drug or
alcohol abuse; or (iv) acts of dishonesty, gross carelessness or gross
misconduct.
-4-
Delfine Employment Agreement
<PAGE>
(4) Executive's employment may be terminated by the Company "without cause"
(for any reason or no reason at all) at any time by giving Executive 60 days
prior written notice of termination, which termination shall be effective on the
60th day following such notice. If Executive's employment under this Agreement
is so terminated, the Company shall (a) make a lump sum cash payment to
Executive within 10 days after termination of an amount equal to (i) Executive's
Base Salary for the balance of the year in which termination occurs, (ii) a pro
rata portion of the Incentive Bonus, if any, earned for the year in which
termination occurs prorated to the date of termination, plus (iii) any
unreimbursed expenses accruing to the date of termination; and (b) make a lump
sum cash payment equal to Executive's annual Base Salary, as increased pursuant
to Section 3.1, on each anniversary date of this Agreement for the balance of
the term specified in Section 2. For purposes of this provision, Executive's
annual Base Salary and the remaining portion of the term of the Agreement shall
be calculated as of the termination date. After the Company's termination of
Executive under this provision, the Company shall not be obligated to provide
the benefits to Executive described in Section 3.3 (except as may be required by
law).
(5) Executive may terminate his employment hereunder by giving the Company
60 days prior written notice, which termination shall be effective on the 60th
day following such notice.
8.2 Payment Upon Termination. Upon termination under paragraphs 8.1(1),
(2), (3), or (5), the Company shall pay to Executive within 10 days after
termination an amount equal to the sum of (1) Executive's Base Salary accrued to
the date of termination; and (2) unreimbursed expenses accrued to the date of
termination. After any such termination, the Company shall not be obligated to
compensate Executive, his estate or representatives except for the foregoing
compensation then due and owing, nor provide the benefits to Executive described
in Section 3.4 (except as provided by law).
8.3 Severance Provisions. The provisions of Sections 8.1 and 8.2 shall be
subject to and deemed modified by the terms of any severance benefits granted to
Executive as provided under Section 6.
8.4 Dismissal from Premises. At the Company's option, Executive shall
immediately leave the Company's premises on the date notice of termination is
given by either Executive or the Company.
9. Injunctive Relief. The Company and Executive hereby acknowledge and
agree that any default under Section 7 above will cause damage to the Company in
an amount difficult to ascertain. Accordingly, in addition to any other relief
to which the Company may be entitled, the Company shall be entitled to such
injunctive relief as may be ordered by any court of competent jurisdiction
including, but not limited to, an injunction restraining any violation of
Section 7 above and without the proof of actual damages.
10. Miscellaneous.
10.1 Transfer and Assignment. This Agreement is personal as to Executive
and shall not be assigned or transferred by Executive without the prior written
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
-5-
Delfine Employment Agreement
<PAGE>
10.2 Severability. Nothing contained herein shall be construed to require
the commission of any act contrary to law. Should there be any conflict between
any provisions hereof and any present or future statute, law, ordinance,
regulation, or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
10.3 Governing Law. This Agreement is made under and shall be construed
pursuant to the laws of the State of New York.
10.4 Counterparts. This Agreement may be executed in several counterparts
and all documents so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts.
10.5 Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements, arrangements, and
understandings with respect thereto. No representation, promise, inducement,
statement or intention has been made by any party hereto that is not embodied
herein, and no party shall be bound by or liable for any alleged representation,
promise, inducement, or statement not so set forth herein.
10.6 Modification. This Agreement may be modified, amended, superseded, or
cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation, or waiver.
10.7 Attorneys' Fees and Costs. In the event of any dispute arising out of
the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
10.8 Waiver. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
10.9 Cumulative Remedies. Each and all of the several rights and remedies
provided in this Agreement, or by law or in equity, shall be cumulative, and no
one of them shall be exclusive of any other right or remedy, and the exercise of
any one or such rights or remedies shall not be deemed a waiver of, or an
election to exercise, any other such right or remedy.
10.10 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
10.11 Notices. Any notice under this Agreement must be in writing, may be
telecopied provided that evidence of the transmission and receipt is created at
the time of transmission, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
-6-
Delfine Employment Agreement
<PAGE>
mail, addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for the
receipt of notice shall be as follows:
If to the Company: Patcomm Corporation
7 Flower Field, M100
St. James, NY 11780
(516) 862-6511
Attention: Alex Adelson, Chairman of the Board
If to Executive: Frank Delfine
170A Oakside Drive
Smithtown, NY 11787
(516) 265-5228
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
10.12 Survival. Any provision of this Agreement which imposes an obligation
after termination or expiration of this Agreement shall survive the termination
or expiration of this Agreement and be binding on Executive and the Company.
10.13 Right of Set-Off. Upon termination or expiration of this Agreement,
the Company shall have the right to set-off against the amounts due Executive
hereunder the amount of any outstanding loan or advance from the Company to
Executive.
10.14 Effective Date. This Agreement shall become effective as of the date
set forth on page 1 when signed by Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
FRANK DELFINE PATCOMM CORPORATION
By
- --------------------------------- ------------------------------
Alex Adelson, Chairman of the Board
-7-
Delfine Employment Agreement
FORM OF
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective this 1st day
of January, 1997, by and between Patcomm Corporation, a Nevada corporation (the
"Company"), and Alexander Adelson, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and services of
Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and the
Company is willing to employ Executive, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as its Chairman of the
Board of the Company's Board of Directors.
2. Term. The term of this Agreement shall be for a period of three (3)
years commencing on the date hereof, unless terminated earlier pursuant to
Section 9 below; provided, however, that Executive's obligations in Section 7
below shall continue in effect after such termination.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of One Thousand Dollars
($1,000) per month, payable monthly (the "Base Salary"). This compensation is
based on part-time work of up to two days per month.
3.2 Incentive Bonus. In addition to the Base Salary, Executive shall be
eligible for an incentive bonus ("Incentive Bonus") each year in an amount
calculated as follows: (i) 3% of net income (after tax) for net income between
$1.00 and $1,499,000, plus (ii) 1% of net income (after tax) on amounts in
excess of $1,499,000. The Incentive Bonus shall be based upon the Company's
financial results as reflected in the audited Financial Statements of the
Company, and shall be paid, if earned, within 30 days after such Financial
Statements have been released in final form by the Company's accountants.
3.3 Additional Benefits. In addition to the Base Salary and the Incentive
Bonus, Executive shall be entitled to all other benefits of employment provided
to the employees of the Company.
3.4 Reimbursement. Executive shall be reimbursed for all reasonable
"out-of-pocket" business expenses for business travel and business entertainment
incurred in connection with the performance of his duties under this Agreement
(1) so long as such expenses constitute business deductions from taxable income
<PAGE>
for the Company and are excludable from taxable income to the Executive under
the governing laws and regulations of the Internal Revenue Code (provided,
however, that Executive shall be entitled to full reimbursement in any case
where the Internal Revenue Service may, under Section 274(n) of the Internal
Revenue Code, disallow to the Company some percentage of meals and entertainment
expenses); and (2) to the extent such expenses do not exceed the amounts
allocable for such expenses in budgets that are approved from time to time by
the Company. The reimbursement of Executive's business expenses shall be upon
monthly presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as may be
assigned to him from time to time by the Company's Board of Directors
commensurate with his experience and responsibilities in the position for which
he is employed pursuant to Section 1 above. Such duties shall be exercised
subject to the control and supervision of the Board of Directors of the Company.
4.2 General Specification of Duties. Executive's duties shall include, but
not be limited to, the duties and performance goals as follows:
(1) act as the Chairman of the Board of Directors of the Company and
perform all duties, functions and responsibilities generally associated with
such positions;
(2) execute on behalf of the Company, in his capacity as Chairman of the
Board, all documents as are required in the normal course of business and as are
requested by the Board of Directors;
The foregoing specifications are not intended as a complete itemization of
the duties which Executive shall perform and undertake on behalf of the Company
in satisfaction of his employment obligations under this Agreement.
4.3 Executive's Devotion of Time. Executive hereby agrees to devote his
part time (up to 2 days per month), abilities and energy to the faithful
performance of the duties assigned to him and to the promotion and forwarding of
the business affairs of the Company, and not to divert any business
opportunities from the Company to himself or herself or to any other person or
business entity.
4.4 Conflicting Activities.
(1) Executive may, during the term of this Agreement, be engaged in other
business activities without the prior consent of the Board of Directors of the
Company; provided, however, that Executive may not compete directly with the
Company. Further, nothing in this Agreement shall be construed as preventing
Executive from investing his personal assets in passive investments in business
entities which are not in competition with the Company or its affiliates, or
from pursuing business opportunities as permitted by paragraph 4.4(b).
(2) Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or anticipated
future business of the Company, in a manner consistent with the best interests
of the Company and with his duties under this Agreement. Should Executive
discover a business opportunity that does not relate to the current or
anticipated future business of the Company, he shall first offer such
opportunity to the Company. Should the Board of Directors of the Company not
exercise its right to pursue this business opportunity within a reasonable
period of time, not to exceed sixty (60) days, then Executive may develop the
business opportunity for himself; provided, however, that such development may
in no way conflict or interfere with the duties owed by Executive to the Company
under this Agreement. Further, Executive may develop such business opportunities
-2-
Adelson Employment Agreement
<PAGE>
only on his own time, and may not use any service, personnel, equipment,
supplies, facility, or trade secrets of the Company in their development. As
used herein, the term "business opportunity" shall not include business
opportunities involving investment in publicly traded stocks, bonds or other
securities, or other investments of a personal nature.
5. Not Used in this Agreement
6. Severance. So long as this Agreement is in effect, Executive shall be
entitled to severance benefits equal to one week's Base Salary for each full
year of service to the Company up to a maximum of eight weeks. These benefits
shall not include maintenance of any life insurance policy or disability policy
on Executive, or any medical or health insurance policies or plans on Executive
or his family except as required under applicable law.
7. Confidentiality of Trade Secrets and Other Materials.
7.1 Trade Secrets. Other than in the performance of his duties hereunder,
Executive agrees not to disclose, either during the term of his employment by
the Company or at any time thereafter, to any person, firm or corporation any
information concerning the business affairs, the trade secrets or the customer
lists or similar information of the Company.
7.2 Ownership of Trade Secrets; Assignment of Rights. Executive hereby
agrees that all know-how, documents, reports, plans, proposals, marketing and
sales plans, client lists, client files and materials made by him or by the
Company are the property of the Company and shall not be used by him in any way
adverse to the Company's interests. Executive shall not deliver, reproduce or in
any way allow such documents or things to be delivered or used by any third
party without specific direction or consent of the Board of Directors of the
Company. Executive hereby assigns to the Company any rights which he may have in
any such trade secret or proprietary information.
8. Termination.
8.1 Bases for Termination.
(1) Executive's employment hereunder may be terminated at any time by
mutual agreement of the parties.
(2) This Agreement shall automatically terminate on the last day of the
month in which Executive dies or becomes permanently incapacitated. "Permanent
incapacity" as used herein shall mean mental or physical incapacity, or both,
reasonably determined by the Company's Board of Directors based upon a
certification of such incapacity by, in the discretion of the Company's Board of
Directors, either Executive's regularly attending physician or a duly licensed
physician selected by the Company's Board of Directors, rendering Executive
unable to perform substantially all of his duties hereunder and which appears
reasonably certain to continue for at least six consecutive months without
substantial improvement. Executive shall be deemed to have "become permanently
incapacitated" on the date the Company's Board of Directors has determined that
Executive is permanently incapacitated and so notifies Executive.
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Adelson Employment Agreement
<PAGE>
(3) Executive's employment may be terminated by the Company "with cause,"
effective upon delivery of written notice to Executive given at any time
(without any necessity for prior notice) if any of the following shall occur:
(a) any action by Executive which would be grounds for termination
under applicable law (currently covering any willful breach of duty,
habitual neglect of duty, and continued incapacity);
(b) any material breach of Executive's obligations in Sections 4 or 7
above; or
(c) any material acts or events which inhibit Executive from fully
performing his responsibilities to the Company in good faith, such as (i) a
felony criminal conviction; (ii) any other criminal conviction involving
Executive's lack of honesty or Executive's moral turpitude; (iii) drug or
alcohol abuse; or (iv) acts of dishonesty, gross carelessness or gross
misconduct.
(4) Executive's employment may be terminated by the Company "without cause"
(for any reason or no reason at all) at any time by giving Executive 60 days
prior written notice of termination, which termination shall be effective on the
60th day following such notice. If Executive's employment under this Agreement
is so terminated, the Company shall (a) make a lump sum cash payment to
Executive within 10 days after termination of an amount equal to (i) Executive's
Base Salary for the balance of the year in which termination occurs, (ii) a
prorata portion of the Incentive Bonus, if any, earned for the year in which
termination occurs prorated to the date of termination, plus (iii) any
unreimbursed expenses accruing to the date of termination; and (b) make a lump
sum cash payment equal to Executive's annual Base Salary, as increased pursuant
to Section 3.1, on each anniversary date of this Agreement for the balance of
the term specified in Section 2. For purposes of this provision, Executive's
annual Base Salary and the remaining portion of the term of the Agreement shall
be calculated as of the termination date. After the Company's termination of
Executive under this provision, the Company shall not be obligated to provide
the benefits to Executive described in Section 3.3 (except as may be required by
law).
(5) Executive may terminate his employment hereunder by giving the Company
60 days prior written notice, which termination shall be effective on the 60th
day following such notice.
8.2 Payment Upon Termination. Upon termination under paragraphs 8.1(1),
(2), (3), or (5), the Company shall pay to Executive within 10 days after
termination an amount equal to the sum of (1) Executive's Base Salary accrued to
the date of termination; and (2) unreimbursed expenses accrued to the date of
termination. After any such termination, the Company shall not be obligated to
compensate Executive, his estate or representatives except for the foregoing
compensation then due and owing, nor provide the benefits to Executive described
in Section 3.4 (except as provided by law).
8.3 Severance Provisions. The provisions of Sections 8.1 and 8.2 shall be
subject to and deemed modified by the terms of any severance benefits granted to
Executive as provided under Section 6.
8.4 Dismissal from Premises. At the Company's option, Executive shall
immediately leave the Company's premises on the date notice of termination is
given by either Executive or the Company.
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<PAGE>
9. Injunctive Relief. The Company and Executive hereby acknowledge and
agree that any default under Section 7 above will cause damage to the Company in
an amount difficult to ascertain. Accordingly, in addition to any other relief
to which the Company may be entitled, the Company shall be entitled to such
injunctive relief as may be ordered by any court of competent jurisdiction
including, but not limited to, an injunction restraining any violation of
Section 7 above and without the proof of actual damages.
10. Miscellaneous.
10.1 Transfer and Assignment. This Agreement is personal as to Executive
and shall not be assigned or transferred by Executive without the prior written
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
10.2 Severability. Nothing contained herein shall be construed to require
the commission of any act contrary to law. Should there be any conflict between
any provisions hereof and any present or future statute, law, ordinance,
regulation, or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
10.3 Governing Law. This Agreement is made under and shall be construed
pursuant to the laws of the State of New York.
10.4 Counterparts. This Agreement may be executed in several counterparts
and all documents so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts.
10.5 Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements, arrangements, and
understandings with respect thereto. No representation, promise, inducement,
statement or intention has been made by any party hereto that is not embodied
herein, and no party shall be bound by or liable for any alleged representation,
promise, inducement, or statement not so set forth herein.
10.6 Modification. This Agreement may be modified, amended, superseded, or
cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation, or waiver.
10.7 Attorneys' Fees and Costs. In the event of any dispute arising out of
the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
10.8 Waiver. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
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<PAGE>
10.9 Cumulative Remedies. Each and all of the several rights and remedies
provided in this Agreement, or by law or in equity, shall be cumulative, and no
one of them shall be exclusive of any other right or remedy, and the exercise of
any one or such rights or remedies shall not be deemed a waiver of, or an
election to exercise, any other such right or remedy.
10.10 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
10.11 Notices. Any notice under this Agreement must be in writing, may be
telecopied provided that evidence of the transmission and receipt is created at
the time of transmission, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
mail, addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for the
receipt of notice shall be as follows:
If to the Company: Patcomm Corporation
7 Flower Field, M100
St. James, NY 11780
(516) 862-6511
Attention: Alex Adelson, Chairman of the Board
If to Executive: Alexander Adelson
Mountainside Trail
Peekskill, NY 10566
(914) 739-7419
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
10.12 Survival. Any provision of this Agreement which imposes an obligation
after termination or expiration of this Agreement shall survive the termination
or expiration of this Agreement and be binding on Executive and the Company.
10.13 Right of Set-Off. Upon termination or expiration of this Agreement,
the Company shall have the right to set-off against the amounts due Executive
hereunder the amount of any outstanding loan or advance from the Company to
Executive.
10.14 Effective Date. This Agreement shall become effective as of the date
set forth on page 1 when signed by Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
ALEXANDER ADELSON PATCOMM CORPORATION
By:
- ----------------------------------- --------------------------------
Frank Delfine, President
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated April 16, 1996 relating to the financial statements of Patcomm
Corporation as of December 31, 1995, and the reference to our firm under the
caption "EXPERTS" in the Registration Statement.
Winter, Scheifley & Associates, P.C.
Certified Public Accountants
February 14, 1997
Englewood, Colorado
