<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
Commission File Number 0-24368
MICROPOINT, INC.
(Exact name of small business issuer as identified in its charter)
Delaware 33-0615178
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6906 South 300 West, Midvale, Utah 84047
(Address of principal executive offices)
(Zip Code)
(801) 568-5111
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
[x] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 13, 1998: 15,929,808.
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
MICROPOINT, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
September 30, December 31,
ASSETS 1998 1997
--------------- ---------------
Current Assets
Cash $ 354,158 $ 106,494
Trade accounts receivable, net of
allowance of $0 and $151,567 385,606 45,823
Stock subscription receivable - 390,000
Inventory 182,895 -
Prepaid expenses 50,884 -
Note receivable 1,042 4,952
Related party receivable - 47,989
--------------- ----------------
Total Current Assets 974,585 595,258
--------------- ----------------
Property and Equipment 1,305,062 924,696
Less accumulated depreciation (280,979) (205,808)
--------------- ----------------
Net Property and Equipment 1,024,083 718,888
--------------- ----------------
Goodwill, Net of Accumulated Amortization
of $71,881 and $53,911 47,921 65,891
Deposits 16,279 13,279
Patents, net of accumulated amortization
of $41,418 and $30,618 97,158 76,702
--------------- ----------------
Total Assets $ 2,160,026 $ 1,470,018
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Trade accounts payable $ 210,726 $ 505,732
Related party payable 6,071 14,562
Accrued liabilities 76,268 398,473
Income taxes payable 8,314 -
Deferred revenue - 200,000
Notes payable 258,073 561,409
--------------- ----------------
Total Current Liabilities 559,452 1,680,176
--------------- ----------------
Stockholders' Equity (Deficit)
Preferred stock no shares issued - -
Common stock $0.001 par value;
100,000,000 shares authorized;
15,860,279 and 9,860,279 shares
issued and outstanding 15,860 9,860
Additional paid-in capital 6,085,867 3,108,593
Deficit accumulated during the
development stage (4,501,153) (3,328,611)
--------------- -----------------
Total Stockholders' Equity (Deficit) 1,600,574 (210,158)
--------------- -----------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 2,160,026 $ 1,470,018
=============== =================
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 3
MICROPOINT, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For the Period
January 5, 1995
For the Three Months For the Nine Months (Date of
Ended September 30 Ended September 30 Inception)
-------------------------- ------------------------- Through
1998 1997 1998 1997 Sept. 30, 1998
------------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Sales $ 957,378 $ 22,925 $ 1,314,509 $ 260,273 $ 2,689,606
Cost of sales 453,087 8,110 608,625 92,079 1,316,997
------------ ------------ ------------ ----------- --------------
Gross profit 504,291 14,815 705,884 168,194 1,372,609
General and administrative
expense 350,253 146,108 1,133,699 733,846 3,124,615
Research and development 324,887 244,183 764,709 397,362 2,684,912
------------ ------------ ------------ ----------- --------------
Loss from operations (170,849) (375,476) (1,192,524) (963,014) (4,436,918)
Interest expense - (8,797) (40) (8,797) (54,084)
Interest income 5,441 - 22,028 - 32,538
Other income/expense 583 (10,831) (2,006) (10,831) (42,689)
------------ ------------ ------------ ----------- --------------
Net Loss Before Income Taxes (164,825) (395,104) (1,172,542) (982,642) (4,501,153)
Provisions for income taxes - - - - -
------------ ------------ ------------ ----------- --------------
Net Loss $ (164,825) $ (395,104) $ 1,172,542) $ (982,642) $ (4,501,153)
============ ============ ============ =========== ==============
Basic and Diluted Loss Per
Common Share $ (0.01) $ (0.03) $ (0.09) $ (0.09) $ (0.42)
============ ============ ============ =========== ==============
Weighted average number of
common shares used in per
share calculation 15,860,279 11,574,786 13,618,521 11,198,236 10,630,695
============ ============ ============ =========== ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 4
MICROPOINT, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the Period
January 5, 1995
For the Nine Months (Date of Inception)
Ended September 30, Through
------------------------------- Sept. 30
1998 1997 1998
--------------- -------------- -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (1,172,542) $ (982,642) $ (4,501,153)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 103,941 161,815 399,791
Stock issued for services - - 200,000
Changes in operating assets and liabilities:
Accounts receivable (339,783) (20,516) (249,565)
Inventory (182,895) - (182,895)
Accounts payable (295,006) 273,457 31,912
Accrued liabilities (316,134) (54,098) (21,400)
Deferred revenue (200,000) 200,000 (6,163)
Other assets (50,685) 180 (48,835)
--------------- -------------- -----------------
Net Cash Used By Operating Activities (2,453,104) (421,804) (4,378,308)
--------------- -------------- -----------------
Cash Flows From Investing Activities
Payments to Flexpoint prior to acquisition - - (268,413)
Cash paid to acquire Tamco - - (25,000)
Collection of receivable from escrow agent 64,825 - 64,825
Payments for the purchase of property
and equipment (388,366) (90,000) (1,009,900)
Proceeds received from sale of securities
available-for-sale 434,568 - 434,568
Investment in patents (31,256) (11,769) (102,551)
Payments received from related parties 33,427 - 33,427
Other - - 3,138
Net cash received from Nanotech acquisition 1,492,906 - 1,492,906
-------------- -------------- -----------------
Net Cash Used By Investing Activities 1,606,104 (101,769) 623,000
-------------- -------------- -----------------
Cash Flows From Financing Activities
Proceeds from the issuance of common stock - 400,375 2,933,000
Cash payments to officers to repurchase stock - (50,000) (50,000)
Cash paid for offering costs - - (123,020)
Proceeds from borrowings - (176,416) 303,960
Principal payments of long-term debt (295,336) (10,000) (340,751)
Proceeds of bridge loan 1,000,000 - 1,000,000
Proceeds from stock subscription receivable 390,000 - 390,000
Proceeds from related party notes - 39,562 60,208
Principal payments of related party notes - - (63,931)
-------------- -------------- -----------------
Net Cash Provided By Financing
Activities 1,094,664 556,353 4,109,466
-------------- -------------- -----------------
Net Change In Cash 247,664 32,780 354,158
Cash at Beginning of Period 106,494 761 -
-------------- -------------- -----------------
Cash at End of Period $ 354,158 $ 33,541 $ 354,158
============== ============== =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE > 5
NOTE 1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The accompanying consolidated financial
statements include the accounts of Sensitron, Inc. (Sensitron) for all periods
prsented and the accounts of Micropoint Inc. (formerly Nanotech Corporation),
Flexpoint, Inc. (Flexpoint) and Technology and Machine Company, Inc. (Tamco)
from the dates of their acquisitions in 1995 through September 30, 1998.
These entities are collectively referred to as "the Company". All significant
intercompany transactions and account balances have been eliminated in
consolidation.
Nature of Operations Sensitron Inc. was incorporated under the laws of
the State of Utah on January 5, 1995. Upon its formation, the Company began
operations and is a development stage enterprise engaged principally in
designing, engineering, and manufacturing sensor technology and equipment
using flexible potentiometer technology owned by Sensitron. Sales have
principally been to automobile component manufacturers and toy manufacturers.
Nanotech Corporation (now Micropoint) was incorporated in June 1992 as a shell
corporation looking for investment opportunities. On December 30, 1997,
Sensitron entered into an agreement with Micropoint, Inc. ("Micropoint,)
whereby Sensitron Acquisition Corporation, a newly-formed wholly-owned
subsidiary of Micropoint, was to be merged into Sensitron. The agreement
required Micropoint to raise capital of approximately $3,000,000 in a private
placement before the merger was to occur. The $3,000,000 was raised and the
merger was consummated in April 1998. As a result, the Sensitron shareholders
became the majority shareholders of the Company in a transaction intended to
qualify as a tax-free reorganization. The merger has been accounted for by the
purchase method of accounting with the acquisition at Micropoint's historical
cost; therefore, no goodwill has been recognized for this transaction.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumption that affect the reported amounts in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Interim Financial Statements The accompanying consolidated financial
statements at September 30, 1998 and for the three and nine months ended
September 30, 1998 and 1997 are unaudited. In the opinion of management, all
necessary adjustments (which include only normal recurring adjustments) have
been made to present fairly the financial position, results of operations and
cash flows for the periods presented. The results of operations for the nine
months period ended September 30, 1998 are not necessarily indicative of the
operating results to be expected for the full year.
<PAGE> 6
These financial statements include modifications and reclassifications from
the interim unaudited statements included in Form 10QSB as of June 30, 1998.
None of these modifications or reclassifications are material to the financial
position or results of operations of the Company.
Business Condition The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles, which
contemplates continuation of the Company as a going concern. However, the
Company has suffered losses from operations and has had negative cash flows
from operating activities during the years ended December 31, 1997 and 1996
and cumulative from inception through September 30, 1998, which conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The Company's continued existence is dependent upon its ability to
achieve profitable operations. The Company has negotiated a significant
contract to supply flexible sensors to an automobile component manufacturer,
which, if successful, would provide significant revenue to the Company.
Management believes this and other similar potential contracts will provide
sufficient cash flows for the Company to continue as a going concern and to
ultimately establish profitable operations.
Fair Values of Financial Instruments The amounts reported as cash, accounts
receivable, accounts payable, and notes payable are considered to be
reasonable approximations of their fair values. The fair value estimates were
based on market information available to management at the time of the
preparation of the financial statements. The Company's investments in
securities were sold during the nine months ended September 30, 1998. Total
proceeds from the sale of securities were $434,568 with gross realized gain of
$711. The net realized gain is included as other income in the accompanying
statements of operations.
Concentration of Risk and Major Customers At September 30, 1998 the Company
had cash in excess of insured limits. The concentration of business in one-
industry subjects the Company to a concentration of credit risk relating to
trade accounts receivable. The Company relies on large production contracts
for its business and generally does not require collateral from its customers
with respect to the Company's trade receivables.
Inventory The Company values its inventory at the lower of cost or market.
Cost is determined using the first-in, first-out method.
Property and Equipment Property and equipment is stated at cost. Additions
and major improvements are capitalized while maintenance and repairs are
charged to operations. Upon retirement, sale or disposition, the cost and
accumulated depreciation of the items sold are eliminated from the accounts,
and any resulting gain or loss is recognized in operation. Depreciation is
computed using the straight-line and the double-declining-balance methods and
is recognized over the estimated useful lives of the property and equipment,
which are
<PAGE> 7
five to seven years.
Long-Lived Assets The realization of non-current assets is evaluated
periodically when events or circumstances indicate a possible inability to
recover the carrying amount. Such evaluation is based upon various analyses
and significant management judgement. No impairment losses were required to
be recognized in the accompanying financial statements.
Revenue Recognition Revenue from the sale of products is recorded at the
time of shipment to the customers. Revenue from research and development
contracts is recognized as the contracts are completed. Revenue from
contracts to license the Company's technology to others is deferred until all
conditions under the contracts are met by the Company and then recognized as
revenue over the remaining term of the contracts. As of December 31, 1997 the
Company had $200,000 in deferred revenue from a licensing agreement with Ohio
Art. During the each of the second and third quarters of 1998, the Company
recognized $100,000 in licensing revenues.
Stock-Based Compensation Stock-based compensation arising from granting
stock options to employees is measured by the intrinsic-value method. This
method recognizes compensation expense based on the difference between the
fair value of the underlying common stock and the exercise price on the date
granted. The Company also presents pro forma results of operations assuming
compensation had been measured by the fair-value method.
Basic and Diluted Loss Per Share In 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No.128, Earnings Per Share. Statement
No. 128 specifies the computation, presentation, and disclosure requirements
for earnings per share. Loss per share for all periods presented was
restated; however, the effect of the change to loss per share for those
periods was not material.
Basic loss per common share is computed by dividing net loss by the number of
common shares outstanding during the period. Diluted loss per share is
calculated to give effect to stock warrants, options and convertible notes
payable except during loss periods when those potentially issuable commons
shares would decrease the loss per share and have been excluded from the
calculation.
<PAGE> 8
NOTE 2 PROPERTY AND EQUIPMENT
At December 31, 1997 and September 30, 1998, property and equipment consisted
of the following:
September 30,1998 December 31, 1997
----------------- -----------------
Furniture and fixtures $ 189,449 $ 152,140
Machinery and equipment 546,818 391,672
Office equipment 190,042 104,062
Software 29,029 24,650
Leasehold improvements 349,724 252,172
----------------- -----------------
Total $ 1,305,062 $ 924,696
================ =================
Depreciation expense for the nine months ended September 30, 1998 and 1997 was
$75,146 and $97,538 respectively.
NOTE 3 OTHER ASSETS
Costs to obtain patents have been capitalized and are being amortized over a
five year period. The Company currently has the rights to several patents. The
Company is in the process of developing new patents and protecting its
existing patents internationally. Costs associated for the development of
these new patents have are capitalized. The Company does not amortize any
patents until they have been perfected. The total patent cost capitalized as
of September 30, 1998 and December 31, 1997 was 138,576 and $107,320,
respectively, of which $62,583 relates to perfected patents. Amortization
expense for the nine months ended September 30, 1998 and for the year ending
December 31, 1997 was $10,800 and $12,021, respectively.
Goodwill associated to the acquisition of Tamco is being amortized over five
years using the straight-line method. The carrying value of goodwill was
$23,921 and $35,881 as of September 30, 1998 and 1997, respectively.
Amortization expense for the nine months ending September 30, 1998 and1997 was
$8,970.
Deposits of $16,279 and $13,279 are included in other assets at September 30,
1998 and December 31, 1997. The increase in deposits is due to a payment of
$2,500 for use of equipment and $500 on deposit with Federal Express Company.
NOTE 4 LICENSE AGREEMENT
<PAGE> 9
In May 1997, the Company granted an otherwise unrelated third party the
worldwide exclusive license to use and sell flexible potentiometers covered
under the Company's patents for use in toy, traditional games and video game
industries. The license does not include the right to manufacture sensors
which will be purchased from the Company. A licensing fee of $500,000 was
required under the agreement relating to the exclusive use of the technology
through December 1998, of which $200,000 had been received by the Company as
of December 31, 1997. An additional $50,000 was received in February 1998. The
remaining $250,000 is due December 31, 1998. After 1998, the exclusive license
is to be maintained under the agreement by the licensee providing revenue from
royalties and fees to the Company of at least $500,000 per year. Royalties to
be received are 2% of sales of the licensee's products in the United States
and 3% of related products to the licensee's international partners.
Under the agreement, the Company guaranteed that it would deliver flexible
potentiometers in marketable quantities to the licensee by June 1, 1998, and
if this condition was not met, it would return any amounts received under the
licensing agreement. Accordingly, recognition of the $200,000 licensing fee
received by December 31, 1997 was deferred at that date. As of September 30,
1998 the Company has met all of its obligations under the agreement and
therefore has recognized the full $200,000 as licensing revenues. Additional
payments received in the future will be recognized as revenue evenly over the
period associated with the payments received.
NOTE 5 CASH FLOW INFORMATION
Supplemental Cash Flow Information Cash payments for interest were $40 and
none during the three and nine months ended September 30, 1998 and $8,797
during both of the same periods in 1997. Due to the cash proceeds generated
from the acquisition of Nanotech, the Company has earned $22,028 in interest
for the nine months ending September 30, 1998 compared to $0 for the same
period last year.
Noncash Investing and Financing Activities In connection with the
reorganization of Sensitron, Inc. on April 11, 1998 the Company acquired all
of the common stock of Nanotech Corporation. In conjunction with this
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 1,991,589
Advances from Nanotech prior to acquisition 1,000,000
Fair value of common stock issued in acquisition (2,983,275)
===============
Net liabilities assumed $ 8,314
On September 26, 1995, the Company acquired all of the common stock of Tamco.
In connection with this acquisition, liabilities were assumed as follows:
<PAGE> 10
Fair value of assets acquired, including
goodwill of $119,802 $ 170,000
Cash paid in acquisition (25,000)
Fair value of stock issued in acquisition (60,000)
---------------
Net liabilities assumed $ 85,000
===============
On September 26, 1995 the Company acquired all of the common stock of
Flexpoint in exchange for 5,395,000 shares of common stock of the Company.
The following assets and liabilities were acquired at their historical cost
basis:
Historical cost of assets acquired $ 174,229
Advances to Flexpoint prior to acquisition (268,413)
---------------
Net liabilities assumed $ (94,184)
===============
During the period ended December 31, 1995, the Company assumed $13,792 of
legal costs associated with the patents, in connection with the assignment of
patents to the Company by an officer. The Company accepted notes receivable
for $24,000 as consideration of 31,200 shares of common stock.
During the year ended December 31, 1996, the Company issued 260,000 shares of
common stock valued at $0.77 per share, or $200,000, for services. The Company
also offset the deferred offering costs against the proceeds from the sale of
common stock.
During the year ended December 31, 1997, $111,816 of notes payable were issued
to acquire leasehold improvements. The Company issued 110,672 shares of
common stock upon conversion of $53,952 of accounts payable and notes payable.
Common stock was redeemed from officers in exchange for $50,000 of cash and
$150,000 of notes payable. The Company issued common stock in exchange for
stock subscription receivables totaling $390,000.
NOTE 6 EMPLOYMENT AND COMPENSATION AGREEMENTS
During the period ended December 31, 1995, the Company entered into employment
agreements with four officers. Two of the agreements included annual base
salaries of $50,000 and $75,000, respectively. Both agreements were renewed
for one year under the terms of the agreement. Effective August 26, 1997,
both officers resigned from the Board of Directors and sold 6,308,666 shares
of common stock to the Company for approximately $0.03 per share (see Note 8).
As part of the settlement agreement, one of the officers was granted options
to acquire 650,000 shares of common stock at $0.30 per share and 325,000
shares for $0.77 per share for a period of five years. One of the officers
was retained as a consultant for a period of one year. Under the terms of the
agreement the Company and the officers released each other from any future
obligation.
An agreement with a third officer included annual compensation payments of
$50,000. The agreement will expire during 1998. The fourth agreement included
an annual base salary
<PAGE> 11
of $90,000 during the first year of employment and $120,000 a year thereafter.
This agreement had an initial term of three years and included a $30,000
signing bonus. On December 31, 1997, this agreement was extended for an
additional two years, through December 31, 2000. Under the terms of the
agreement, the officer was granted options to purchase 650,000 shares of
common stock at $0.77 per share.
Effective May 1, 1995, the Company entered into a compensation agreement
whereby an officer was to provide the Company technical assistance and be paid
a monthly fee of $8,333 for five years. During 1997, the Company temporarily
suspended payments which resulted in approximately $38,500 being accrued in
accrued liabilities at December 31, 1997. An agreement was signed April 15,
1998 whereby the Company agreed to pay the officer $160,000 in settlement of
all past and future obligation under the compensation agreement.
NOTE 7 NOTES PAYABLE Notes payable consisted of the following as of
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
September December
30, 1998 31, 1997
------------ ------------
<S> <C> <C>
8% note; payable in quarterly payments of $7,083 through April 1,
1998; unsecured $ - $ 49,585
8.5% promissory notes; convertible into common stock through
February 28, 1998 at $0.93 to $1.23 per share; due March 28
1998; secured by equipment 200,000 200,000
Non-interest bearing notes; unsecured; issued for cash and
leasehold improvements; terms for repayment have not
been established 8,073 105,791
Non-interest bearing notes payable to former shareholders; issued in
redemption of common stock; paid February 1998 - 145,000
18% note payable; guaranteed by shareholders; convertible into
common stock at $0.93 per share; due October 17, 1998 50,000 50,000
Other notes - 11,033
----------- ------------
Total Notes Payable $ 258,073 $ 561,409
=========== ============
</TABLE>
As of September 30, 1998 management believes $250,000 of the notes payable
will be converted to common stock prior to year end 1998; therefore, no
interest accruals have been made.
NOTE 8 STOCKHOLDERS' EQUITY
In connection with the reorganization agreement with Sensitron, the Company's
common stock was split 13-for-1 on April 11, 1998. All references to shares
in these financial statements reflect the change in the number of shares
outstanding for all periods presented.
In January 1995, an officer and shareholder assigned certain patents to the
Company as an additional contribution to capital of $22,232. No additional
shares were issued to the shareholder for the contribution.
<PAGE> 12
On March 18, 1996, the Company entered into a share purchase agreement whereby
the Company agreed to issue 1,957,111 shares of its common stock for
$1,300,000 in a private placement offering. The proceeds were received and the
shares were issued throughout 1996 as required by the Company's cash flow
needs. Offering costs incurred in connection with the offering were $246,547.
The deferred offering costs consist primarily of legal and audit fees related
to the preparation of the private placement memorandum.
On August 26, 1997, the Company entered into a settlement agreement with two
officers of the Company whereby the relationship between the officers and the
Company was terminated. As part of the agreement, the Company purchased
6,308,666 shares of common stock from the officers for approximately $0.03 per
share by paying $50,000 in cash and issuing $150,000 of notes payable.
On December 24, 1997, the Company issued 422,500 shares of common stock in
exchange for stock subscriptions in the amount of $390,000 receivable from the
investors. The subscriptions were collected in January 1998.
NOTE 9 STOCK OPTIONS
On April 1, 1995, the Company adopted the Omnibus Stock Option Plan (the
"Plan"). Under the terms of the Plan as amended in October 1997, the Company
may grant options to employees, directors and consultants for up to 5,037,500
shares of common stock. Incentive or non-qualified options may be granted
under the Plan. Options may be granted for a maximum of 10 years. Options
generally vest from immediately to five years and expire five years from the
date of grant. The exercise price of each option granted under the Plan has
been equal to or in excess of the market price of the Company's common stock
on the date of grant.
Generally, the only condition for exercise of options granted under the Plan
is that the employees remain employed through the exercise date. However, in
October 1995, the Company granted an officer options for 325,000 shares whose
vesting is contingent upon the Company obtaining specified levels of sales and
gross profit. Options for 65,000 shares vested at the end of 1996 due to
meeting non-sales performance criteria. Vesting of options for 65,000 shares
were contingent upon the Company achieving $2,000,000 of sales with a minimum
gross profit margin of 50% during 1997. That target was not met and the 65,000
options were forfeited during 1997. The remaining 195,000 options vest
annually based upon the Company having sales of $4,000,000 in 1998 with a
minimum gross profit margin of 50%, and further increases in sales during 1999
and 2000 by amounts not yet determined by the Board of Directors.
The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its Plan. Accordingly, no
compensation cost has been recognized for its fixed or performance stock
options granted under the Plan. Had compensation cost for the Plan been
determined based on the fair value at the grant dates for awards under the
Plan consistent with the alternative method of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net loss and loss per share would have
increased to the pro forma amounts indicated below. The weighted average
assumptions used to estimate the fair value of each option grant, using the
Black-Scholes option-pricing model, are also presented:
For the nine Years Ended December 31,
Months Ended ---------------------------
Sept. 30, 1998 1997 1996
--------------- ------------ ------------
<PAGE> 13
Net Loss
As reported $ (1,172,542) $(1,541,058) $ (1,417,297)
Pro forma (1,320,095) (1,567,655) (1,465,469)
Primary and Diluted Loss per share
As reported $ (0.09) $ (0.13) $ (0.12)
Pro forma (0.10) (0.13) (0.12)
For the nine Years Ended December 31,
Months Ended --------------------------
Sept. 30, 1998 1997 1996
--------------- ------------ ------------
Weighted -Average Assumptions:
Divided yield 0.0% 0.0% 0.0%
Expected volatility 62.7% 0.0% 0.0%
Risk-free interest rate 5.0% 5.0% 5.0%
Expected life of options, in years 5.0 4.5 5.0
A summary of the status of stock options as of September 30, 1998 and December
31, 1997 and 1996 and changes during the periods ended on those dates is
presented below:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------------------
September 30, 1998 December 31, 1997 December 31, 1996
------------------- -------------------- ------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- --------- ------------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 5,042,050 $ 0.42 1,455,350 $ 0.60 1,443,000 $ 0.60
Granted 270,000 0.56 3,651,700 0.35 12,350 0.77
Exercised (4,445)
Forfeited - - (65,000) 0.77 - -
---------- ------------ ----------
Outstanding at end of period 5,307,605 0.40 5,042,050 0.42 1,455,350 0.60
========== ============ ==========
Options exercisable at end
of period 3,247,109 0.38 3,059,550 0.40 935,650 0.51
========== ============ ==========
Weighted-average fair value of
options granted during period $ - $ - $ 0.17
======== ======== ========
</TABLE>
The following table summarized information about stock options outstanding at
September 30, 1998
<TABLE>
<CAPTION>
Outstanding Exercisable
- ----------------------------------------------------------------- -----------------------------
Weighted Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.15 846,555 3.9 years $0.15 866,555 $0.15
0.30 650,000 1.9 0.30 650,000 0.30
0.38 1,852,500 3.9 0.38 455,000 0.38
0.46 780,000 1.6 0.46 780,000 0.46
0.75 205,000 4.9 0.75 62,004 0.75
0.77 953,550 3.2 0.77 433,550 0.77
----------- -----------
$0.15 to 0.77 5,287,605 3.2 0.42 3,247,109 0.40
=========== ===========
</TABLE>
NOTE 10 STOCK PURCHASE WARRANTS
<PAGE> 14
In connection with the acquisition of Flexpoint and Tamco during 1995, the
Company issued warrants to purchase 22,750 shares of its common stock
exercisable at $0.77 per share ( which was the fair value of the common stock
on the date of the issuance as determined by the Board of Directors) to its
outside legal counsel. Additionally, the Company issued warrants during 1995
to purchase 23,010 shares of its common stock at a purchase price of $0.77 per
share to equity investors in the Company.
During 1996, warrants were issued to purchase 214,500 shares of common stock
at $0.77 per share to equity investors in the Company, and warrants to
purchase 6,500 shares at $0.77 per share were issued to outside legal counsel.
During 1997, the Company issued warrants to purchase 260,000 shares of common
stock at $0.77 per share to equity investors in the Company. Additionally,
warrants to purchase 910,000 shares of common stock at $1.15 per share were
issued to a retiring member of the Board of Directors.
All of these warrants were deemed to have no material fair value and are
therefore not recorded in the accompanying consolidated balance sheet. The
fair value of each warrant was estimated on the date issued using the Black-
Scholes option-pricing model.
The following table summarizes information about warrants outstanding at June
30, 1998:
Weighted-Average
Range of Warrants Remaining
Exercise Prices Outstanding Contractual Life
--------------- ----------- ----------------
$0.77 526,760 2.7 years
1.15 910,000 2.2
------------
$0.77 to 1.15 1,436,760 2.4
============
NOTE 11 INCOME TAXES
There was no provision for or benefit from income tax for any period. The
components of the net deferred tax asset were as follows:
September 30, December 31,
1998 1997
------------- -------------
Operating loss carry forwards 1,525,243 1,105,749
Difference in amortization of intangibles 10,151 6,804
------------- -------------
Total Deferred Tax Assets 1,535,394 1,112,553
Valuation Allowance (1,535,394) (1,112,553)
------------- -------------
Net Deferred Tax Asset $ - $ -
============= =============
For tax reporting purposes, the Company had net operating loss carry forwards
in the amount of $4,085,923 and $3,252,203 at September 30, 1998 and December
31, 1997, respectively, that will expire beginning in the year 2010.
The following is a reconciliation of the amount of tax (benefit) that would
result from applying the federal statutory rate to pretax loss with the
provision for income taxes for the nine months ended September 30, 1998 and
for the years ended December 31, 1997 and 1996:
<PAGE> 15
For the Years Ended
For the Nine Months December 31,
Ended Sept. 30, ----------------------
1998 1997 1996
------------------- ---------- -----------
Tax at statutory rate (34%) $ (398,664) $(523,960) $ (481,881)
Non-deductible expenses 7,487 9,867 9,915
Increase in valuation allowance 539,127 571,574 524,831
State tax benefit, net of federal
tax effect (38,694) (57,481) (52,865)
Change in effective tax rate (109,256)
------------------- ---------- -----------
Net Income Tax Expense $ $ $
=================== ========== ===========
NOTE 12 COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating lease agreements for office space.
Future minimum lease payments at December 31, 1997 for the years ending
December 31, 1998 and 1999 were $81,745 and $65,376, respectively. Lease
expense for the nine months ended September 30, 1998 and for the years ended
December 31, 1997 and 1996 was $65,925, $93,854 and $53,436, respectively.
In 1995, a third party entity loaned $35,000 to a former officer of the
Company as a personal loan. This entity has made a claim against the former
officer for repayment of the advance and for other consideration. The Company
may be required to provide compensation to the former officer sufficient to
settle the claim on behalf of the former officer. Management believes, after
consulting with legal counsel, that resolution of this claim may result in a
cost of approximately $52,000 to the Company. This amount has been accrued in
the accompanying consolidated balance sheets at June 30, 1998 and December
31, 1997.
In February of 1998, a unrelated third party filed suit against the Company
alleging it provided investment banking and financial advisory services
pursuant to an agreement with the Company. The plaintiff claims to have
sustained damages for breach of contract and seeks damages in the amount of
6.5% of financing obtained from an equity investor, plus the issuance of a
warrant to purchase a 2% equity ownership interest in the Company at a price
of $5.00 per share. In addition, the plaintiff is seeking punitive damages of
$5,000,000. The Company answered the complaint in March 1998 and the action is
in the discovery stage. The Company has been and continues to contest the case
vigorously. Given the early stage of the action, legal counsel for the
Company is unable to provide any evaluation of the likelihood of an
unfavorable outcome, if any, or the amount or range of potential loss.
Management believes, after consulting with legal counsel, that there is only a
remote possibility that the Company will be subject to a punitive damage award
under the suit. Management has tendered $75,000 to the plaintiff to
completely settle the action and Management maintains that the most the
Company owes the Plaintiff is $75,000. The Company has recorded $75,000 as an
expense relating to this action in the accompanying statement of operations
during the year ended December 31, 1997.
Item 2. Management's Discussion and Analysis or Plan of Operation.
<PAGE> 16
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the condensed consolidated
financial statements, related notes and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the year ended March 31,
1998 and the financial information contained in the Company's Current Report
on Form 8-K, dated April 9, 1998, as amended. Wherever in this discussion the
term "Company" is used, it should be understood to refer to Micropoint, Inc.
("Micropoint") and its subsidiaries on a consolidated basis, except where the
context clearly indicates otherwise. Prior to the April 1998 merger wherein
Micropoint acquired its subsidiary corporations (the "Merger"), Micropoint had
no operations.
Overview
In July 1998, the Company decided to modify its accounting periods from
a March 31 fiscal year end to a December 31 fiscal year end. Accordingly,
under the new fiscal year calendar, the Company's quarters will each be
comprised of four calendar months ending March 31, June 30, September 30 and
December 31 and the Company has opted to file its quarterly reports within the
transition period based on the newly adopted fiscal year. Within ninety days
after December 31, 1998 the Company will file a transition report on Form 10-
KSB covering the transition period from March 31, 1998 through December 31,
1998.
The Company is a development stage company and, since inception, has
incurred losses from operations. As of September 30, 1998, the Company had
cumulative net losses totaling $4,501,153. The Company is primarily engaged in
the sensor business and is currently marketing proprietary patented sensor
technology know as the Bend Sensor TM technology (the "Technology"). Sensing
devices can be used to measure or sense changes in deflection and are
typically used to trigger an electronic device when the sensor is activated.
The worldwide market for sensing devices has grown significantly as a result
of better technology and new applications for sensing technology. This growth
has resulted in a corresponding increase in demand for high performance
sensing products. Management believes this worldwide market growth will
continue.
Financial Position
The Company had $354,158 in cash as of September 30, 1998. This
represented an increase of $247,664 from December 31, 1997. Working capital as
of September 30, 1998, increased to $415,133 as compared to ($1,084,918) at
December 31, 1997. These increases were largely due to the completion of a
private placement of securities by the Company that closed in April 1998.
Results of Operations
During the three months and nine months ended September 30, 1998, the
Company had total operating revenues of $957,378 and $1,314,509, respectively,
comprised primarily of product sales and engineering fees; compared with total
operating revenues of $22,925 and $260,273 for the comparable periods from the
prior year, comprised primarily of product sales and engineering fees.
In May 1997, the Company entered into a License Agreement (the "License
Agreement") whereby the Company granted to Ohio Art the exclusive worldwide
right to sell products incorporation the Technology in the toy, traditional
games and video game markets. The License Agreement provided for certain up
front fees and minimum royalties in order for Ohio Art to maintain such
exclusive rights. A substantial amount of the Company's product sales for the
three and nine ended September, 1998 and 1997, were derived under the License
Agreement. In the nine months ended September 30, 1998, the Company had orders
for over 6,000,000 toy sensors and had invoiced and collected over $700,000
relating thereto. However, the toy industry is cyclical. As a result, the
Company expects that revenues generated under the License Agreement will be
greater in the second and third quarters in any given year. In addition, there
is no
<PAGE> 17
assurance that the Company will secure additional orders or that these sales
levels will be achieved in future years.
In June 1998, the Company entered into a Purchase and Supply Agreement
(the "Supply Agreement") with Delphi Automotive Systems ("Delco") for the
Company to supply its proprietary sensor mats to Delco for integration into a
weight based suppression system for use in automotive applications. The
Company's sensor mat system is still in the development stage. Delco is not
obligated under the terms of the Supply Agreement to purchase any minimum
number of sensor mats. Even if the sensor mats are successfully implemented,
there can be no assurance that the Supply Agreement will result in a material
amount of sales.
License and supply arrangements, such as those discussed above, create
certain risks for the Company, including (i) reliance for sales of products on
other parties, and therefore reliance on the other parties' marketing ability,
marketing plans and credit-worthiness; (ii) if the Company's products are
marketed under other parties' labels, goodwill associated with use of the
products may inure to the benefit of the other parties rather than the
Company; (iii) the Company may have only limited protection from changes in
manufacturing costs and raw materials costs; and (iv) if the Company is
reliant on other parties for all or substantially all of its sales, the
Company may be limited in its ability to negotiate with such other parties
upon any renewals of their agreements.
General and administrative expenses were $350,253 and $1,133,699 for the
three and nine months ended September 30, 1998, respectively, compared with
$146,108 and $733,846 for the comparable periods from the prior year. The
increase in expenditures between the 1998 and 1997 periods resulted primarily
from increases in salary and wage expenses as a result of hiring additional
accounting, management and clerical employees and increases in advertising and
consulting expenses. General and administrative expenses during 1997 were also
limited by a lack of available funds.
Research and development expenses were $324,887 and $764,709 for the
three and nine months ended September 30, 1998, respectively, compared with
$244,183 and $397,362 for the comparable periods from the prior year. The
increase in expenditures between the 1998 and 1997 periods resulted primarily
from increases in salary and wage expenses as a result of hiring additional
engineering personnel and increases in consulting, equipment and software
costs. Research and development expenses were also limited in 1997 by a lack
of available funds.
Net interest and other income was $6,024 and $20,022 for the three and
nine months ended September 30, 1998, respectively, compared with $(10,831)
for the comparable periods from the prior year. The difference in net interest
and other income between said periods relates mainly to interest earned on
funds on deposit. As funds on deposit have increased so has the net interest
income.
Liquidity and Capital Resources
To date, the Company has financed its operations principally through
private placements of equity securities and product sales. The Company
generated $4,109,466 in net proceeds through financing activities from
inception through September 30, 1998. The Company used net cash in operating
activities of $2,453,104 during the nine months ended September 30, 1998. As
of September 30, 1998, the Company's liabilities totaled $559,452. The Company
had working capital as of September 30, 1998 of $415,133.
The Company's working capital and other capital requirements for the
foreseeable future will vary based upon a number of factors, including the
costs to expand facilities, complete development and bring the certain product
utilizing the Technology to commercial viability and the level of sales of and
marketing for the Company's products. The Company believes that existing funds
and funds generated from sales will be sufficient to support the Company's
operations through 1998. With the award of the Supply Agreement, the Company
will need to materially increasing spending for additional facilities,
equipment and personnel. At a minimum the Company will need $5,000,000 in
additional funding to support its operations during 1999 and the Company needs
at least $8,000,000 in additional funding during 1999 to fully execute its
business plan.
<PAGE> 18
The Company is working to obtain this additional funding from several
sources, but it has no firm commitments with respect thereto and there can be
no assurance that additional funding will be available to the Company on
commercially reasonable terms or in the necessary amounts. Any inability to
obtain additional financing in the amounts described above will have a
material adverse effect on the Company, including possibly requiring the
Company to significantly curtail or cease its operations.
Year 2000
The Company uses computers principally for product design, product
prototyping and administrative functions such as communications, word
processing, accounting and management and financial reporting. The Company's
principal computer systems have been purchased since December 31, 1995. The
software utilized by the Company is generally standard "off the shelf"
software, typically available from a number of vendors. While the Company
believes it is taking all appropriate steps to assure year 2000 compliance, it
is dependent substantially on vendor compliance. The Company intends to modify
or replace those systems that are not year 2000 compliant. The Company is
verifying with its system and software vendors that the services and products
provided are, or will be, year 2000 compliant. The Company estimates that the
cost to redevelop, replace or repair its technology will not be material.
There can be no assurance, however, that such systems and/or programs are or
will be year 2000 compliant and that the failure of such would not have a
material adverse impact on the Company's business and operations.
In addition to its own computer systems, in connection with its business
activities, the Company interacts with suppliers, customers, creditors and
financial service organizations domestically and globally who use computer
systems. It is impossible for the Company to monitor all such systems, and
there can be no assurance that the failure of such systems would not have a
material adverse impact on the Company's business and operations. The Company
is currently evaluating what contingency plans, if any, to make in the event
the Company or parties with whom the Company does business experience year
2000 problems.
Forward-Looking Statements
When used in this Form 10-Q in other filings by the Company with the
SEC, in the Company's press releases or other public or stockholder
communications, or in oral statements made with the approval of an authorized
executive officer of the Company, the words or phrases "would be," "will
allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company cautions readers not to place undue reliance on any forward-
looking statements, which speak only as of the date made, are based on certain
assumptions and expectations which may or may not be valid or actually occur,
and which involve various risks and uncertainties, including but not limited
to risk of product demand, market acceptance, economic conditions, competitive
products and pricing, difficulties in product development, commercialization,
and technology, and other risks. In addition, sales and other revenues may not
commence and/or continue as anticipated due to delays or otherwise. As a
result, the Company's actual results for future periods could differ
materially from those anticipated or projected.
Unless otherwise required by applicable law, the Company does not
undertake, and specifically disclaims any obligation, to update any forward-
looking statements to reflect occurrences, developments, unanticipated events
or circumstances after the date of such statement.
<PAGE> 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
No change from descriptions contained in the Company's quarterly
report on Form 10-Q for the period ended June 30, 1998.
Item 2. Changes in Securities.
In August, 1998, stock options were exercised under the Company's
Omnibus Stock Option Plan to acquire 4,445 shares of the Company's common
stock for total proceeds of $720. The common stock was issued under Rule 506
of Regulation D and Section 4(2) of the Securities Act of 1993, as amended.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Securityholders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a)
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ---------- ----------------------
2.1 Agreement and Plan of Reorganization (Incorporated by
reference to Exhibit 2.1 of the Company's Current Report
on Form 8-K, dated April 9, 1998).
3(i).1 Restated Certificate of Incorporation of Micropoint.
3(i).2 Articles of Incorporation of Sensitron, Inc.
(Incorporated by reference to Exhibit 3(i).3 of the
Company's Annual Report on Form 10-KSB, dated March 31,
1998).
3(i).3 Articles of Incorporation of Flexpoint, Inc.
(Incorporated by reference to Exhibit 3(i).4 of the
Company's Annual Report on Form 10-KSB, dated March 31,
1998).
3(i).4 Articles of Incorporation of Technology and Machine
Company, Inc. (Incorporated by reference to Exhibit
3(i).5 of the Company's Annual Report on Form 10-KSB,
dated March 31, 1998).
3(ii).1 Restated and Amended Bylaws of Micropoint.
3(ii).2 Bylaws of Sensitron, Inc. (Incorporated by reference to
Exhibit 3(ii).2 of the Company's Annual Report on Form
10-KSB, dated March 31, 1998).
3(ii).3 Bylaws of Flexpoint, Inc. (Incorporated by reference to
Exhibit 3(ii).3 of the Company's Annual Report on Form
10-KSB, dated March 31, 1998).
<PAGE> 20
3(ii).4 Bylaws of Technology and Machine Company, Inc.
(Incorporated by reference to Exhibit 3(ii).4 of the
Company's Annual Report on Form 10-KSB, dated March 31,
1998).
10.1 Employment Agreement with Douglas M. Odom (Incorporated
by reference to Exhibit 10.1 of the Company's current
report on Form 8-K, dated April 9, 1998).
10.2 Lease Agreement between 72nd South Associates and the
Company (Incorporated by reference to Exhibit 10.2 of the
Company's current report on Form 8-K, dated April 9,
1998).
10.3 Agreement between Ohio Art and the Company (Incorporated
by reference to Exhibit 10.3 of the Company's current
report on Form 8-K, dated April 9, 1998).
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
A Form 8-K was filed on July 20, 1998 reporting on the Supply Agreement.
A Form 8-K/A was filed on September 10, 1998 amending a Report on Form
8-K reporting on the April 1998 reorganization.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MICROPOINT, INC.
Date: 11/13/98 By /s/ Douglas M. Odom
-----------------------
Douglas M. Odom
President, Chief Executive Officer, Director
Date: 11/13/98 By /s/ Thomas N. Strong
------------------------
Thomas N. Strong
Chief Accounting Officer
RESTATED
CERTIFICATE OF INCORPORATION
OF
MICROPOINT CORPORATION
Micropoint, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Micropoint, Inc. (the
"Corporation"). The Corpration was originally incorporated under the Nanotech,
Inc. and the original Certificate of Incorporation of the corporation was
filed with the Secretary of State of Delaware on June 15, 1992.
2. Pursuant to Section 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of
Incorporation of this corporation, as amended.
3. This restated Certificate of Incorporation supersedes the Original
Certificate of Incorporation and all amendments thereto and the Certificate of
Incorporation is hereby amended to read in its entirety as follows:
FIRST: The name of the Corporation is Micropoint, Inc.
SECOND: The address of the registered office of the Corporation is 9
East Loockerman Street, Dover, Delaware 19901 in the county of Kent. The name
of its registered agent at the address is National Registered Agents, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes which the Corporation
is authorized to have outstanding is One Hundred and One Million (101,000,000)
shares of which stock One Hundred and One Million (101,000,000) shares in the
par value of $.001 each, amounting in the aggregate of One Hundred Thousand
Dollars ($100,000)shall be common stock and of which One Million (1,000,000)
shares in the par value of $.001 each, amounting in the aggregate to One
Thousand Dollars ($1,000) shall be preferred stock.
The board of directors is authorized, subject to limitations prescribed
by law, to provide for the issuance of the authorized shares of preferred
stock in series, and by filing a certificate pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to
be included in each such series and the qualifications, limitations or
restrictions thereof. The authority of the board with respect to each series
shall include, but not be limited to, determination of the following:
<PAGE>
(a) The number of shares constituting that series and the distinctive
designation ofthat series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(C) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or date
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions, and
at different redemption rates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights of priority, if any, of payment of shares of that series;
(h) Any other relative rights, preferences and limitations of that
series, unless otherwise provided by the certificate of determination.
FIFTH: The business and affairs of the corporation shall be managed
under the direction of the Board of Directors. The exact number of Directors
shall be fixed from time to time by, or in the manner provided in the Bylaws
of the Corporation and may be increased or decreased as therein provided.
Directors of the corporation need not be elected by ballot unless required by
the Bylaws.
The Directors shall be divided into three classes. Each such class shall
consist, as nearly as may be possible of one-third of the total number of
directors, and any remaining directors shall be included within such group or
groups as the board of directors shall designate. A class of directors shall
be elected for a one-year term, a class of directors for a two-year term and a
class of directors for a three-year term. At each succeeding annual meeting of
stockholders, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly
equal as possible, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director. A director may be removed from
office for cause only and subject to such removal, death, resignation,
retirement or disqualification, shall hold office until the annual meeting for
the year in which his or her term
<PAGE>
expires and until his or her successor shall be elected and qualified. No
alteration, amendment or repeal of this Article FIFTH or the Bylaws of the
corporation shall be effective to shorten the term of any director holding
office at the time of such alteration, amendment or repeal, to permit any such
director to be removed without cause, or to increase the number of directors
in any class or in the aggregate from that existing at the time of such
alteration, amendment or repeal, until the expiration of the terms of office
of all directors then holding office, unless (1) in the case of this Article
FIFTH, such alteration, amendment or repeal has been approved by the
affirmative vote of two-thirds of the shares of stock of the corporation
outstanding and entitled to vote thereon, or (ii) in the case of the Bylaws,
such alteration amendment or repeal has been approved by either the
affirmative vote of two-thirds the holders of all shares of stock of the
corporation outstanding and entitled to vote thereon or by a vote of a
majority of the entire board of directors.
To the extent that any holders of any class or series of stock other than
Common Stock issued by the corporation shall have the separate right, voting
as a class or series, to elect directors, the directors elected by such class
or series shall be deemed to constitute an additional class of directors and
shall have a term of office for one year or such other period as may be
designated by the provisions of such class or series providing such separate
voting right to the holders of such class or series of stock, and any such
class of directors shall be in addition to the classes designated above. Any
such directors so elected shall be subject to removal in such manner as may be
provided by law.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, repeal,
alter, amend and rescind the bylaws of the corporation.
SEVENTH: A director of the corporation shall not be personally liable
for monetary damages to the corporation or its stockholders for breach of any
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derives an
improper personal benefit.
EIGHTH: A director or officer of the corporation shall not be
disqualified by his or her office from dealing or contracting with the
corporation as a vendor, purchaser, employee, agent or otherwise. No
transaction, contract or act of the corporation shall be void or voidable or
in any way affected or invalidated by reason of the fact that any director or
officer of the Corporation is a member of any firm, a stockholder, director or
officer of any corporation or trustee or beneficiary of any trust that is in
any way interested in such transaction, contract or act. No director or
officer shall be accountable or responsible to the corporation for or in
respect to any transaction, contract or act of the corporation or for any gain
or profit directly or indirectly realized by him or her by reason of the fact
that he or she or any firm in which he or she is a member or any corporation
of which he or she is a stockholder, director, or officer, or any trust of
which he or she is a trustee, or beneficiary, is interest in such transaction,
contract or act; provided the fact that such director or officer or such firm,
corporation, trustee or beneficiary of such trust, is so interest shall have
been disclosed or shall have been known to the members of the board of
directors as shall be present at any meeting at which action upon such
contract, transaction or act shall have been taken. Any
<PAGE>
director may be counted in determining the existence of a quorum at any
meeting of the board of directors which shall authorize or take action in
respect to any such contract, transaction or act, and may vote there at to
authorize, ratify or approve any such contract, transaction or act, and any
officer of the corporation may take any action within the scope of his or her
authority, respecting such contract, transaction or act with like force and
effect as if he or she or any firm of which he or she is a member, or any
corporation of which he or she is a stockholder, director or officer, or any
trust of which he or she is a trustee or beneficiary, were not interested in
such transaction, contract or act. Without limiting or qualifying the
foregoing, if in any judicial or other inquiry, suit, cause or proceeding, the
question of whether a director or officer of the corporation has acted in good
faith is material, and notwithstanding any statue or rule of law or equity to
the contrary (if any there be) his or her good faith shall be presumed in the
absence of proof to the contrary by clear and convincing evidence.
NINTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the corporation under the provisions of Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors of
class of creditors, and/or the stockholders or class of stockholders of the
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the corporation, as the case may be,
and also on the corporation.
TENTH: The corporation reserves the right to amend and repeal any
provision contained in this certificate of incorporation in the manner
prescribed by the laws of the State of Delaware. All rights herein conferred
are granted subject to this reservation.
ELEVENTH: [Section Reserved].
TWELFTH: No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
IN WITNESS WHEREOF, the undersigned signs and executes this Restated
<PAGE>
Certificate of Incorporation and certifies to the truth of the facts herein
stated and that this Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of the Delaware General Corporation Law, this
_____ day of November, 1998
/s/ Doug Odom
----------------------------------
Doug Odom
President
ATTEST:
_________________________________
Secretary
AMENDED AND RESTATED
BYLAWS FOR THE REGULATION, EXCEPT AS
OTHERWISE PROVIDED BY STATUTE OR ITS
CERTIFICATE OF INCORPORATION, OF
MICROPOINT CORPORATION
a Delaware corporation
ARTICLE I
OFFICES
--------
Section 1. Principal Executive Office. The principal executive office of
the corporation shall be located as directed by the board of directors.
Section 2. Other Offices. Other business offices may at any time be
established by the board of directors at any place or places by them or where
the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. All meetings of stockholders shall be held
at the principal executive office of the corporation, or at any other place
within or without the State of Delaware which may be designated either by the
board of directors or by the written consent of all persons entitled to vote
there at and not present at the meeting, given either before or after the
meeting and filed with the secretary of the corporation.
Section 2. Annual Meetings. The annual meetings of stockholders shall be
fixed by the board of directors. At such meetings directors shall be elected,
reports of the affairs of the corporation shall be considered, and any other
business may be transacted which is within the powers of the stockholders.
Section 3. Special Meetings. Special meetings of the stockholders, for the
purpose of taking any action permitted by the stockholders under the Delaware
General Corporation Law and the certificate of incorporation of the
corporation, may be called at any time by the chairman of the board or the
president, or by the board of directors, or by one or more holders of shares
entitled to cast in the aggregate not less than twenty percent (20%) of the
votes at the meeting. Upon request in writing that a special meeting of
<PAGE>
stockholders be called for any proper purpose, directed to the chairman of the
board, president, vice president or secretary by any person (other than the
board of directors) entitled to call a special meeting of stockholders, the
officer forthwith shall cause notice to be given to stockholders entitled to
vote that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after receipt of the request.
Section 4. Notice of Annual or Special Meeting. Written notice of each
annual or special meeting of stockholders shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote there at. Such written notice shall be given
either personally or by mail or other means of written communication, charges
prepaid, addressed to such stockholder at his address appearing on the books
of the corporation or given by him to the corporation for the purpose of
notice. If any notice or report addressed to the stockholder at the address of
such stockholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service as unable to deliver the
notice or report to the stockholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if the
same shall be available for the stockholder upon written demand of the
stockholder at the principal executive office of the corporation for a period
of one (1) year from the date of the giving of the notice or report to all
other stockholders. If a stockholder gives no address, notice shall be deemed
to have been given him if sent by mail or other means of written communication
addressed to the place where the principal executive office of the corporation
is situated, or if published at least once in some newspaper of general
circulation in the county in which said principal executive office is located.
Any such notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of
written communication. An affidavit of mailing of any such notice in
accordance with the foregoing provisions, executed by the secretary, assistant
secretary or any transfer agent of the corporation, shall be prima facie
evidence of the giving of the notice.
Section 5. Quorum. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business at any meeting of stockholders. The
stockholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the
shares required to constitute a quorum.
<PAGE>
Section 6. Adjourned Meeting and Notice Thereof. Any stockholders'
meeting, annual or special, whether or not a quorum is present, may be
adjourned from time to time by the vote of a majority of the shares, the
holders of which are either present in person or represented by proxy there
at, but in the absence of a quorum at the commencement of the meeting, no
other business may be transacted at such meeting.
When any stockholders' meeting, either annual or special, is adjourned
for thirty (30) days or more, or if after adjournment a new record date is
fixed for the adjourned meeting, notice of the adjourned meeting shall be
given as in the case of an original meeting. Except as provided above, it
shall not be necessary to give any notice of the time and place of the
adjourned meeting or of the business to be transacted there at, other than by
announcement of the time and place thereof at the meeting at which such
adjournment is taken.
Section 7. Voting. The stockholders entitled to vote at any meeting
of stockholders shall be determined in accordance with the Delaware General
Corporation Law (relating to voting of shares held by a fiduciary, in the name
of a corporation, or in joint ownership). The stockholders may vote by voice
vote or by ballot; provided, however, that all elections for director shall be
by ballot. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter shall be
the act of the stockholders, unless the vote of a greater number of voting by
classes is required by the Delaware General Corporation Law or the certificate
of incorporation.
Section 8. Validation of Defectively Called or Noticed Meeting. The
transactions of any meeting of stockholders, either annual or special, however
called and noticed, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum be present either in person or by
proxy, and if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy, or who, though present,
has, at the beginning of the meeting, properly objected to the transaction of
any business because the meeting was not lawfully called or convened, or to
particular matters of business legally required to be included in the notice,
but not so included, signs a written waiver of notice, or a consent to the
holding of such meeting, or an approval of the minutes thereof All such
waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. Neither the business to be
transacted at nor the purpose of any regular or special meeting of
stockholders need be specified in any written waiver of notice or consent, the
waiver of notice or consent shall state the general nature of the proposal.
<PAGE>
Section 9. Action Without Meeting. No action required to be taken or
which may be taken at any annual or special meeting of stockholders of the
Corporation may be taken without a meeting, and the power of stockholders to
consent in writing, without a meeting, to the taking of any action is
specifically denied.
Section 10. Proxies. Every person entitled to vote or execute consents
shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or his duly authorized
agent and filed with the secretary of the corporation. Subject to the Delaware
General Corporation Law in the case of any proxy which states that it is
irrevocable, any proxy duly executed shall continue in full force and effect
until (i) an instrument revoking it or a duly executed proxy bearing a later
date is filed with the secretary of the corporation prior to the vote pursuant
thereto, (ii) the person executing the proxy attends the meeting and votes in
person, or (iii) written notice of the death or incapacity of the maker of
such proxy is received by the corporation before the vote pursuant thereto is
counted; provided that no such proxy shall be valid after the expiration of
three (3) years from the date of its execution, unless otherwise provided for
in the proxy. The dates contained on the forms of proxy shall presumptively
determine the order of execution of the proxies, regardless of the postmark-
dates on the envelopes in which they are mailed.
Without limiting the manner in which a stockholder may authorize another
person or persons to act for him as proxy, the following shall constitute a
valid means by which a stockholder may grant such authority.
(a) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing by
any reasonable means including, but not limited to, by facsimile signature.
(b) A stockholder may authorize another person or persons to act for him
as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, provided that any such
telegram, cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined that
the telegram, cablegram or other electronic transmission was authorized by the
stockholder. If it is determined that such telegrams, cablegrams or
<PAGE>
other electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied.
(C) Any copy, facsimile telecommunication or other reliable reproduction
of the writing or transmission described in Paragraphs (a) or (b) may be
substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or
transmission.
Section 11. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint any person or persons other
than nominees for office as inspectors of election to act at such meeting or
any adjournment thereof. If inspectors of election be not so appointed, the
chairman of any such meeting may, and on the request of any stockholder or his
proxy shall, make such appointment at the meeting. The number of inspectors
shall be either one (1) or three (3). If appointed at a meeting on the request
of one or more stockholders or proxies, the majority of shares represented in
person or by proxy shall determine whether one (1) or three (3) inspectors are
to be appointed. In case any person appointed as inspector fails to appear or
fails or refuses to act, the vacancy may, and on the request of any
stockholder or a stockholder's proxy shall, be filled by appointment by the
board of directors in advance of the meeting, or at the meeting by the
chairman of the meeting.
The duties of such inspectors shall be as prescribed by the Delaware
General Corporation Law and shall include: determining the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies; receiving votes, ballots or consents; hearing and determining all
challenges and questions in any way arising in connection with the right to
vote; counting and tabulating all votes or consents; determining when the
polls shall close; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all stockholders.
The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three (3) inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
<PAGE>
Section 12. Record Date for Stockholder Notice, Voting and Giving
Consents. For purposes of determining the stockholders entitled to notice of
any meeting or to vote, the board of directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the meeting, and in this event only stockholders of record on the date
so fixed are entitled to notice and to vote or to give consents, as the case
may be, notwithstanding any transfer or any shares on the books of the
corporation after the record date, except as otherwise provided in the
Delaware General Corporation Law.
If the Board of Directors does not so fix a record date the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
Section 13. Notice of Stockholder Action. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors,
(b) otherwise properly brought before the meeting by or at the direction of
the Board of Directors, or (c) otherwise properly brought before the meeting
by a stockholder. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation, not less than 50 days nor more than 80 days prior
to the meeting; provided, however, that in the event that less than 60 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 10th day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting; (b) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business; (c) the class and number of shares
of the Corporation which are beneficially owned by the stockholder; and (d)
any material interest of the stockholder in such business. Notwithstanding
anything in the Bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
Section 13. The Chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
<PAGE>
before the meeting and in accordance with the provisions of this Section 13,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
ARTICLE III
DIRECTORS
---------
Section 1. Powers. Subject to the provisions of the Delaware General
Corporation Law, and to any limitations in the certificate of incorporation
and these bylaws, relating to action required to be approved by the
stockholders or approved by the outstanding shares, all corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
corporation shall be managed by, the board of directors. Without prejudice to
such general powers, but subject to the same limitations, it is hereby
expressly declared that the board of directors shall have the following
powers, to wit:
(a) To select and remove all the officers, agents and employees of the
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the certificate of incorporation or with these
bylaws, fix their compensation and require from them security for faithful
service.
(b) To conduct, manage and control the affairs and business of the
corporation, and to make such rules and regulations therefor not inconsistent
with law, or with the certificate of incorporation or with these bylaws, as
they may deem best.
(C) To change the principal executive office and principal office for
the transaction of the corporation from one location to another; to fix and
locate from time to time one or more subsidiary offices of the corporation
within or without the State of Delaware; to designate any place within or
without the State of Delaware for the holding of any stockholders' meeting or
meetings; and to adopt, make and use a corporate seal, and to prescribe the
forms of certificates of stock, and to alter the form of such seal and of such
certificates from time to time, as in their judgment they may deem best,
provided such seal and such certificates shall at all times comply with the
provisions of law.
(d) To authorize the issuance of shares of stock of the corporation from
time to time, upon such terms as may be lawful.
<PAGE>
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecation's or other evidences of debt and securities
therefor.
Section 2. Number and Qualification of Directors. The authorized number
of directors shall be no less than one, and shall be such maximum number of
persons as may be determined from time to time by resolutions of the board of
directors.
Section 3. Election and Term of Office. The directors shall be divided
into three classes. Each such class shall consist, as nearly as may be
possible, of one-third of the total number of directors, and any remaining
directors shall be included within such group or groups as the board of
directors shall designate. A class of directors shall be elected for a one-
year term, a class of directors for a two-year term and a class of directors
for a three-year term. At each succeeding annual meeting of stockholders,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal an possible,
but in no case shall a decrease in the number of directors shorten the term or
any incumbent director. A director may be removed from office for cause only
and subject to such removal, death, resignation, retirement or
disqualification, shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and qualified.
To the extent that any holders of any class or series of stock other than
Common Stock issued by the corporation shall have the separate right, voting
as a class or series, to elect directors, the directors elected by such class
or series shall be deemed to constitute an additional class of directors and
shall have a term of office for one year or such other period as may be
designated by the provisions of such class or series providing such separate
voting right to the holders of such class or series of stock, and any such
class of directors shall be in addition to the classes designated above. Any
such directors so elected shall be subject to removal in such manner as may be
provided by law.
Section 4. Vacancies. A vacancy in the board of directors shall be
deemed to exist in case of the death, resignation or removal of any director,
or if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by order of court or convicted
of a felony, or if the authorized number of directors be increased, or if the
stockholders fail, at any annual or special meeting of stockholders at which
any director or directors are elected, to elect the full authorized number of
directors to be voted for at that meeting.
<PAGE>
Vacancies in the board of directors, except for a vacancy created by the
removal of a director, may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each director
so elected shall hold office until his successor is elected at an annual or a
special meeting of the stockholders. A vacancy in the board of directors
created by the removal of a director may only be filled by the vote of a
majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present, or by the written consent of the holders of a
majority of the outstanding shares entitled to vote.
The stockholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors. Any such election by
written consent shall require the consent of holders of a majority of the
outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the
chairman of the board, the chief executive officer, the president, the
secretary or the board of directors of the corporation, unless the notice
specifies a later time for the effectiveness of such resignation. If the board
of directors accepts the resignation of a director tendered to take effect at
a future time, the board of directors or the stockholders shall have power to
elect a successor or take office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of his term of office.
Section 5. Place of Meeting. Regular meetings of the board of directors
shall be held at any place within or without the State of Delaware which has
been designated from time to time by resolution by the board or by written
consent of all members of the board of directors. In the absence of such
designation, regular meetings shall be held at the principal executive office
of the corporation. Special meetings of the board may be held either at a
place so designated or at the principal executive office.
Section 6. Annual Meeting. Immediately following each annual meeting of
stockholders, the board of directors shall hold a regular meeting at the place
of said annual meeting or at such other place as shall be fixed by the board
of directors, for the purpose of organization, election of officers, and the
transaction of other business. Call and notice of such meetings are hereby
dispensed with.
Section 7. Other Regular Meetings. Other regular meetings of the board
of directors shall be held without call on the date and at the time which the
board of directors may from time to time designate; provided, however, that
should the day so designated fall upon a Saturday, Sunday or legal holiday
observed by the corporation at its principal executive office, then said
meeting shall be held at the same time on the next day thereafter
<PAGE>
ensuing which is a full business day. Notice of all such regular meetings of
the board of directors is hereby dispensed with.
Section 8. Special Meetings. Special meetings of the board of
directors for any purpose or purposes shall be called at any time by the
chairman of the board, the president, any vice president, the secretary or by
any director.
Special meetings of the board of directors shall be held upon four (4)
days' written notice or forty-eight (48) hours' notice given personally or by
telephone, telegraph, telex or other similar means of communication. Any such
notice shall be addressed or delivered to each director at such director's
address as it is shown upon the records of the corporation or as may have been
given to the corporation by the director for purposes of notice or, if such
address is not shown on such records or is not readily ascertainable, at the
place in which the meetings of the directors are regularly held.
Notice by mail shall be deemed to have been given at the time a written
notice is deposited in the United States mail, postage prepaid. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient. Oral notice shall be deemed to have been
given at the time it is communicated to the recipient or to a person at the
office of the recipient who the person giving the notice has reason to believe
will promptly communicate it to the recipient.
Any notice shall state the date, place and hour of the meeting. Notice
given to a director in accordance with this section shall constitute due,
legal and personal notice to such director.
Section 9. Action at a Meeting: Quorum and Required Vote. The
presence of a majority of the authorized number of directors at a meeting of
the board of directors constitutes a quorum for the transaction of business,
except as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the board of directors, unless a
greater number, or the same number, after disqualifying one or more directors
from voting, is required by law, by the certificate of incorporation or by
these bylaws. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, provided that
any action taken is approved by at least a majority of the required quorum for
such meeting.
Section 10. Validation of Defectively Called or Noticed Meetings. The
transactions of any meeting of the board of directors, however called and
<PAGE>
noticed or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum is present and if, either
before or after the meeting, each of the directors not present or who, though
present, has prior to the meeting or at its commencement, protested the lack
of proper notice to him, signs a written waiver of notice or a consent to
holding such meeting or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes or the meeting.
Section 11. Adjournment. A majority of the directors present, whether
or no constituting a quorum, may adjourn any board of directors' meeting to
another time or place.
Section 12. Notice of Adjournment. If a meeting is adjourned for more
than twenty-four (24) hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the
directors who were not present at the time of adjournment; otherwise, notice
of the time and place of holding an adjourned meeting need not be given to
absent directors if the time and place be fixed at the meeting adjourned.
Section 13. Participation in Meetings by Conference Telephone. Members
of the board of directors may participate in a meeting through use of
conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participating in a
meeting as permitted in this Section constitutes presence in person at such
meeting.
Section 14. Action Without Meeting. Any action by the board of
directors may be taken without a meeting if all members of the board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
board and shall have the same force and effect as a unanimous vote of such
directors.
Section 15. Fees and Compensation. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
board of directors.
Section 16. Committees. The board of directors may, by resolution
adopted by a majority of the authorized number of directors, designate an
executive and other committees, each consisting of two (2) or more directors,
to serve at the pleasure of the board of directors, and may prescribe the
manner in which proceedings of any such committee meetings of such committee
may be regularly scheduled in advance and may be called at any time by any two
(2) members thereof; otherwise, the provisions of these bylaws with respect to
notice and conduct of meetings of the board of
<PAGE>
directors shall govern. Any such committee, to the extent provided in a
resolution of the board of directors, shall have all of the authority of the
board of directors, except as limited by the Delaware General Corporation Law.
ARTICLE IV
OFFICERS
--------
Section 1. Officers. The officers of the corporation shall be a chief
executive officer, a president, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, a
chairman of the board, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other officers. as may
be appointed in accordance with the provisions of Section 3 of this Article.
Any number of offices may be held by the same person.
Section 2. Election. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 6 of this Article, shall be chosen annually by, and shall serve at the
pleasure of, the board of directors, and each shall hold his office until he
or she shall resign or shall be removed or otherwise disqualified to serve, or
his or her successor shall be elected and qualified.
Section 3. Subordinate Officer. The board of directors or the chief
executive officer may appoint such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in these bylaws or as
the board of directors may from time to time determine.
Section 4. Removal and Resignation. Subject to the rights, if any, of
an officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors, at any regular or
special meeting thereof, or, except in case of an officer chosen by the board
of directors, by any officer upon whom such power or removal may be conferred
by the board of directors.
Any officer may resign at any time by giving written notice to the board
of directors, or to the president or to the secretary of the corporation. Any
resignation is without prejudice to the rights, if any, of the corporation
under any contract to which such officer is a party. Any such resignation
shall take effect at the date of the receipt of such notice or at any later
time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these bylaws for regular election or appointment to
such office.
<PAGE>
Section 6. Chairman of the Board. The chairman of the board, if there
be such an office, shall preside at all meetings of the board of directors and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the board of directors or prescribed by these bylaws.
Section 7. Chief Executive Officer. Subject to such supervisory powers,
if any, as may be given by the board of directors to the chairman of the
board, if there be such an officer, the chief executive officer shall be the
chief executive officer of the corporation and shall, subject to the control
of the board of directors, have general supervision, direction and control of
the business and officers of the corporation. He shall preside at all meetings
of the stockholders and at all meetings of the board of directors. He shall be
ex officio a member of all the standing committees, including the executive
committee, if any, and shall have the general power and duties of management
usually vested in the office of president of a corporation, and shall have
such other powers and duties as may be prescribed by the board of directors or
these bylaws.
Section 8. President. The president shall be the chief operating
officer of the corporation, and in the event of absence or disability of the
chief executive officer, or if no chief executive officer has been appointed
by the board of directors, shall perform all the duties of the chief executive
officer, and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the chief executive officer.
Section 9. Vice Presidents. In the absence or disability of the
president, the vice presidents in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, if there be such an officer or officers, shall perform all the
duties of the president, and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents,
if there be such an officer or officers, shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the board of directors or these bylaws.
Section 10. Secretary. The secretary shall record or cause to be
recorded, and shall keep or cause to be kept, at the principal executive
office or such other place as the board of directors may order, a book of
minutes of all meetings and actions, of the stockholders, the board directors
and all committees thereof, with the time and place of holding of meetings,
whether regular or -special, and, if special, how authorized, the notice
thereof given, the names of those present at directors' meetings, the number
of shares present or represented at stockholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent, or registrar, if
one be appointed, a share register, or a duplicate share register, showing the
names of the stockholders and their addresses, the number and classes of
shares held by each, the number and date of certificates issued for the same,
and the number and date of cancellation of every certificate surrendered for
cancellation.
Section 11. Chief Financial Officer. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and colored
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares. The books of account shall at
all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
Section 12. Assistant Secretaries and Assistant Treasurers. In the
absence or disability of the secretary or the chief financial officer, their
duties shall be performed and their powers exercised, respectively, by any
assistant secretary or any assistant treasurer which the board of directors
may have elected or appointed. The assistant secretaries and the assistant
treasurers shall have such other duties and powers as may have been delegated
to them, respectively, by the secretary or the chief financial officer or by
the board of directors.
ARTICLE V
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS
------------------------------------
Section 1. Definitions. For the purpose of this Article V, "agent"
means any person who is or was a director, officer, employee or other agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or was a
director, officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation; "proceeding" means
any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative; and "expenses" includes, without
limitation, attorneys' fees and any expenses of establishing a right to
indemnification under Section 4 or Section 5(c) of this Article V.
Section 2. Actions by Third Parties. The corporation shall indemnify
any person who was or is a party, or is threatened to be made a party, to any
proceeding (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was an agent of the corporation,
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding to the fullest extent
permitted by the laws of the State of Delaware as they may exist from time to
time.
Section 3. Actions by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or completed action by or in
the right of the corporation to procure a judgment in its favor by reason of
the fact that such person is or was an agent of the corporation, against
expenses actually and reasonably incurred by such person in connection with
the defense or settlement of such action to the fullest extent permitted by
the laws of the State of Delaware as they may exist from time to time.
Section 4. Advance of Expenses. Expenses incurred in defending any
proceeding may be advanced by the corporation prior to the final disposition
of such proceeding upon receipt of a request therefor and an undertaking by or
on behalf of the agent to repay such amount unless it shall be determined
ultimately that the agent is not entitled to be indemnified as authorized in
this Article V.
Section 5. Contractual Nature. The provision of this Article V shall
be deemed to be a contract between the corporation and each director and
officer who serves in such capacity at any time while this Article is in
effect, and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore existing or
any action, suit or proceeding theretofore or thereafter brought based in
whole or in part upon any such state of facts.
Section 6. Insurance. Upon and in the event of a determination by the
board of directors to purchase such insurance, the corporation shall purchase
and maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such whether or not the corporation would
have the power to indemnify the agent against such liability under the
provisions of this Article V. All amounts received by an agent under any such
policy of insurance shall be applied against, but shall not limit, the amounts
to which the agent is entitled pursuant to the foregoing provisions of this
Article V.
<PAGE>
Section 7. ERISA. To assure indemnification under this provision of all
such persons who are or were "fiduciaries" of an employee benefit plan
governed by the Employee Retirement Income Security Act of 1974, as amended
from time to time ("ERISA"), the provisions of this Article V shall, except as
limited by Section 410 of ERISA, be interpreted as follows: an "other
enterprise" shall be deemed to include an employee benefit plan; the
corporation shall be deemed to have requested a person to serve as an employee
of an employee benefit plan where the performance by such person of his duties
to the corporation also imposes duties on, or otherwise involves services by ,
such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on a person with respect to an employee benefit plan in the
performance of such person's duties for a purpose reasonably believed by such
person to be in compliance with ERISA and the terms of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
corporation.
ARTICLE VI
GENERAL CORPORATE MATTERS
-------------------------
Section 1. Record Date for Purposes Other Than Notice and Voting. For
purposes of determining the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any right in respect of any other lawful action (other than as
provided in Section 12 of Article II of these bylaws), the board of directors
may fix, in advance, a record date, which shall not be more than sixty (60)
days before any such action, and in that case only stockholders of record on
the date so fixed are entitled to receive the dividend, distribution, or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided in the Delaware
General Corporation Law.
If the board of directors does not so fix a record date, the record date
for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
Section 2. Inspection of Corporate Records. The accounting books and
records, the records of stockholders, and minutes of proceedings of the
stockholders and the board and committees of the board of directors of the
corporation and any subsidiary of the corporation shall be open to inspection
upon the written demand on the corporation of any stockholder or holder of a
voting trust certificate at any reasonable time during usual business hours,
for a purpose reasonably related to such holder's interests as a share-holder
or as the holder of such voting trust certificate. Such inspection by a
stockholder or
<PAGE>
holder of a voting trust certificate may be made in person or by an agent or
attorney, and the right of inspection includes the right to copy and make
extracts.
A stockholder or stockholders holding at least five percent (5%) in the
aggregate of the outstanding voting shares of the corporation or who hold at
least one percent (1%) of such voting shares and have filed a Schedule 14B
with the United States Securities and Exchange Commission relating to the
election of directors of the corporation shall have (in person, or by agent or
attorney) the right to inspect and copy the record of stockholders' names and
addresses and shareholdings during usual business hours upon five (5) business
days' prior written demand upon the corporation and to obtain from the
transfer agent, if any, for the corporation, upon written demand and upon the
tender of its usual charges, a list of the stockholders' names and addresses,
who are entitled to vote for the election of directors, and their
shareholdings, and of the most recent record date for which it has been
compiled or as of a date specified by the stockholder subsequent to the date
of demand. The list shall be made available on or before the later of five (5)
business days after the demand is received or the date specified therein as
the date as of which the list is to be compiled.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation. Such inspection by a director may
be made in person or by agent or attorney, and the right of inspection
includes the right to copy and make extracts.
Section 3. Inspection of Bylaws. The corporation shall keep in its
principal executive office the original or a copy of the bylaws as amended or
otherwise altered to date, certified by the secretary, which shall be open to
inspection by the stockholders at all reasonable times during office hours.
Section 4. Checks, Drafts, Etc. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person
or persons and in such manner as, from time to time, shall be determined by
resolution of the board of directors.
Section 5. Contracts and Instruments; How Executed. The board of
directors, except as in these bylaws otherwise provided, may authorize any
officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or to any amount.
<PAGE>
Section 6. Certificate for Shares. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the chairman of the board or the president or a vice president
and by the chief financial officer or an assistant treasurer or the secretary
or any assistant secretary, certifying the number of shares and the Class or
series of shares owned by the stockholder. Any of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same
effect as if such person were an officer, transfer agent or registrar at the
date of issue.
Any such certificate shall also contain such legend or other statement as
may be required by applicable state securities laws, the federal securities
laws, and any agreement between the corporation and the stockholders thereof.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the board of directors or these bylaws
may provide; provided, however, that on any certificate issued to represent
any partly paid shares, the total amount of the consideration to be paid
therefor and the amount paid thereon shall be stated.
Except as provided in this Section 6, no new certificate for shares shall
be issued in lieu of an old one unless the latter is surrendered and canceled
at the same time. The board of directors may, however, in case any certificate
for shares is alleged to have been lost, stolen, or destroyed, authorize the
issuance of a new certificate in lieu thereof, and the corporation may require
that the corporation be given a bond or other adequate security sufficient to
indemnify it against any claim that may be made against it (including expense
or liability) on account of the alleged loss, theft, or destruction of such
certificate of the issuance of such new certificate.
Section 7. Representation of Shares of Other Corporations. The
president or any other officer or officers authorized by the board of
directors or the president are each authorized to vote, represent and exercise
on behalf of the corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such officer in person
or by any other person authorized so to do by proxy or power of attorney duly
executed by said officer.
Section 8. Construction and Definitions. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the Delaware General Corporation Law shall govern the
construction of these bylaws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the
<PAGE>
singular number includes the plural and the plural number includes the
singular, and the term "person" includes a corporation as well as a natural
person.
ARTICLE VII
AMENDMENTS TO BYLAWS
--------------------
Section 1. Amendment by Stockholders. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the certificate of incorporation of the corporation sets
forth the number of authorized directors of the corporation, the authorized
number of directors may be changed only by an amendment of the certificate of
incorporation.
Section 2. Amendment by Directors. The board of directors is
expressly authorized to make, repeal, alter, amend and rescind the bylaws of
the corporation.
/s/ Doug Odom
-------------
Doug Odom
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the nine month period ended September 30, 1998, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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<RECEIVABLES> 386,648
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<DEPRECIATION> 280,979
<TOTAL-ASSETS> 2,160,026
<CURRENT-LIABILITIES> 559,452
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0
0
<COMMON> 15,860
<OTHER-SE> 1,584,714
<TOTAL-LIABILITY-AND-EQUITY> 2,160,026
<SALES> 1,052,009
<TOTAL-REVENUES> 1,314,509
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<TOTAL-COSTS> 1,898,408
<OTHER-EXPENSES> 2,046
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<INTEREST-EXPENSE> 22,739
<INCOME-PRETAX> (1,172,542)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,172,542)
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<NET-INCOME> (1,172,542)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
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