FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] 15,ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: 10/31/97
OR
[ ] 15,TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission file number: 0-25614
GLOBUS CELLULAR & USER PROTECTION, LTD.
(FORMERLY LERIDGES INTERNATIONAL, INC.)
(Exact name of Small Business Company in its charter)
NEVADA 88-0228274
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1980 Windsor Road
Kelowna, British Columbia, Canada V1Y 4R5
(Address of principal executive offices) (Zip Code)
Company's Telephone number, including area code:
(604) 860-3130
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $.001 par value
Warrants to purchase $.001 par
value Common Stock
Check whether the Company (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or such shorter period that the Company was required to file such
reports), and (2) has been subject to such filing requirements for at least
the past 90 days. Yes __x__ No _____
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ x ]
The Company's revenues for its most recent fiscal year was $123,073.
As of October 31, 1997, the market value of the Company's voting $.00l par
value common stock held by non-affiliates of the Company was $6,627,702.
The number of shares outstanding of Company's only class of common stock, as
of October 31,1997 was 6,960,813 shares of its $.001 par value common stock.
Check whether the Issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes __x__ No _____
No documents are incorporated into the text by reference.
Transitional Small Business Disclosure Format (check one)
Yes No x
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<PAGE> 2
PART I
ITEM 1. BUSINESS General
Globus Cellular & User Protection Ltd. ("Company"), formerly Leridges
International, Inc., was incorporated on June 10, 1987, under the laws of
the State of Nevada under the name Daytona-Pacific Corporation. On July 31,
1989, Company changed its name to Leridges International, Inc. On March
4, 1993, Company filed a Chapter 11 petition for protection under the U.S.
Bankruptcy laws and subsequently filed a Plan of Reorganization, which was
approved by the U.S. Bankruptcy Court on October 18, 1994. The Plan
provided for Company to acquire all of the assets of Globus Cellular
& User Protection Ltd. (Canada), a corporation formed in the Province of
British Columbia, Canada on July 28, 1993, in consideration of Company's
issuance of 2,880,000 Units of its Common Stock. Also approved in the Plan
was a change of Company's name to Globus Cellular & User Protection Ltd
Employees
Company has five full-time employees and three part-time employees. All of
these part-time employees are used on an as-needed basis for research and
development. These employees include third and fourth year Physics students
at Okanagan University College. The remaining part-time person is employed as
a bookkeeper.
Competition
The Company is not aware of any direct competition to its cellular mega range
Reduced radiation antenna technology with its patents pending. The mega
range antenna is a refractive radiation reducing plastics product. The
Company also has an x-ray products division selling to private clinics.
There are competitors to this product. Any competition with similar
products, if any, would be on the basis of price and quality of the products.
Principal Product
The Company is currently engaged in the research and development of its low
radiation mega range antenna technology and marketing its exclusive line
of x-ray film and chemistry under the "Globus" label to private
clinics.
The Company originally started out by manufacturing a shielding product as
an aftermarket add on for cellular phones and sold its entire inventory of
25,000 of the shielding product.
The United States Federal Communications Commission, on August 16, 1996,
came out with new stringent guidelines for the cellular industry
manufacturers of phone devises requiring that these products not exceed
certain radiation exposure levels to users. These guidelines force
manufacturers into compliance by either tuning down the output of the
phones or redesigning the antennas to reduce exposure to users.
The Company's testing capability for its antenna technology has been developed
with the assistance of Canada's National Research Counsel, providing grant
monies as well as assisting the Company in its relationship with the
Department of Physics of Okanagan University in British Columbia. The
Okanagan University Department of Physics published a paper in 1996
citing mega range antenna as substantially reducing human tissue
absorption of radiation while increasing the performance of the cellular
phone compared to a leading manufacturer's cellular phone product.
Patents
Dr. Paul F. Bickert, an officer, director and principal shareholder
of Company, is the owner of three patents currently pending on the
product in both the U.S. and Canada. On January 1, 1994, a Company
entered into a License of Technology Agreement ("License Agreement")
with Dr. Bickert granting Company the exclusive worldwide rights to
use the technology and proprietary knowledge to develop, produce,
manufacture, use, sell or otherwise commercially exploit the technology
and patents using the technology. The Agreement is in effect for a period of
eight (8) years with an option to renew for an additional five (5) years.
All patents pending are attached to Dr. Bickert's parent application filed in
1994. Under the terms of the License Agreement, Dr. Bickert will receive
the sum of One Hundred and Twenty Thousand Dollars U.S. ($120,000.00) per
year, due and payable on the first day of each year throughout the term of
the License Agreement. In the last year, 2002, Dr. Bickert shall receive
$40,000.
In addition, on January 1, 1994, Company entered into a Royalty Agreement with
Dr. Bickert wherein Dr. Bickert shall receive a royalty fee of six percent
(6%) of all "Gross Receipts" for any and all products sold by Company
utilizing the technology and proprietary rights granted to Company under the
terms of the License Agreement. The term of the Royalty Agreement shall
continue indefinitely. As of the date of this filing, there is no accrued
amount due and payable to Dr. Bickert under the Royalty Agreement.
<PAGE> 3
During May 1997, the Company entered into a royalty agreement whereby Dr.
Bickert is to receive a 4% royalty fee on gross receipts from the sale of
products incorporating newly developed technology for a high performance
antenna for a portable communication device. The term of the Royalty Agreement
shall continue indefinitely. As of the date of this filing, there is no
accrued amount due and payable to Dr. Bickert under the Royalty
Agreement.
Marketing/Advertising
There are over Thirty Million ( 30,000,000) cellular phone subscribers in the
United States with a penetration rate of only approximately 6% and over
Three
Million subscribers (3,000,000) in Canada with a penetration rate of only
approximately 4.78%. Cellular Business News, Oct. 1995.
The Company intends to market its antenna technology within the next twelve
months to three principal customers, i) original equipment manufacturers, ii)
after market replacement antenna customers and iii) license the technology to
antenna manufacturers and/or original equipment cellular manufacturers.
Manufacturing
The Company is currently not manufacturing its mega range antenna product
while it is seeking international patent protection.
Environmental Regulations
According to federal environmental regulators, both the U.S. and Canada,
the mega range antenna is considered a passive device and, as such, falls
outside the scope of Radiation Emitting Devices Regulations. At present,
there are no federal environmental regulations to which Company's
product is subject. Currently, the government of the United States, through
the FCC, is setting guidelines for antenna radiation emission levels and the
Company's antenna not only meets but has radiation levels far less than the
recommended maximum guidelines. There is no assurance, however, that
regulations on this type of product will not be implemented in the future
and that Company will be required to comply therewith.
Research and Development
Since inception, Company has expended approximately $198,220 (U.S.) in
research and development of its product.
The Company's antenna technology, with worldwide patents pending is currently
the focus of much of the Company's research and development attention.
Liability Insurance; Indemnification
Company has a general liability, fire and medical insurance policy of
insurance to protect against liabilities arising out of the negligence of its
officers and directors and/or deficiencies in any of its business operations.
It presently pays $1,290.00 (Cdn.) annually for $1,000,000 coverage. There is
no assurance, however, that such insurance coverage would be adequate to
satisfy any potential claims made against Company, its officers and directors,
or its business operations or products. Any such liability which might arise
could be substantial and may exceed the assets of Company. The Articles of
Incorporation and By-Laws of the Company provide for indemnification of
officers and directors to the fullest extent permitted under Nevada law.
However, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons, it is the opinion of the Securities and Exchange Commission such
indemnification is against public policy, as expressed in the Act, and is
therefore, unenforceable.
ITEM 2. PROPERTIES.
On January 3, 1994, Company purchased a unit in an office/warehouse building
in Kelowna, B.C., Canada, for its corporate headquarters. The purchase price
of this facility was $118,000 (Canadian), ($92,286 US). During 1997, the
Company sold its interest the building used for its office and warehouse
activities to its president. The Company recorded a gain from the transaction
of $5,604. Corresponding reductions of mortgage indebtedness of $60,960 and
amounts due its president of $33,205 were recorded in connection with the
transaction. The Company leases the facility from its president at $1,217 per
month.
In addition, Company leases, on a month-to-month basis, warehouse space at the
B & O Commerce Centre in Portland, Oregon, where it stores all of its C.U.P
product inventory. The monthly rental rate is $75.00 (U.S.) per month, which
is a comparable rental rate for warehouse space in the geographical area.
In 1996, the Company entered into an operating lease for additional office
and warehouse space adjacent to its existing facility. This lease is paid on
a month-to-month basis. The leased space is owned by an officer of the
Company and monthly rental payments are considered to be at competitive market
rates. During 1997, in connection with the sale of its office/warehouse
facility, the Company entered into a lease agreement with its president for
use of the facility. The lease provides for monthly payments of $1,217
<PAGE>4
through February, 1999. The payments are considered to be at a fair market
rate. Rent expense amounted to $14,100 and $4,418 for the periods ended
October 31, 1997 and 1996. This lease was terminated in 1997.
ITEM 3. LEGAL PROCEEDINGS.
A successor company to Idex, 2834332 Canada Inc., has filed an
action in the Supreme Court of the State of New York claiming
that the Company has fraudulently misrepresented that it was the
worldwide licensee or holder of worldwide rights to distribute
its X-ray developing technology belonging to Idex. The claim
seeks the return of $200,000 of distribution rights income plus
interest and unspecified punitive damages. The Company believes
that it has meritorious defense to the action and that the New
York court lacks jurisdiction to hear the matter. The Company is
unable to predict the outcome of the case nor estimate the range
of possible loss.
The Company knows of no other material pending or threatened legal proceedings
to which the Company is a party or of which any of its properties is subject,
and no such proceedings are known to the Company to be contemplated by
governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the third quarter of the fiscal year ended October 31, 1997, the
following matters were submitted to a vote of the Company's security holders,
through the solicitation of proxies.
1. Proposal to change name of the Company to Globus Cellular Ltd.
2. Proposal to Amend 1996 Non-Statutory Stock Option Plan
3. Election of Directors
4. Approval of Winter, Scheifley & Associates, P.C. as Independent
Certified Accountants for fiscal year ending October 31, 1997.
<PAGE>5
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information. The Company's common stock commenced trading in the
over-the-counter market on September 19, 1995.
The following table sets forth the range of high and low bid quotations for
the Company's common stock for each quarter of the last two fiscal years, as
reported on the NASD Bulletin Board, by Wm. V. Frankel and Company, Inc. and
Paragon Capital Corporation. The quotations represent inter-dealer prices
without retail markup, markdown or commission, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
<S> <C> <C>
10/31/95 2.125 2.125
1/31/96 .75 .75
4/30/96 1.25 1.25
7/30/96 1.63 1.50
10/31/96 .72 .69
1/31/97 .88 .81
4/30/97 .56 .50
7/30/97 .719 .625
10/31/97 1.406 1.313
</TABLE>
The approximate number of holders of record of the Company's $.001 par value
common stock, as of October 31, 1997, was 229. Currently, as of February 20,
1998, there are 232 holders of record.
Dividends. Holders of the Company's common stock are entitled to receive
such dividends as may be declared by its Board of Directors. No dividends on
the Company's common stock have ever been paid, and the Company does not
anticipate that dividends will be paid on its common stock in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Capital Resources and Liquidity.
The Company emerged (October 18, 1994) from a Chapter 11 bankruptcy proceeding
which it filed in March, 1993. Since the date of filing of the bankruptcy
proceeding, Company was inactive and was not engaged in any business. The
recent acquisition of the assets of Globus Cellular & User Protection Ltd., a
Canadian corporation, has put the Company into the position of starting a new
business.
Globus Cellular & User Protection Ltd. (Canada), a British Columbia
corporation, was incorporated on July 28, 1993. Thereafter, the corporation
acquired the patent rights to the cellular phone product (the "C.U.P"), which
it subsequently sold to Company pursuant to the Plan of Reorganization, filed
and approved by the U.S. Bankruptcy Court.
During the year ended October 31, 1996, the Company issued 419,280 shares of
its common stock, registered under Form S-8, to entities providing consulting
services to the Company. The stock was valued at the market value on the date
such shares were authorized to be issued by the Board of Directors. A portion
of these shares were issued pursuant to a service contract which provides for
services to be rendered to the Company in the future. The value ascribed to
these services ($293,000) had been recorded as an unpaid subscription of
common stock. The unpaid subscription was amortized to expense during 1997
($219,724) and has a remaining unamortized balance of $73,276 at October 31,
1997.
Also, the Company issued 33,435 shares of restricted common stock for services
rendered to the Company. These shares were valued at 50% of the market price
on the date such shares were authorized to be issued by the Board of
Directors.
Additionally during 1996, the Company issued 117,900 shares of restricted
common stock for the exercise of warrants and options related thereto for cash
aggregating $102,851.
During the year ended October 31, 1997, the Company issued 1,823 shares of its
common stock pursuant to the exercise of warrants for cash aggregating $1,823.
Also, options to purchase 384,140 shares of the Company's common stock
previously issued to an officer were exercised for cash consideration to the
Company aggregating $62,864.
In addition, the Company issued 198,298 shares of its common stock as
compensation to consultants and employees, pursuant to a registration
statement on Form S-8, filed in January 1996. The shares were valued at the
market price of the common stock on the date the issuance of shares was
authorized. The aggregate value of the shares issued in these transactions
was $160,426. Additionally, the Company issued restricted common stock as
compensation to consultants and others for services performed for the Company
aggregating 274,095 shares valued at $104,542, based on the market value of
the stock on the grant date discounted by 50% due to their restricted nature.
<PAGE>6
During the year ended October 31, 1997, two of the Company's officers agreed
to forego cash payments for salary and technology lease payments accrued
during the quarter in exchange for common stock of the Company. The
restricted shares to be issued to the officers in lieu of cash payments of
$101,250 were valued at $.22 per share, an amount equal to one-half of the bid
price for the Company's common stock on the date the transaction was approved
by the Company's board of directors. Additionally one of the officers
received 110,720 shares of restricted common stock for services rendered
during the second quarter of the current fiscal year and for payment of other
amounts due him. The aggregate value of the stock issued was $23,930.
During August 1997, the Company commenced a private offering of its common
stock, restricted for a period of eighteen months, to a limited group of
Canadian investors. The Company received net proceeds of $438,211 for the
sale of 830,000 shares of common stock. The shares were sold in a unit
offering which provides for a total of 2,500,000 units to be sold at a price
of $.56 per unit. Each unit consists of one share of common and a warrant to
purchase an additional share of stock. The warrants are exercisable at $.875
each and expire if not exercised within a two year period of their issue date.
At October 31, 1997 the Company had received subscription agreements for the
sale of $85,898 of the common stock the payment for which was received
subsequent to that date. This amount is included in accounts receivable other
at October 31, 1997 and the corresponding shares are included in
stockholders' equity. Subsequent to October 31, 1997, the Company sold an
additional 77,500 shares of common stock for net proceeds of $58,000.
No dividends have been declared since the inception of the Company nor does
the Company anticipate that dividends will be declared in the ensuing fiscal
year.
As of October 31, 1997, the Company had outstanding options to purchase and
aggregate of 1,189,570 shares of its common stock by officers and directors at
an exercise price of $.165. The options were granted during the years ended
October 31, 1995 and 1996. Additionally, the Company had outstanding warrants
to purchase common stock at an exercise price of $.875 per share issued in
connection with the above described private placement.
During the year ended October 31, 1997 the Company established a non-statutory
stock option plan to benefit employees, officers, directors, consultants and
others providing services to the Company. The Company has reserved 500,000
shares of common stock for issuance in connection with option grants made
pursuant to the plan. The purchase price for shares granted under the plan
shall not be less than 85% of the fair market value of the stock on the grant
date. No shares have been granted under the plan as of the date of these
financial statements.
The weighted average fair value at the date of grant for warrants granted
during 1997 was $ .03 per option. The fair value of the options at the date
of grant was estimated using the Black-Scholes model with assumptions as
follows:
Month of grant October
Market value $ .66
Expected life in years 2
Interest rate 5.96%
Volatility .193
Dividend yield 0.00%
Stock based compensation costs would have reduced pretax income by $26,900 in
1997 ($.01 per share) if the fair value of the warrants granted during 1997
had been recognized as compensation expense.
Long-term liquidity will be dependent on anticipated future revenue.
Additionally, the Company shall pursue a registration of its Common Shares and
Class "A" Warrants and will, in part, rely on the subsequent exercise of said
Warrants. Any additional funds raised and any revenues received from sale of
Company's products will enable Company to expand its plan of operations by
increasing its production and expanding its product line.
The Company acquired plant and equipment valued at $3,595 for the year ended
October 31, 1997. The Company expended $1,804 on trademark costs. This
resulted in net cash used in investing activities of $16,893. The Company
does not anticipate purchasing any additional plant or significant equipment
and does not expect any significant changes in the number of its employees,
nor does Company expect to perform any product research and development during
the next twelve (12) months.
The Company acquired plant and equipment valued at $15,089 for the year ended
October 31, 1996. The Company received the proceeds of $45,400 from the
sale of fixed assets. The Company expended $22,944 on trademark costs.
This resulted in net cash used in investing activities of $18,861. The
Company does not anticipate purchasing any additional plant or significant
equipment and does not expect any significant changes in the number of its
employees, nor does Company expect to perform any product research and
development during the next twelve (12) months.
<PAGE>7
The Company received $501,898 from the sale of its common stock for the year
ended October 31, 1997. The Company experienced an increase of officer loans
of $68,000 and a repayment of officer loans of $18,180 for the year ended
October 31, 1997. As a result, the Company had net cash provided by financing
activities of $552,718 for the year ended October 31, 1997.
The Company received $102,851 from the sale of its common stock for the year
ended October 31, 1997. As a result, the Company had net cash provided by
financing activities of $102,851 for the year ended October 31, 1997.
The Company is not presently aware of any known trends, events or
uncertainties that may have a material impact on net sales, revenues or income
from its operations. However, Company's product is new in the market and
there are not assurances it can be marketed successfully and/or profitably.
The management of Company is led by Dr. Paul F. Bickert, Dr. Ronald Armstrong
and Jerome Cwiertnia. Dr. Bickert and Dr. Armstrong are both doctors of
chiropractic who have studied the principles, practice and use of X-rays and
have a thorough understanding of the nature of U.H.F. radiation and the
potential health risks to persons exposed to radiation over long period of
time. Mr. Cwiertnia is a retired past president and CEO of National Education
Centers, Inc., a new york stock exchange trading company.
Results of Operations.
The Company experienced a net loss from operating activities of $884,335 for
the year ended October 31, 1997. Total sales decreased from $281,059 for
the year ended October 31, 1996 to $90,630 for the year ended October 31,
1997 due to the one time sale of C.U.P. product in 1996 and distributorship
sales in 1996 that did not occur in 1997. However, cost of sales decreased
from $233,202 to $67,571 for those same periods respectively. Selling,
general and administrative expenses decreased slightly to $856,545 for the
year ended October 31, 1997 compared to $898,939 for the same period in 1996
due to accounting fees of $22,610, advertising of $9,125, consulting of
$403,177, legal of $26,031, management contract payments of $92,858,
technology lease expense of $120,000, travel of $25,386 and miscellaneous
office expenses of $157,341. Research and development expenses increased
from $13,220 for the year ended October 31, 1996 to $78,789 for the same
period in 1997 due to the stage of development of the antenna product.
The Company issued stock options for officer services of $366,217 for the year
ended October 31, 1997. Depreciation for the year ended October 31, 1997
was $9,496. The Company had a gain on the sale of fixed assets of $11,255.
Additionally, the Company converted salary and license costs to officer loans
of $107,805 for the year ended October 31, 1997. For the year ended October
31, 1997, the Company experienced an increase in accounts receivable of
$42,089, a decrease in inventory of $14,342 due to decreased sales, and
decrease in prepaid expenses of $712 and a decrease in accounts payable of
$10,284, all due to decreased operations. Foreign exchange translation
adjustment was $8,788) for the year ended October 31, 1997. These items
resulting in net cash used in operating activities of $264,455 for the year
ended October 31, 1997.
The Company experienced a net loss from operating activities of $734,145 for
the year ended October 31, 1996. Total sales increased from $40,980 for
the year ended October 31, 1995 to $281,059 (additionally, the Company sold
$128,485 in licenses) for the year ended October 31, 1996 due to
increased operations. However, cost of sales increased from $22,045 to
$233,202 for those same periods respectively. Selling, general and
administrative expenses increased to $898,939 for the year ended October 31,
1996 compared to $690,600 for the same period in 1995 due to accounting
fees of $12,331, advertising of $83,914, consulting of $285,537, legal of
$10,689, management contract payments of $110,000 technology lease expense
of $120,000, travel of $52,940, wages of $83,615 and miscellaneous office
expenses of $223,827. Research and development expenses decreased
from $24,476 for the year ended October 31, 1995 to $13,220 for the same
period in 1996 due to the stage of development of the antenna product and
commencement of sale of said product.
The Company issued stock options for officer services of $422,324 for the year
ended October 31, 1996. Depreciation for the year ended October 31, 1996
was $14,515. For the year ended October 31, 1996, the Company experienced an
increase in accounts receivable of $46,343, a decrease in inventory of
$122,366 due to increased sales, and increase in prepaid expenses of $499 and
an increase in accounts payable of $18,064, all due to increased operations.
Foreign exchange translation adjustment was $920 for the year ended October
31, 1996. These items resulting in net cash used in operating activities of
$202,798 for the year ended October 31, 1996.
<PAGE>8
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
The response to this item is being submitted as a separate section of this
report beginning on page F-l.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have not been any changes in or disagreements with accountants on
accounting and financial disclosure.
<PAGE>9
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Identification of Directors and Executive Officers of the Company. The
names, addresses and positions of the present directors and officers of the
Company are set forth below:
<TABLE>
<CAPTION>
Name and Address Age Position
<S> <C> <C>
Dr. Paul F. Bickert 52 President, Director and
3200 Watt Road Chairman of the Board
Kelowna, B.C., V1Y4R5
Jerome W. Cwiertnia, 56 Director
17 Montecito Drive
Corona del Mar, CA 92625
Ronald L. Armstrong 66 Director
1005-16 Ave. N.W.
Calgary, Alberta T2M0K7
</TABLE>
All directors will serve on the Board of Directors until the next annual
meeting of the shareholders of Company, or until their successors have been
duly elected and qualified. Officers serve at the discretion of the Board of
Directors.
Background of Directors and Officers
Dr. Paul F. Bickert - Dr. Bickert has been the President and Chairman
of the Board of Directors of Company since October 18, 1994, when he was
appointed under the terms of the Plan of Reorganization filed by Company and
approved by the U.S. Bankruptcy Court. Since its inception in 1993, he was
the President and Chairman of the Board of Directors of Globus Cellular & User
Protection, Ltd., the Canadian corporation from which Company acquired assets
in the bankruptcy reorganization. From 1974 to 1993, Dr. Bickert was a
self-employed private chiropractic practitioner in Canada. He graduated from
the Palmer College of Chiropractic in 1974, with a Doctor of Chiropractic
Degree. Dr. Bickert devotes full time to the business of Company.
Jerome W. Cwiertnia - Mr. Cwiertnia was Executive V. P., Chief Financial
Officer and Director from 1979 to 1989, President, Chief Operating Officer
and Director in 1990 and Chief Executive Officer, President and Director from
1991 to 1995 for National Education Corporation. Mr. Cwiertnia retired in
May 1995. Mr. Cwiertnia graduated in 1963 from Northern Illinois
University and is a Certified Public Accountant.
Dr. Ronald L. Armstrong - Dr. Armstrong has been a Director of Company
since October 18, 1994, when he was appointed under the terms of the Plan or
Reorganization filed Company and approved by the U.S. Bankruptcy Court. Since
its inception in 1993, he was the Vice President and a Director of Globus
Cellular & User Protection, Ltd., the Canadian corporation from which Company
acquired assets in the bankruptcy reorganization. In addition, since 1971,
Dr. Armstrong has been a self-employed private chiropractic practitioner in
Toronto, Ontario, Canada. He graduated from the Canadian Memorial
Chiropractic College in Toronto, Ontario, Canada in 1971, with a Doctor of
Chiropractic Degree. Dr. Armstrong only sits as a Board Member and is not an
employee of the Company. Dr. Armstrong will devote his time on an as-needed
basis (not specifically determinable) to the business of Company.
Directorships. No director or nominee for director holds a directorship in
any other company with a class of securities registered pursuant to Section 12
of the Securities Exchange Act of 1934 or subject to the requirements of
Section 15(d) of such Act or any company registered as an investment company
under the Investment Company Act of 1940.
ITEM 10. EXECUTIVE COMPENSATION
During fiscal 1996, and as of the date of filing this report, no
compensation has been paid, nor have there been compensation arrangements
or plans, other than what has been indicated below.
On April 1, 1997, the Board of Directors approved the issuance of 842,825
restricted shares of the Company to Dr. Paul F. Bickert as compensation for
salary, Lease of Technology payments and interest owing for 1995 and 1996 and
255,555.56 restricted shares of the Company be issued to Bernie D. Penner for
compensation for salary owing during 1995 and 1996.
On April 2, 1997, the Board of Directors approved the issuance of 333,333
restricted shares of the Company ($.225 per share) to Dr. Paul F. Bickert as
compensation for the period November 1, 1996 to January 31, 1997 and February
1, 1997 to April 30, 1997.
None of the other officers and/or directors receive any compensation for
their services and there are not plans to pay any such compensation in
the near future. All officers and directors are, however, reimbursed
for expenses incurred on behalf of Company. Members of the Board of
<PAGE>10
Directors are to receive an honorarium of $7,500 US per year, payable in
stock of the Company at 85% of 1/2 of market bid. To date, no remuneration
of any kind has been paid and the first such remuneration is not scheduled
until April 1998.
The Company presently has no other pension, health stock option,
annuity, bonus, insurance, profit-sharing or other similar benefit
plans; however, Company may adopt such plans in the future. There are
presently no personal benefits available for directors, officers or
employees of Company.
There is no plan or arrangement with respect to compensation received or
that may be received by the executive officers in the event of
termination of employment or in the event of a change in responsibilities
following a change in control.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table lists each officer or director and each shareholder
owning of record or known to the Company to own beneficially, either directly
or indirectly, at least 5% of the issued and outstanding shares of Common
Stock of the Company as of the date hereof:
<TABLE>
<CAPTION>
Amount and
Nature
Title of Beneficial % of
Name and Address Class Ownership Class
<S> <C> <C> <C>
Dr. Paul F. Bickert Common 1,012,457 Direct 24.29%
3200 Watt Road 401,676 Indirect <F1>
Kelowna, B.C., Canada
V1W 3C8
Jerome W. Cwiertnia Common 19,882 .34%
17 Montecito Drive
Corona del Mar, CA 92625
Dr. Ronald L. Armstrong Common 11,183 Direct .38%
1005 - 16th Ave., N.W. 11,183 Indirect <F2>
Calgary, Alberta, Canada
T2M 3X8
CEDE & Co. Common 1,561,740 26.8%
P.O. Box 222
Bowling Green Station
New York, NY
Philadep & Co Common 452,255 7.8%
1900 Market Street
Philadelphia, PA
Bernard D. Penner Common 220,149 Direct 7.81%
157-7841 Hwy. #97 N. 234,605 Indirect <F3>
Winfield, B.C., Canada
All officers and
directors as a Group Common 1,043,522 Direct 25.01%
412,859 Indirect
<FN>
<F1> These shares are held in the name of Marlene Bickert, wife of Dr.
Bickert, and Dr. Bickert has shared voting rights in and to the shares.
<F2> These shares are held in the name of Nesbitt Burns in trust for Sandra
Armstrong RRSP, wife of Dr. Armstrong, and Dr. Armstrong has shared voting
rights in and to the shares.
<F3> 450,656 of these shares are held in the name of Loretta Penner, wife of
Mr. Penner, and Mr. Penner has shared voting rights in and to the shares.
3,728 of these shares are held in the name of Burns Fry Ltd., in trust for
Loretta Penner, 3GDJNT5, a Canadian retirement account, and Mr. Penner has
shared voting rights in and to the shares. 2,982 of these shares are held in
the name of Burns Fry Ltd., in trust for Bernie Penner #3GDFXT2, a Canadian
retirement account, and Mr. Penner as 100% voting rights in and to the
shares. 488725 B.C. Ltd. is controlled by Mr. Penner and holds 114,889
shares.
</FN>
The Company does not know of any arrangements, the operation of which may, at
a subsequent date, result in a change in control of the Company.
<PAGE>11
As of December 31, 1997, there were 1,354,117 options to purchase Common
Shares of the Company. The options are held by current and past officers and
directors as follows:
</TABLE>
<TABLE>
<CAPTION>
Name # of Options %
<S> <C> <C>
Dr. Paul F. Bickert 751,087 55.46%
(President & CEO
Dr. Ronald Armstrong
(Vice President & Director) 12,121 .90%
Jerome W. Cwiertina
(Director) 0 0.00%
Bernie Penner
(Past VP & Director 590,909 43.64
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The President and General Manager of the Company, Dr. Paul
Bickert is the inventor of the Company's major product and is the
founder of the Company. Dr. Bickert and his wife jointly are the
Company's largest stockholder.
The Company has an exclusive eight year lease on the cellular
phone user protection technology from Dr. Bickert. The Company
possesses the exclusive right to sublease or sell this technology
to others. See Note 5. During the periods ended October 31,
1996, the Company paid $18,800 to patent attorneys for services
in connection with patent applications filed in behalf of Dr.
Bickert for the above mentioned technology. The sum of these
amounts have been applied to reduce unpaid technology lease
obligations due Dr. Bickert. Effective November 1, 1996, the
Company assumed the responsibility of maintaining the patents and
bears the cost of filing them in other jurisdictions. The
amounts capitalized in connection with extending the patents to
additional jurisdictions during the year ended October 31, 1997
was $42,236 and amortization thereof for the period, based on the
remaining term of the license agreement with Dr. Bickert,
amounted to $10,559.
The vice president and production manager (May 1997), Mr. Bernie
Penner and his wife jointly are the Company's second largest
stockholder.
During 1997 and 1996 the Company paid $5,335 and $1,694
respectively, to a company controlled by Mr. Penner for
improvements to the Company's plant. The Company believes that
such amounts are not in excess of their fair market value.
Additionally, rent in the amounts of $7,150 and $3,110 was paid
to Mr. Penner in 1997 and 1996, respectively for office and
warehouse space in connection with the lease described in Note 4.
Dr. Bickert (and Mr. Penner in 1996) had loans to the Company for
cash advances and unpaid salary and technology lease payments
totaling $157,625 and $244,636 at October 31, 1997 and 1996
respectively. These are demand notes and interest is being
accrued at 8.75% per year. Subsequent to October 31, 1996 these
individuals agreed to waive payment of the total amounts due for
1996 in exchange for the exercise of common stock options
previously granted to them at an exercise price of $.225 per
share.
On November 17, 1993 the Company purchased its warehousing and
office facilities in Kelowna, British Columbia. The facilities
consist of a wood framed warehouse unit with front office space
and rear warehouse space for manufacturing, packaging and
distribution.
The purchase price of this facility was $118,000 (Canadian),
($92,286 US). During 1997, the Company sold its interest the
building used for its office and warehouse activities to its
president. The Company recorded a gain from the transaction of
$5,604. Corresponding reductions of mortgage indebtedness of
$60,960 and amounts due its president of $33,205 were recorded in
connection with the transaction. The Company leases the facility
from its president at $1,217 per month.
<PAGE>12
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements and schedules are filed as part of this
report:
Report of Independent Public Auditors.................................15
Balance Sheets............................................................17
Statement of Operations.................................................18
Statement of Stockholder's Equity......................................19
statement of Cash Flows................................................20
Notes to Financial Statements..........................................21-
27
Schedules Omitted: All schedules other than those shown have been omitted
because they are not applicable, not required, or the required information is
shown in the financial statements or notes thereto.
(b) List of Exhibits
The following of exhibits are filed with this report:
Exhibit 1 Marketing & Promotion Agreement with Brahma Capital
Corporation incorporated by reference to Form 10-SB, File #0-
25614.
Exhibit 2 Plan of Reorganization, Disclosure Statement and Order
Confirming Plan of Reorganization incorporated by reference to
Form 10-SB, File # 0-25614
Exhibit 3(a)(i) Articles of Incorporation of Company and Amendments thereto
incorporated by reference to Form 10-SB, File # 0-25614
Exhibit 3(a)(ii) Bylaws of Company incorporated by reference to Annual Report
on Form 10-SB, File # 0-25614
Exhibit 3(b) Articles of Incorporation of Globus Cellular & User
Protection, Ltd. (Canada) and Amendments thereto
incorporated by reference to Annual Report on Form 10-SB,
File # 0-25614
Exhibit 10(a) Production Agreement between Market-Ability, Inc. and company
incorporated by reference to Form 10-SB, File # 0-25614
Exhibit 10(b) Press and News Releases incorporated by reference to Form
10-SB, File # 0-25614
Exhibit 10(c) License of Technology Agreement between Dr. Paul F. Bickert
and Company incorporated by reference to Form 10-SB, File
# 0-25614
Exhibit 10(d) Royalty Agreement between Dr. Paul F. Bickert and Company
incorporated by reference to Form 10-SB, File # 0-25614
Exhibit 10(e) State of Title Certificate and Mortgage on Real Property
incorporated by reference to Form 10-SB, File # 0-25614
Exhibit 10(f) Employment Agreement between Dr. Paul F. Bickert and Company
incorporated by reference to Form 10-SB, File # 0-25614
Exhibit 10(g) Key-Man Life Insurance Policy incorporated by reference to
Form 10-SB, File # 0-25614
Exhibit 10(h) Promissory Notes incorporated by reference to Form 10-SB,
File
# 0-25614
Exhibit 14 Patents and Trademarks incorporated by reference to Form
10-SB, File # 0-25614
(B) REPORTS ON FORM 8-K
None
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Globus Cellular Ltd.
We have audited the accompanying balance sheet of Globus Cellular
Ltd. as of October 31, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the years
ended October 31, 1997 and 1996. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates by management, as well as evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Globus Cellular Ltd. as of October 31, 1997, and the results
of its operations, and its cash flows for the years ended October
31, 1997 and 1996, in conformity with generally accepted
accounting principles.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Denver, Colorado
December 15, 1997
<PAGE>14
Globus Cellular Ltd.
Balance Sheet
October 31, 1997
</TABLE>
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 349,133
Accounts receivable, trade 2,273
Accounts receivable, other 96,074
Inventories 61,974
Prepaid expenses 2,472
Prepaid expenses - related party -
-----------
Total current assets 511,926
Property and equipment, at cost, less
accumulated depreciation of $34,893 28,860
Other assets 24,748
-----------
$ 565,535
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,157
Loans from stockholders 157,625
-----------
Total current liabilities 190,782
Stockholders' equity:
Preferred stock, $.001 par value,
20,000,000 shares authorized, -
Common stock, $.001 par value,
100,000,000 shares authorized,
6,960,813 shares issued and
outstanding 6,960
Additional paid-in capital 3,243,115
Stock subscriptions (97,276)
Foreign exchange adjustment (15,327)
(Deficit) (2,762,719)
-----------
374,754
-----------
$ 565,535
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>15
Globus Cellular Ltd.
Statements of Operations
Years Ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
Revenue: -------- --------
Sales $ 90,630 $ 281,059
License of distribution rights 128,485
Other income 32,443 20,863
----------- -----------
123,073 430,407
Other costs and expenses:
Cost of sales 67,571 233,202
General and administrative 856,545 898,939
Research and development 78,789 13,220
----------- -----------
1,002,904 1,145,361
----------- -----------
Income (loss) from operations (879,832) (714,954)
Other income and (expense):
Interest expense (4,503) (19,191)
----------- -----------
(4,503) (19,191)
----------- -----------
Income (loss) before income taxes (884,335) (734,145)
Provision for income taxes
----------- -----------
Net income (loss) $ (884,335) $ (734,145)
=========== ===========
Earnings (loss) per share:
Net income (loss) $ (0.17) $ (0.21)
=========== ===========
Weighted average shares outstanding 5,060,809 3,505,363
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>16
Globus Cellular Ltd.
Statement of Changes in Stockholders' Equity
For the Periods Indicated
<TABLE>
<CAPTION>
Additional Foreign
Common Stock Paid -in Stock Accumulated Exchange
ACTIVITY Shares Amount Capital Subscriptions Deficit Adjustment
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1995 3,232,674 $ 3,233 $ 1,456,772 $ $ (1,144,239) $ (7,459)
Exercise of warrants and options
for cash 117,900 11 102,733
Stock issued for services 419,280 41 558,011
Stock (restricted)issued for services 33,435 12,505
Options exercised by officers (293,000)
Shares issued for future services 247,136
Foreign exchange gain - 920
Net (loss) for the year ended
October 31, 1996 - (734,145)
------------ ---------- -------- --------- --------- -------
Balance, October 31, 1996 3,803,289 3,803 2,130,021 (45,864) (1,878,384) (6,539)
Exercise of warrants and options
for cash 385,963 38 64,301
Stock issued for services 472,393 47 264,495
Stock sold for cash by private placement 830,000 83 477,250
Expenses of offering (39,869)
Shares issued for future services (24,000)
Issuance of subscribed shares 1,469,168 1,469 346,917 (247,136)
Amortization of unpaid subscriptions 219,724
Foreign exchange (loss) (8,788)
Net (loss) for the year ended
October 31, 1997 (884,335)
------------ --------- --------- ---------- --------- ---------
Balance, October 31, 1997 6,960,813 $ 6,960 $3,243,115 $ (97,276) $(2,762,719) $ 15,327)
============ ========= ========== ========== ============ =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>17
Globus Cellular Ltd.
Statements of Cash Flows
Years Ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net income (loss) $ (884,335) $ (734,145)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,496 14,515
Stock and options issued for services 366,217 422,324
Gain on sale of fixed assets (11,255)
Salary and license costs converted
to officer loans 107,805
Amortization of unpaid stock subscriptions 195,724
Foreign exchange translation adjustment (8,788) 920
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (42,089) (46,343)
(Increase) decrease in inventory 14,342 122,366
(Increase) decrease in prepaid expenses 712 (499)
Increase (Decrease) in accounts payable (10,284) 18,064
------------ ------------
Total adjustments 621,880 531,347
------------ ------------
Net cash provided by (used in)
operating activities (262,455) (202,798)
------------ ------------
Cash flows from investing activities:
Purchase of equipment (3,595) (15,089)
Proceeds from sale of fixed assets 45,400
Trademark costs (22,944) (1,804)
----------- -----------
Net cash provided by (used in)
financing activities 18,861 (16,893)
Cash flows from financing activities:
Common stock sold for cash 502,898 102,851
Increase (repayment) of officer loans 68,000
Repayment of officer loans (18,180)
----------- -----------
Net cash provided by (used in)
financing activities 552,718 102,851
----------- -----------
Increase (decrease) in cash 309,124 (116,840)
Cash and cash equivalents,
beginning of period 40,009 156,849
----------- -----------
Cash and cash equivalents,
end of period $ 349,133 $ 40,009
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 4,503 $ 19,191
Cash paid for income taxes $ - $ -
</TABLE>
See accompanying notes to financial statements.
<PAGE>18
Globus Cellular Ltd.
Notes to Financial Statements
Note 1. Business and Significant Accounting Policies
Business
The Company manufactures and distributes a cellular telephone
radiation shielding product which universally fits most cellular
phones and distributes other radiation shielding products, X-ray
film and film development products manufactured by others to
customers in the medical and veterinary fields. The Company is
also developing advanced antenna designs that incorporate the
Company's proprietary shielding technology. Prior to 1997, the
Company was known as Globus Cellular and User Protection Ltd.
History and Business Combination
The Company was incorporated in the State of Nevada on June 10,
1987 under the name of Daytona-Pacific Corporation. Thereafter,
on July 31, 1989, the Company filed an Amendment to the Articles
of Incorporation changing its name to Leridges International,
Inc..
On October 17, 1994 as part of the Company's plan of
reorganization and emergence from bankruptcy the Company
purchased the shares of Globus Cellular & User Protection Ltd., a
British Columbia, Canada corporation incorporated on July 28,
1993, with 2,880,000 units of its securities. The business
combination was accounted as a recapitalization of Globus whereby
it adopted the capital structure of Leridges. The financial
statements presented reflect the activity of the British Columbia
Company. The Nevada Company had no operations or transactions
during these periods.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, in banks and all
highly liquid investments with a maturity of three months or less
when purchased. Cash equivalents are stated at cost which
approximates market.
Inventories
Inventories, which consist primarily of finished goods, are
valued at the lower of cost or market. Cost is determined using
the first in, first-out (FIFO) method.
Prepaid Expenses
Prepaid expenses consist primarily of prepayments relating to
advertising and marketing.
Property and Equipment
Property and equipment are carried at cost, net of accumulated
depreciation and amortization. Expenditures for significant
renewals and improvements are capitalized. Repairs and
maintenance are charged to expense as incurred. Depreciation has
been provided using both straight-line and accelerated methods
over the useful lives of the assets, ranging from three to ten
years.
Foreign Currency Translation
The financial statements are presented in United States dollars.
The Company has significant Canadian operations, however United
States dollars are considered its functional currency.
Monetary assets and liabilities are translated into United States
dollars at the balance sheet date rate of exchange and non-
monetary assets and liabilities at historical rates. Revenues
and expenses are translated at appropriate transaction date
rates. Net gains or losses arising on translation are reflected
a separate component of stockholders equity
Loss Per Share
Loss per share for periods presented has been computed using the
weighted average number of shares of common stock outstanding
during the periods presented. Common stock equivalents are
excluded from the computation as their effect would be anti-
dilutive.
Revenue Recognition
Sales are recognized at the time goods are shipped. Revenue from
the sale of license distribution rights is recorded when the
licensee commences product operations.
Advertising Expenses
Advertising expenses are charged to expense upon first showing.
Amounts charged to expense were $9,125 and $83,914 for the
periods ended October 31, 1997 and 1996, respectively.
<PAGE>19
Income Taxes
Effective July 1, 1993, the Company adopted the provisions of
Financial Accounting Standards Board Statement No. 109 (Statement
No. 109), Accounting for Income Taxes. Statement No. 109 requires
that deferred taxes reflect the tax consequences on future years
of differences between the tax bases of assets and liabilities
and their financial reporting amounts. At the date of adoption
of Statement No. 109, there was no material effect on the
Company's financial statements. Prior to July 1, 1993, the
Company accounted for income taxes using the deferred method. As
of October 31, 1997 the Company has accumulated net operating
losses available to offset future taxable income of approximately
$2,760,000, expiring $72,000 in 2008, $370,000 in 2009, $700,000
in 2010, $734,000 in 2011 and $884,000 in 2012. Deferred tax
assets, approximately $930,000, which may arise from the
utilization of the operating losses have been fully reserved as
such utilization is not assured. The increase in the deferred
tax asset and related reserve applicable to the 1996 operating
loss was approximately $300,000.
Estimates
Management of the Company uses estimates and assumptions in
preparing financial statements in accordance with generally
accepted accounting principles. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported
revenues and expenses. Actual results could vary from the
estimates that management uses.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash and
accounts receivable, trade. During the year the Company
maintained cash deposits at financial institutions in excess of
the $100,000 limit covered by the Federal Deposit Insurance
Corporation. The Company currently purchases its X-ray film
developing chemicals from one supplier, however the Company
believes that the chemicals are readily available elsewhere.
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard
No. 123 (FAS 123), Accounting for Stock-Based Compensation
beginning with the Company's first quarter of 1996. Upon
adoption of FAS 123, the Company continued to measure
compensation expense for its stock-based employee compensation
plans using the intrinsic value method prescribed by APB No. 25,
Accounting for Stock Issued to Employees, and has provided in
Note 6 pro forma disclosures of the effect on net income and
earnings per share as if the fair value-based method prescribed
by FAS 123 had been applied in measuring compensation expense.
Recent Pronouncements
In 1996 Financial Accounting Standards No. 125 (FAS 125)
Accounting for Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities was issued. FAS 125 is effective
for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996.
The Company will adopt FAS 125 in 1997. Adoption of FAS 125 is
not expected to have a material effect on the Company's
consolidated financial position or operating results.
Note 2. Property and Equipment
At October 31, 1997 Property and equipment consists of:
Machinery and office equipment $ 32,726
Moldings 27,190
Computer software 2,087
Leasehold improvements 1,750
--------
63,753
Less accumulated depreciation 34,893
--------
$ 28,860
Depreciation charged to expense was $ 9,496 and $14,515 for the
periods ended October 31, 1997 and 1996, respectively.
Note 3. Commitments and Contingencies
The Company has an agreement with Dr. Paul F. Bickert (its
founder, product inventor, President and General Manager,
Director and major stockholder) to pay Dr. Bickert lease of
technology payments of $10,000 (US) monthly for the technology
utilized in the Company's products. This agreement expires in
2002, with an option to renew. Total payments required under
this lease are as follows:
<PAGE>20
1999 $120,000
2000 120,000
2001 120,000
2002 40,000
--------
$400,000
During May 1997, the Company entered into a royalty agreement
whereby Dr. Bickert is to receive a 4% royalty fee on gross
receipts from the sale of products incorporating newly developed
technology for a high performance antenna for a portable
communication device.
The Company entered into an employment contract with an officer.
The agreement covers the year ended October 31, 1998 and provides
for payments aggregating $7,500 per month. The agreement is
expected to continue in force until terminated by either party.
In 1996, the Company entered into an operating lease for
additional office and warehouse space adjacent to its existing
facility. This lease was paid on a month-to-month basis and was
discontinued in 1997. The leased space was owned by an officer
of the Company and monthly rental payments are considered to be
at competitive market rates. During 1997, in connection
with the sale of its office/warehouse facility, the Company
entered into a lease agreement with its president for use of the
facility. The lease provides for monthly payments of $1,217
through February, 1999. The payments are considered to be at a
fair market rate. See Note 4. Rent expense amounted to $14,100
and $4,418 for the periods ended October 31, 1997 and 1996.
During 1996, the Company began selling distribution rights to
products included in its line of X-ray film and developer
catalogue. The distribution rights covered certain eastern
provinces in Canada and other territories outside of Canada. The
Company had been purchasing developer products exclusively from
Idex International Corp., a company now in bankruptcy. The
Company has substituted developer chemicals purchased from a new
supplier to its distributors.
A successor company to Idex, 2834332 Canada Inc., has filed an
action in the Supreme Court of the State of New York claiming
that the Company has fraudulently misrepresented that it was the
worldwide licensee or holder of worldwide rights to distribute
its X-ray developing technology belonging to Idex. The claim
seeks the return of $200,000 of distribution rights income plus
interest and unspecified punitive damages. The Company believes
that it has meritorious defense to the action and that the New
York court lacks jurisdiction to hear the matter. The Company is
unable to predict the outcome of the case nor estimate the range
of possible loss.
Notes 4. Related Party Transactions
The President and General Manager of the Company, Dr. Paul
Bickert is the inventor of the Company's major product and is the
founder of the Company. Dr. Bickert and his wife jointly are the
Company's largest stockholder.
The Company has an exclusive eight year lease on the cellular
phone user protection technology from Dr. Bickert. The Company
possesses the exclusive right to sublease or sell this technology
to others. See Note 5. During the periods ended October 31,
1996, the Company paid $18,800 to patent attorneys for services
in connection with patent applications filed in behalf of Dr.
Bickert for the above mentioned technology. The sum of these
amounts have been applied to reduce unpaid technology lease
obligations due Dr. Bickert. Effective November 1, 1996, the
Company assumed the responsibility of maintaining the patents and
bears the cost of filing them in other jurisdictions. The
amounts capitalized in connection with extending the patents to
additional jurisdictions during the year ended October 31, 1997
was $42,236 and amortization thereof for the period, based on the
remaining term of the license agreement with Dr. Bickert,
amounted to $10,559.
The vice president and production manager (May 1997), Mr. Bernie
Penner and his wife jointly are the Company's second largest
stockholder.
During 1997 and 1996 the Company paid $5,335 and $1,694
respectively, to a company controlled by Mr. Penner for
improvements to the Company's plant. The Company believes that
such amounts are not in excess of their fair market value.
Additionally, rent in the amounts of $7,150 and $3,110 was paid
to Mr. Penner in 1997 and 1996, respectively for office and
warehouse space in connection with the lease described in Note 4.
<PAGE>21
Dr. Bickert (and Mr. Penner in 1996) had loans to the Company for
cash advances and unpaid salary and technology lease payments
totaling $157,625 and $244,636 at October 31, 1997 and 1996
respectively. These are demand notes and interest is being
accrued at 8.75% per year. Subsequent to October 31, 1996 these
individuals agreed to waive payment of the total amounts due for
1996 in exchange for the exercise of common stock options
previously granted to them at an exercise price of $.225 per
share.
On November 17, 1993 the Company purchased its warehousing and
office facilities in Kelowna, British Columbia. The facilities
consist of a wood framed warehouse unit with front office space
and rear warehouse space for manufacturing, packaging and
distribution.
The purchase price of this facility was $118,000 (Canadian),
($92,286 US). During 1997, the Company sold its interest the
building used for its office and warehouse activities to its
president. The Company recorded a gain from the transaction of
$5,604. Corresponding reductions of mortgage indebtedness of
$60,960 and amounts due its president of $33,205 were recorded in
connection with the transaction. The Company leases the facility
from its president at $1,217 per month.
Note 6. Stockholders' Equity
During the periods covered by these financial statements the
Company issued shares of common stock without registration under
the Securities Act of 1933. Although the Company believes that
the sales did not involve a public offering of its securities and
that the Company did comply with the "safe harbor" exemptions
from registration under section 4(2), it could be liable for
rescission of the sales if such exemptions were found not to
apply.
During the year ended October 31, 1996, the Company issued
419,280 shares of its common stock, registered under Form S-8, to
entities providing consulting services to the Company. The stock
was valued at the market value on the date such shares were
authorized to be issued by the Board of Directors. A portion of
these shares were issued pursuant to a service contract which
provides for services to be rendered to the Company in the
future. The value ascribed to these services ($293,000) had been
recorded as an unpaid subscription of common stock. The unpaid
subscription was amortized to expense during 1997 ($219,724) and
has a remaining unamortized balance of $73,276 at October 31,
1997.
Also, the Company issued 33,435 shares of restricted common stock
for services rendered to the Company. These shares were valued
at 50% of the market price on the date such shares were
authorized to be issued by the Board of Directors.
Additionally during 1996, the Company issued 117,900 shares of
restricted common stock for the exercise of warrants and options
related thereto for cash aggregating $102,851.
During the year ended October 31, 1997, the Company issued 1,823
shares of its common stock pursuant to the exercise of warrants
for cash aggregating $1,823. Also, options to purchase 384,140
shares of the Company's common stock previously issued to an
officer were exercised for cash consideration to the Company
aggregating $62,864.
In addition, the Company issued 198,298 shares of its common
stock as compensation to consultants and employees, pursuant to a
registration statement on Form S-8, filed in January 1996. The
shares were valued at the market price of the common stock on the
date the issuance of shares was authorized. The aggregate value
of the shares issued in these transactions was $160,426.
Additionally, the Company issued restricted common stock as
compensation to consultants and others for services performed for
the Company aggregating 274,095 shares valued at $104,542, based
on the market value of the stock on the grant date discounted by
50% due to their restricted nature.
During the year ended October 31, 1997, two of the Company's
officers agreed to forego cash payments for salary and technology
lease payments accrued during the quarter in exchange for common
stock of the Company. The restricted shares to be issued to the
officers in lieu of cash payments of $101,250 were valued at $.22
per share, an amount equal to one-half of the bid price for the
Company's common stock on the date the transaction was approved
by the Company's board of directors. Additionally one of the
<PAGE>22
officers received 110,720 shares of restricted common stock for
services rendered during the second quarter of the current fiscal
year and for payment of other amounts due him. The aggregate
value of the stock issued was $23,930.
During August 1997, the Company commenced a private offering of
its common stock, restricted for a period of eighteen months, to
a limited group of Canadian investors. The Company received net
proceeds of $438,211 for the sale of 830,000 shares of common
stock. The shares were sold in a unit offering which provides
for a total of 2,500,000 units to be sold at a price of $.56 per
unit. Each unit consists of one share of common and a warrant to
purchase an additional share of stock. The warrants are
exercisable at $.875 each and expire if not exercised within a
two year period of their issue date.
At October 31, 1997 the Company had received subscription
agreements for the sale of $85,898 of the common stock the
payment for which was received subsequent to that date. This
amount is included in accounts receivable other at October 31,
1997 and the corresponding shares are included in stockholders'
equity. Subsequent to October 31, 1997, the Company sold an
additional 77,500 shares of common stock for net proceeds of
$58,000.
No dividends have been declared since the inception of the
Company nor does the Company anticipate that dividends will be
declared in the ensuing fiscal year.
As of October 31, 1997, the Company had outstanding options to
purchase and aggregate of 1,189,570 shares of its common stock by
officers and directors at an exercise price of $.165. The
options were granted during the years ended October 31, 1995 and
1996. Additionally, the Company had outstanding warrants to
purchase common stock at an exercise price of $.875 per share
issued in connection with the above described private placement.
During the year ended October 31, 1997 the Company established a
non-statutory stock option plan to benefit employees, officers,
directors, consultants and others providing services to the
Company. The Company has reserved 500,000 shares of common stock
for issuance in connection with option grants made pursuant to
the plan. The purchase price for shares granted under the plan
shall not be less than 85% of the fair market value of the stock
on the grant date. No shares have been granted under the plan as
of the date of these financial statements.
The weighted average fair value at the date of grant for warrants
granted during 1997 was $ .03 per option. The fair value of the
options at the date of grant was estimated using the Black-
Scholes model with assumptions as follows:
Month of grant October
Market value $ .66
Expected life in years 2
Interest rate 5.96%
Volatility .193
Dividend yield 0.00%
Stock based compensation costs would have reduced pretax income
by $26,900 in 1997 ($.01 per share) if the fair value of the
warrants granted during 1997 had been recognized as compensation
expense.
Note 7
Major Customer
The Company made sales in excess of 10% of its gross revenues for
the year ended October 31, 1996 to one customer located in Saudi
Arabia. The sale consisted of substantially all of the Company's
inventory of CUP product and accounted for 39% of the Company's
total revenue.
<PAGE>23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this Report to
be signed on its behalf by the undersigned duly authorized person.
Date: FEBRUARY 203 1998 Globus Cellular and User Protection, Ltd.
/s/ Dr. Paul Bickert
------------------------------------
By: Dr. Paul Bickert, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Company and in the capacities and on the dates indicated.
/s/ Dr. Paul Bickert 2/23/98
- ------------------------------ Date:
Dr. Paul Bickert
President and Director
(Principal Executive, Financial and Accounting)
/s/ Jerome W. Cwiertnia 2/23/98
- ------------------------------ Date:
Jerome W. Cwiertnia
Secretary/Treasurer and Director
/s/ Ronald L. Armstrong 2/23/98
- ------------------------------ Date:
Ronald L. Armstrong
Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 349,1339
<SECURITIES> 0
<RECEIVABLES> 98,347
<ALLOWANCES> 0
<INVENTORY> 61,974
<CURRENT-ASSETS> 511,926
<PP&E> 28,860
<DEPRECIATION> 34,893
<TOTAL-ASSETS> 565,535
<CURRENT-LIABILITIES> 190,782
<BONDS> 0
<COMMON> 6,960
0
0
<OTHER-SE> 367,793
<TOTAL-LIABILITY-AND-EQUITY> 565,535
<SALES> 90,630
<TOTAL-REVENUES> 123,073
<CGS> 67,571
<TOTAL-COSTS> 67,571
<OTHER-EXPENSES> 935,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,503
<INCOME-PRETAX> (884,335)
<INCOME-TAX> 0
<INCOME-CONTINUING> (884,335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (884,335)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
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