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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES ACT OF 1934
For the Fiscal Year Ended April 30, 1998
COMMISSION FILE NO. 0-21255
IAS COMMUNICATIONS, INC.
(Name of small business issuer as specified in its charter)
OREGON 91-1063549
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
185 - 10751 SHELLBRIDGE WAY
RICHMOND, BRITISH COLUMBIA V6X 2W8, CANADA
(Address, including postal code, of registrant's principal executive offices)
(604) 278-5996
(Telephone number including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act: CLASS A
COMMON STOCK
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
Yes X
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
The registrant's revenues for its most recent fiscal year were: nil.
The Aggregate market value of the voting stock held by non-affiliates of
the registrant on June 30, 1998, computed by reference to the price at which the
stock was sold on that date: $10,134,450.
The number of shares outstanding of the registrant's Class A voting Common
Stock, no par value, as of June 30, 1998 was 9,486,350.
Documents incorporated by reference: None.
_______________________________________________________________________________
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IAS COMMUNICATIONS, INC.
FORM 10-KSB
TABLE OF CONTENTS
<TABLE>
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PART I Page
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Item 1. Description of Business............................................................ 3
Item 2. Property........................................................................... 7
Item 3. Legal Proceedings.................................................................. 7
Item 4. Submission of Matters to a Vote of Security Holders................................ 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........................... 8
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 9
Item 7. Financial Statements............................................................... 10
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................................... 26
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act.................................................. 27
Item 10. Executive Compensation............................................................. 29
Item 11. Security Ownership of Certain Beneficial Owners and Management..................... 31
Item 12. Certain Relationships and Related Transaction...................................... 32
Item 13. Exhibits and Reports on Form 8-K................................................... 33
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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(a) BUSINESS DEVELOPMENT
IAS Communications, Inc. (the "Company") is a development stage company
incorporated in the state of Oregon in 1994. Its principal business operations
are conducted in West Virginia and Illinois. The Company is engaged in the
commercialization of advanced antenna technology known as the Contrawound
Torroidal Helical Antenna, (the "CTHA"), for wireless communications markets
including cellular, meter reading and global positioning services. The CTHA,
developed in conjunction with researchers at West Virginia University, is a
technologically advanced antenna design which can be incorporated into a wide
variety of telecommunications applications. The Company has been granted world-
wide sublicensing rights for commercial applications, excluding military and
governmental applications, for the antenna. Emergent Technologies Corporation
("ETC") has the sublicense for military and governmental applications for the
CTHA technology.
Dr. James E. Smith, the Chairman of the Board of Directors of the Company ("Dr.
Smith"), is a tenured professor at West Virginia University ("WVU") and has
directed the research and development of CTHA utilizing WVU's facilities and
funding. Under Dr. Smith's employment agreement with WVU, the patentable ideas
for the CTHA were assigned to West Virginia University Research Corporation
("WVURC") and became its property on April 12, 1994. An exclusive worldwide
license was granted by WVURC to Integral Concepts, Inc. ("ICI"), a corporation
owned and controlled by Dr. Smith, to: (1) manufacture the CTHA and, (2)
sublicense others to manufacture, market, sell copies of, license and distribute
the CTHA (the "ICI License").
ICI entered into an option agreement with SMR Investment Ltd., ("SMR") a
corporation owned by Sue Robertson, the wife of John Robertson, the Company's
President, Chief Executive Officer and a member of the Board of Directors
("Robertson"), dated November 18, 1994, and amended December 16, 1994 (the
"Option Agreement"). The Option Agreement provided that ICI would issue a
sublicense to SMR for the CTHA subject to the payment of $250,000; a 3% royalty
from gross sales; and shares in a subsequent public entity. The Company was
organized by SMR and Robertson as a result. ICI retained all military and
governmental applications and resulting procurement interests. The contract
period relating to the three percent royalty to be paid to ICI commences when
sales are made by the Company and continues during the life of the Option
Agreement. The term of the Option Agreement is perpetual as is the ICI
License.
On December 13, 1994, SMR assigned the rights to the Option Agreement to the
Company in consideration for $50,000 advanced by Access Information Services,
Inc. (the "Option Assignment"). Access Information Services, Inc. is a
corporation owned and controlled by Robertson.
On December 14, 1994, the Company issued 3,000,000 shares to Dr. Smith and
3,000,000 shares to Access Information Services Ltd. pursuant to the Option
Assignment. The value assigned to the 3,000,000 shares issued to Dr. Smith was
a total of $0.50 and the value assigned to the 3,000,000 shares issued to Access
Information Systems, Inc. was $0.50. These valuations of the 3,000,000 shares
issued to Dr. Smith and Access Information Systems, Inc. were arbitrarily
determined by the Company's Board of Directors. The $250,000 paid to ICI was a
one-time payment.
On July 10, 1995, ICI granted an exclusive worldwide sublicense to the Company
to: (1) manufacture, sell copies of, sublicense and distribute the process and
equipment related to the design, construction and operation of the CTHA; and,
(2) to sublicense others to manufacture, sell copies of, license and distribute
the same, excluding all military and governmental applications and resulting
procurement interests (the "Sublicense"). The Sublicense was the culmination of
the agreements between ICI and SMR, and SMR and the Company. On December 27,
1995, SMR assigned all of its rights and duties in the CTHA technology to the
Company pursuant to the Option Assignment. The term of the Sublicense, subject
to compliance of the terms thereof, is perpetual and requires the payment of a
minimum annual royalty of $3,000. Further, the Company will pay a royalty of
l0% of the net revenues derived from sales, leases or sublicenses of the CTHA
technology less a credit for the minimum royalty. In addition, the
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Company shall pay a royalty of 3% of the gross revenues derived from the sales,
leases or sublicenses of the CTHA technology.
The Sublicense was amended effective March 4, 1997, to (i) reduce the amount of
the royalty payable by the Company by 50% over the next 3 years, (ii) clarify
that the Company's rights pertain to commercial applications, excluding military
and governmental applications, and (iii) enlarge the definition of Technology to
include all future enhancements to the CTHA technology developed by ICI, ETC, or
the Company.
The Company entered into a joint venture agreement with ETC on March 4, 1997, to
fund and develop a research and development laboratory through a new
corporation, The Eclipse Antenna Manufacturing Corporation, a West Virginia
corporation, ("TEAM"). The purpose of the joint venture is to cooperate in the
research and development of certain applications for the CTHA. The Company and
ETC each own 50% of the issued and outstanding common shares of TEAM. Pursuant
to a voting agreement the Company can vote 100% of the shares of TEAM. The
Company and ETC granted to TEAM certain rights to sell and manufacture the
antennas. All sales of antennas by TEAM will be for the credit of either the
Company or ETC, according to the end-user. However, the Company and ETC
retained the rights to sublicense certain rights, including development and
manufacturing rights to relating to the Technology. The Company and ETC intend
to focus on research and development of the CTHA and arrange for other
manufacturers to fill initial orders.
Circuit Systems, Inc. ("Circuit Systems") has agreed to consult with the Company
on manufacturing matters and to manufacture all orders for the Company. Circuit
Systems is located in Elk Grove Village, Illinois and is an underwriters
laboratory recognized manufacturer of single-sided, double-sided and multi-layer
printed circuit boards. Circuit Systems is reputed for producing high volume
quality printed circuit boards and special orders with short lead times.
(b) BUSINESS OF THE COMPANY
THE PRODUCT
The CTHA is a low profile, lightweight, resonant antenna the size of a postage
stamp that is shaped like a donut and is 1/60 the size of a standard monopole
antenna. It has a toroidal (donut-shaped) geometry about which has been wrapped
helical windings (coils). The windings occur in pairs which are wrapped with
opposite pitch to each other (i.e. left handed windings versus right handed
windings) and are referred to as contra-windings. The small size of the CTHA
results from both the effect of taking long wires and wrapping them onto a small
geometry and the winding interactions which serve to slow the propagation of the
electrical current within the antenna thus behaving as a larger, lower frequency
antenna.
It can be placed on the ground, the deck of a boat, or embedded into a variety
of items like a cellular phone, pager, or meter reading devices. It can be mass
produced inexpensively for numerous wireless applications giving it an
impressive advantage over conventional monopole and dipole antennas.
The whole unit is ground plane independent. Traditional antennas are dependent
on the conductive plane found at the surface of the earth to achieve geographic
coverage. For that reason the higher above the surrounding terrain that an
antenna is installed, the greater its range of coverage. The CTHA appears from
anecdotal data and observed practical experiments to achieve its range of
coverage without reference to or being dependent on the conductive ground plane.
The result of "ground plane independence" it that the CTHA does not need to be
mounted on a tall tower or at the top of a mountain. The CTHA' s coverage
apparently can be achieved with a ground level installation. The elimination of
such towers is a major cost advantage and reduces interference in the visual
environment as well as in the physical environment. Signals are fed to the
antenna through up to four networks which attach to the structure at evenly-
spaced locations. Resulting electromagnetic fields act as if they are solely
produced by a ring of pure magnetic currents; in other words, the contributions
due to electric currents are canceled. This planar ring of magnetic current is
electromagnetically equivalent to a linear electric current.
Compared to traditional dipole and monopole antennas, the CTHA is much shorter
in height, yet its toroidal magnetic field is equivalent to the linear electric
field produced by other taller antennas. This makes CTHAs particularly
excellent candidates for low frequency broadcast transmission that otherwise
require prohibitively tall monopole
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structures above the earth ground plane. For higher frequency applications, for
example, the Company believes that the CTHA could replace a car antenna with a
structure that could be made part of the rear view mirror or similarly sized
object. Resonant operations of the CTHA provides improved efficiency.
The Company believes that the CTHA has outperformed monopole antennas by over
300% in distances achieved in some cases. The basis for this statement is the
United States Department of Defense as reported by Jack Parsons of ETC. While
the Company's license for the CTHA does not include military applications, the
Company believes that the results from the Department of Defense testing will
support the non-military application and use of the CTHA. In addition, the CTHA
is half the diameter of the ground plane structure necessary for quarterwave
monopole antennas. According to Mr. Parsons, the United States Department of
Defense tested the CTHA at distances of over 37 miles, which is much farther
than the typical 10 mile distances for monopole antennas over a period of
several weeks.
ADVANTAGES/DISADVANTAGES
The principle advantages of this antenna are: (1) low physical profile; (2)
resonant operation providing improved efficiency; and, (3) low susceptibility to
electrostatic disturbances. The CTHA is well suited to long distance
communication applications which require vertical polarization for improved
efficiency. The low physical profile is conducive to flush mounted applications
for reducing aerodynamic drag on vehicles. For low frequency fixed
applications, the significantly shorter structures can be made lighter, more
economical, more aesthetic, and less hazardous to aircraft than the tall
antenna structures that are presently used. The CTHA can be constructed on
rectangular or polygonal frames which can be folded and stored for portable
applications.
APPLICATIONS
There are many applications which can exploit the advantages of the CTHA. The
small size and especially low profile make it well suited to both commercial and
military applications that would benefit from an inconspicuous antenna package.
These would include both land, air and sea vehicles. The low profile and
magnetic principle of operation enable the antenna to be concealed in the
fuselage of the body of an airplane, car, truck, train or boat so as to reduce
drag. The CTHA can also be applied in commercial applications, including AM, FM
and TV broadcasting and reception, and cellular phone communications.
Vice President for Research for the Company, Larry Hawkes, demonstrated the ham
radio version of the CTHA at the Dayton, Ohio Hamvention on May 15-17, 1998.
This convention is the largest hamfest in the world, with 60-90 thousand
attendees annually. The CTHA display generated much interest and was well
attended by the visitors. In the demo, a 3-foot diameter CTHA was placed on the
hood of a GMC Suburban, where it was able to send and receive signals. When the
CTHA was placed under the truck, it still worked, which impressed audiences and
drew inquiries from CEOs and presidents of antenna and electronic companies.
The demo CTHAs were tuned to 7.2 MHz and 14.213 MHz, thereby replacing dipoles
65- and 33-feet long, respectively. Audience members participated in all of the
tests and were also shown high frequency circuit board versions of the CTHA.
This demonstration successfully introduced the CTHA to users in the ham
frequency range.
LICENSING
The Company intends to license the technology to manufacture the CTHAs to third
parties. The licenses will be limited to specific applications on an exclusive
or nonexclusive basis, depending upon the terms of the license.
SALES AND MARKETING
The Company intends to market the CTHA through licensing with third party users
and in some cases the manufacture and sale of the antenna using third party
manufacturers.
COMPETITION
The market for antennas is highly competitive. There are numerous manufacturers
of antennas in the United States with substantially greater financial,
technical, marketing and other resources than the Company. To the Company's
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knowledge, no competitors are currently manufacturing any product which is
substantial similar to the CTHA and patent research does not reveal any
competing technology. The Company has not determined if it will compete with
satellite dishes.
RAW MATERIALS
All materials necessary to make the antenna are readily available in the
marketplace from a variety of suppliers.
DEPENDENCE ON MAJOR CUSTOMERS
Since the Company is just beginning to receive orders, it will be dependent on a
few major customers for the near future. On February 27, 1997, the Company
announced an initial order to buy antennas. The Company and ETC announced on
April 21, 1997, that TEAM had received an order to include its antenna in a
wrist watch. On June 12, 1997, the Company and ETC announced that TEAM had
received its first order from a company in the automatic meter reading industry.
On June 11, 1998, the Company signed a license agreement for the CTHA antenna
with ARINC, Incorporated, an ORBCOMM value added reseller. ARINC provides
communications and systems integration engineering to business and industry.
ARINC's Dominium product line uses the ORBCOMM low earth orbit (LEO) satellite
communication system which provides global communications coverage especially
useful in remote areas that are not serviced by conventional or cellular
telephone or other terrestrial communications networks. The Dominium tracker
unit is battery powered and equipped with the Global Positioning System. It can
be programmed to automatically report its position and other information like
temperature, engine speed or load capacity at any desired time interval or upon
reaching a user-determined alarm value. Dominium also markets a data messaging
line of products which integrates input/output devices for sending and receiving
text messages. A subscriber installs the tracker unit on the asset to be
tracked or monitored for a variety of applications including truck tractors,
detached truck trailers, rail cars, ships and containers. Dominium currently
provides service to national and regional trucking companies and to national
railroads. Container shipping companies are currently evaluating the product
for delivery in 1999.
PATENTS
WVURC received a patent for the CTHA in August 1995. Dr. Smith is a tenured
professor at WVU and conducts his research and development regarding the CTHA at
WVU's facilities. As a result, WVURC owns the patent rights to the CTHA which
it licensed to ICI. The ICI License provides that ICI can grant sublicenses of
the technology covered by the patent to third parties. On July 10, 1995, ICI
issued the Sublicense to the Company which was amended in March 1997.
On July 29, 1997, the Company announced that the second US patent had been
granted on the CTHA. This patent broadened the protection it already had for
the CTHA by encompassing several different geometry's not specifically covered
by the first patent.
NEED FOR GOVERNMENT APPROVAL
No government approval is necessary for the antenna other than meeting certain
frequency guidelines.
EFFECT OF EXISTING OR PROPOSED GOVERNMENTAL REGULATIONS
The antenna must meet existing governmental guidelines for antennas. The
Company believes that the antenna meets all governmental requirements.
RESEARCH AND DEVELOPMENT
The Company has spent $1,670,284 on research and development over the past two
years. Research and development is being jointly funded with ETC through TEAM.
Additional research and development of both a scientific
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and practical nature is required to complete the commercialization of the CTHA.
The cost of some future research and development will be borne by customers for
specific applications.
EMPLOYEES
In addition to its Officers, the Company currently employs three part-time
employees. The Company anticipates adding employees as needed in the future.
ITEM 2. PROPERTY
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The Company's executive offices are located at #185-10751 Shellbridge Way,
Richmond, British Columbia V6X2W8, and the telephone number is (604)278-5996.
The Company leases, on a month-to-month basis, approximately 200 square feet of
space at the aforementioned office from John Robertson. The monthly rent is
$500.00. The Company shares space with TEAM in Morgantown, West Virginia.
ITEM 3. LEGAL PROCEEDINGS
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To the best knowledge of the Officers and Directors of the Company, neither the
Company nor any of its Officers and Directors are parties to any legal
proceeding or litigation other than as described below. Further, the Officers
and Directors know of no threatened or contemplated legal proceedings or
litigation other than as described below. None of the Officers and Directors
have been convicted of a felony or none have been convicted of any criminal
offense, felony and misdemeanor relating to securities or performance in
corporate office. To the best of the knowledge of the Officers and Directors,
no investigations of felonies, misfeasance in office or securities
investigations are either pending or threatened at the present time.
The Company was sued in April 1998 in a civil action filed in U.S. District
Court for the District of Oregon (the "Oregon Litigation"). The Plaintiff seeks
money damages and equitable relief against the Company alleging patent
infringement by the Company for the CTHA. The Company has notified WVU of this
claim and will assist WVU in the defense. Two patents were granted for the CTHA
to WVU; one in August 1995, and another in August 1997. The Plaintiff's patent
was approved on March 31, 1998. Based upon the information available to the
Company at this time, the Company believes that the Plaintiff's alleged claim of
infringement is without legal or factual basis.
The Plaintiff in the Oregon Litigation is also a defendant in a pending civil
action in the U.S. District Court for the Northern District of West Virginia
brought by WVU (the "West Virginia Litigation") claiming that the CTHA invention
is owned by the WVU. As alleged in the West Virginia Litigation, the Company
believes that the patent rights for the CTHA technology belongs to WVU and
therefore, based on the ICI License and the Sublicense, the Company owns the
world wide rights to the CTHA commercial applications. The Company intends to
vigorously defend the Oregon Litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote by the Company's security holders during the
fourth quarter of its fiscal year ended April 30, 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- --------------------------------------------------------
The Common Stock of the Company trades on the OTC Bulletin Board under the
symbol "IASCA" where it has traded since April 16, 1996. The Company's Common
Stock has traded at between $1.75 and $4.62 per share since April 16, 1996.
The following table sets forth the high and low prices for the Company's
Common Stock, as provided by OTC and reported on the Bulletin Board for the
quarters presented. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions, and may not reflect actual
transactions.
Bid Price Asked Price
High Low High Low
----- ----- ----- -----
Quarter ended July 31, 1996 $2.38 $1.38 $2.75 $1.62
Quarter ended October 31, 1996 $4.37 $1.87 $4.62 $2.12
Quarter ended January 31, 1997 $3.00 $1.94 $3.25 $2.06
Quarter ended April 30, 1997 $3.06 $2.00 $3.12 $2.25
Quarter ended July 31, 1997 $2.43 $1.56 $2.75 $1.75
Quarter ended October 31, 1997 $3.75 $1.68 $4.00 $1.87
Quarter ended January 31, 1998 $3.00 $2.06 $3.18 $2.37
Quarter ended April 30, 1998 $2.71 $1.93 $2.81 $2.06
As of June 30, 1998, there were 9,486,350 shares of Common Stock outstanding,
held by 156 shareholders of record.
DIVIDEND POLICY
To date the Company has not paid any dividends on its Common Stock and does not
expect to declare or pay any dividends on such Common Stock in the foreseeable
future. Payment of any dividends will be dependent upon future earnings, if any,
the financial condition of the Company, and other factors as deemed relevant by
the Company's Board of Directors.
UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
In July 1997, the Company sold, in a private placement, 99,000 shares of
Class A Common Stock at a price of $2.25 per share to 15 accredited investors.
These transactions were exempt from registration under the Act by reason of
Section 4(2) thereof and Rule 505 of Regulation D. Each certificate representing
shares issued to the investors in this private placement bears a legend
restricting transfer.
In December 1997, the Company sold, in a private placement, $30,000 in
aggregate principal amount of its 8 3/4% of Convertible Debentures due June 15,
1998. Each Debenture is convertible into Common Stock of the Company at any time
at or prior to maturity at a conversion price of $2.50 per share up to June 15,
1998; at $3.00 from June 16, 1998 to June 15. 1999, and at $3.50 from June 16,
1999 to June 15, 2000. In the event the shares of Common Stock are trading below
$4.00 per share any consecutive ten trading day period during the period May 15,
2000 to June 15, 2000, the conversion price on June 15, 2000 shall be 80% of the
average closing bid price of Common Stock over said ten day trading period. to 4
accredited investors. These transactions were exempt from registration under the
Act by reason of Section 4(2) thereof and Rule 506 of Regulation D. Each
certificate representing debentures issued to the investors in this private
placement bears a legend restricting transfer.
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In December 1997, the Company sold, in a private placement, 226,600 Units
at a price of $1.75 per Units to 21 accredited investors. Each Unit consists of
one share of Common Stock and one Warrant allowing the holder to purchase an
additional share of Common Stock at $1.75 during the first year following the
issue date, and $2.25 per share during the second year following the issue date.
The purchasers of these Units were, in the opinion of management, fully informed
with respect to the financial position, business and prospects of the Company.
These transactions were exempt from registration under the Act by reason of
Section 4(2) thereof and Rule 506 of Regulation D. Each certificate representing
securities issued to the investors in this private placement bears a legend
restricting transfer.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
PLAN OF OPERATIONS
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MANAGEMENT'S DISCUSSION
The Company is a development stage company engaged in the commercialization of
advanced antenna technology known as the Contrawound Torroidal Helical Antenna,
("CTHA"), for wireless communications markets including cellular, meter reading
and global positioning services. The CTHA, developed in conjunction with
researchers at West Virginia University, is a technologically advanced antenna
design which can be incorporated into a wide variety of telecommunications
applications. The Company has been granted world-wide sublicensing rights for
commercial applications, excluding military and governmental applications, for
the antenna.
By News Release dated July 15, 1998, the Company announced that an agreement was
completed to build and test the CTHA for receiver sites in the narrowband
personal communications system network of MobileComm (MobileMedia
Communications, Inc.). MobileComm has agreed to assist the Company in the
completion of the design and the building of ten prototypes of the CTHA by
September 11, 1998. Based on successful test results, the Company will make the
CTHA available for purchase by MobileComm by October 30th, 1998. MobileComm is
one of the largest providers of paging and personal communications services in
the United States. MobileComm offers local, regional and nationwide coverage in
all 50 states, reaching markets of over 95% of the U.S. population, and in the
Caribbean.
On June 11, 1998, the Company announced the successful completion of a license
agreement for the CTHA Antenna with ARINC, Incorporated, an ORBCOMM value added
reseller. ARINC was founded in 1929 and is headquartered in Annapolis, Maryland.
It provides communications and systems integration engineering to business and
industry. ARINC's dominion product line uses the ORBCOMM low earth orbit
satellite communication system, which provides global communications coverage
especially useful in remote areas that are not serviced by conventional or
cellular telephone or other terrestrial communications networks.
On May 19, 1998, the Company announced the successful testing of the CTHA by
Larry Hawks for the ham version of the CTHA at the Dayton Hamvention, which
demonstration served to introduce the CTHA to users in the ham frequency range.
On April 3, 1998, the Company announced that it had received a summons and
complaint in a civil action filed in the U.S. District Court for the District of
Oregon regarding alleged patent infringement by the Company for the CTHA. The
Plaintiff seeks money damages and equitable relief against the Company alleging
patent infringement by the Company for the CTHA. The Plaintiff is also a
Defendant in a pending civil action in the U.S. District Court for the Northern
District of West Virginia brought by West Virginia University ("WVU") claiming
that the CTHA invention is owned by WVU. As a result of the pending civil
action, the Company believes that the CTHA invention belongs to WVU and
therefore, based on the license agreement between WVU and Integral Concepts and
the Sublicense Agreement between Integral Concepts and the Company, the Company
owns the worldwide rights to the CTHA commercial applications. The Company
intends to vigorously defend the Oregon litigation.
On January 22, 1998, the Company announced that Circuit Systems, Inc. confirmed
that it would commence production on the CTHA pursuant to the Company. Circuit
Systems, Inc. is located in Elk Grove, Illinois and is an
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underwriters laboratory recognized manufacturer of single-sided, double-sided
and multi-layer printed circuit boards.
RESULTS OF OPERATIONS FOR FISCAL 1998 COMPARED TO FISCAL 1997
There were no revenues from licensing the CTHA during the two years.
The net loss in 1998 increased by $489,000 to $1,633,000 compared to $1,044,000
in 1997. Administrative expenses increased by $156,000 to $582,000 compared to
$426,000 in 1997. The major reason for the increase was $60,000 worth of shares
issued to a financial consulting firm during 1998 and $75,000 paid to public
relations firm for advertising the Company's stock. Research and development
activity increased by $432,000 to $1,051,000 compared to $619,000 in 1997. TEAM
entered into an eight month subcontract with Emergent Technologies Corporation
to conduct combined research and development activities expiring December 31,
1997. The contract was extended on a month to month basis after December 31,
1997 and a total amount of $897,000 was paid to Emergent. Emergent contributed
$364,000 towards the funding of these activities and the Company funded
$533,000. The subcontract with the WVURC was increased from $247,000 during
fiscal 1997 to $422,000 during fiscal 1998 to fund the ongoing research and
development program with CIRA. The Company also received $25,000 as a non-
recurring engineering fee from a third party to assist the Company in building
prototypes for testing.
LIQUIDITY - FISCAL 1998
During the year ended April 30, 1998, the Company financed its operations, in
part, from proceeds from two private placements. The Company raised $15,750 and
issued 7,000 shares at $2.25 per share pursuant to a private placement. The
Company raised $1,042,300 and issued 595,600 units at $1.75 per unit pursuant to
a private placement units offering. The Company received $26,875 pursuant to
options exercised and issued 87,500 shares. The Company received $40,000
pursuant to a convertible debenture.
The Company's financial resources, including an opening cash balance as at April
30, 1997 of $135,000, totalled $1,260,000. Cash used, as a result of the net
loss for the year, totalled $1,138,421, after adjustments to reconcile net loss
to cash. The Company spent $6,000 on computer equipment and $100,000 on patent
protection costs. The Company has a cash position of $16,000 as at April 30,
1998.
The Company is committed to spending $110,000 by October 20, 1998 to complete
the funding of the research and development program in conjunction with CIRA.
Subsequent to April 30, 1998 the Company has added additional funds through
completion of the units offering which raised an additional $131,000 and through
a non-recurring engineering fee of $67,000 received from a potential licensee.
The Company also entered into an agreement with an investment banker to place up
to $5,000,000 of units, each unit consisting of one $500,000, three year, 8%
interest, convertible debenture and one warrant to purchase 25,000 shares. One
unit was sold on July 22, 1998. The Company also has the potential to raise up
to $1,173,550 upon the exercise of warrants.
10
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- ------- --------------------
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Financial Statements
April 30, 1998 and 1997
Independent Auditor's Report
Consolidated Balance Sheets as of April 30, 1998 and 1997
Consolidated Statements of Operations accumulated from December 13, 1994
(Inception) to April 30, 1998 and the years ended April 30, 1998 and 1997
Consolidated Statements of Cash Flows accumulated from December 13, 1994
(Inception) to April 30, 1998 and the years ended April 30, 1998 and 1997
Consolidated Statement of Stockholders' Equity accumulated from December 13,
1994 (Inception) to April 30, 1998
Notes to the Consolidated Financial Statements
11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- ----------------------------
Board of Directors
IAS Communications, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of IAS
Communications, Inc. (a Development Stage Company) as of April 30, 1998 and
1997, and the related statements of operations, stockholders' equity (deficit)
and cash flows for the period from December 13, 1994 (inception) to April 30,
1998 and the years ended April 30, 1998 and 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at April 30, 1998
and 1997, and the results of its operations and its cash flows for the period
from December 13, 1994 (inception) to April 30, 1998, and the years ended April
30, 1998 and 1997, in conformity with U.S. generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not generated any revenues or profitable
operations since inception. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The financial statements do not
include any adjustments which might result from the outcome of this uncertainty.
ELLIOTT, TULK, PRYCE, ANDERSON
"Elliott, Tulk, Pryce, Anderson"
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
July 22, 1998
12
<PAGE>
Consolidated Balance Sheets
April 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Assets
Current Assets
Cash 15,882 135,039
Prepaid expenses 14,925 11,950
--------- ---------
30,807 146,989
Capital Assets (Note 3) 40,437 45,381
Licence and Patent Protection Costs (Note 4) 368,836 285,895
--------- ---------
440,080 478,265
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 370,512 113,860
Accrued liabilities 80,160 127,000
--------- ---------
450,672 240,860
Convertible Debenture (Note 6) 40,000 -
--------- ---------
490,672 240,860
--------- ---------
Redeemable Class "A" Shares (Note 7) - 197,750
--------- ---------
Commitments and Contingencies (Notes 9 and 10)
Stockholders' Equity (Deficit)
Common Stock (Note 7)
Class "A" voting - 100,000,000 shares authorized
without par value; 9,320,350
and 8,481,000 shares issued
and outstanding respectively 3,155,884 1,648,084
- paid for but unissued - 20,000 shares 35,000 -
Class "B" non-voting - 100,000,000 shares authorized without
par value; none issued - -
--------- ---------
3,190,884 1,648,084
Preferred Stock 50,000,000 shares authorized; none issued - -
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C>
Deficit Accumulated During The Development Stage (3,241,476) (1,608,429)
--------- ---------
(50,592) 39,655
--------- ---------
440,080 478,265
========= =========
</TABLE>
14
<PAGE>
Consolidated Statements of Operations
Accumulated from December 13, 1994 (Inception)
to April 30, 1998 and the years ended
April 30, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated 1998 1997
$ $ $
<S> <C> <C> <C>
Revenue - - -
--------- --------- ---------
Administration Expenses
Bank charges 2,124 929 819
Business plan 45,219 26,619 18,600
Depreciation 1,154 1,030 124
Interest on convertible debentures 2,720 2,720 -
Investor relations - advertising 224,138 152,188 71,950
Investor relations - consulting 206,829 119,773 70,560
Management fees 207,500 60,000 65,000
Office, postage and courier 80,445 53,093 15,288
Professional fees 332,217 63,267 100,604
Rent and secretarial 82,223 38,223 18,500
Telephone 75,802 29,082 35,587
Transfer agent and regulatory 28,132 16,787 6,647
Travel and promotion 58,379 19,609 27,147
Less interest income (13,447) (1,622) (5,245)
--------- --------- ---------
1,333,435 581,698 425,581
--------- --------- ---------
Research and Development Expenses
Royalty 9,000 3,000 3,000
Consulting 202,419 32,000 152,752
Depreciation and amortization 36,220 26,634 9,586
Market awareness and development 60,000 60,000 -
Subcontract - West Virginia University
Research Corporation 826,243 421,691 247,462
Subcontract - Emergent Technologies Corporation 1,162,877 896,742 206,135
Less contributions by a non-controlling shareholder (363,718) (363,718) -
Less engineering contribution by a third party (25,000) (25,000) -
--------- --------- ---------
1,908,041 1,051,349 618,935
--------- --------- ---------
Net Loss 3,241,476 1,633,047 1,044,516
========= ========= =========
Net Loss Per Share (.18) (.13)
========= =========
Weighted Average Shares Outstanding 8,900,000 8,100,000
========= =========
</TABLE>
15
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
Accumulated from December 13, 1994 (Inception)
to April 30, 1998 and the years ended
April 30, 1998 and 1997
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Accumulated 1998 1997
$ $ $
<S> <C> <C> <C>
Cash Flows to Operating Activities
Net loss (3,241,476) (1,633,047) (1,044,516)
Adjustments to reconcile net loss to cash
Gain on shares cancelled (10) - -
Depreciation and amortization 37,374 27,664 9,710
Shares issued for services 268,458 260,125 -
Change in non-cash working capital items
Increase in prepaid expenses (14,925) (2,975) (2,192)
Increase in accounts payable 370,512 256,652 86,746
Increase (decrease) in accrued liabilities 80,160 (46,840) 127,000
---------- ---------- --------
Net Cash Used in Operating Activities (2,499,907) (1,138,421) (823,252)
---------- ---------- --------
Cash Flows to Investing Activities
Increase in capital assets (55,991) (5,686) (50,305)
Increase in licence (250,000) - -
Increase in patent protection costs (140,655) (99,975) (25,192)
---------- ---------- --------
Net Cash Used in Investing Activities (446,646) (105,661) (75,497)
---------- ---------- --------
Cash Flows from Financing Activities
Increase in common stock 2,922,435 1,084,925 848,750
Increase in convertible debentures 40,000 40,000 -
---------- ---------- --------
Net Cash Provided by Financing Activities 2,962,435 1,124,925 848,750
---------- ---------- --------
Increase (Decrease) in Cash 15,882 (119,157) (49,999)
Cash - Beginning of Period - 135,039 185,038
---------- ---------- --------
Cash - End of Period 15,882 15,882 135,039
========== ========== ========
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C>
Non-Cash Financing Activities
The Company issued 6,000,000 Class "A"
common shares at a deemed value of $1
in total for property 1 - -
Shares issued to an officer at inception
donated back to the Company and cancelled (10) - -
Shares issued for services 8,333 - 8,333
Shares issued pursuant to performance
stock agreements for services 260,125 260,125 -
---------- ---------- --------
268,449 260,125 8,333
========== ========== ========
Supplemental disclosures:
Interest paid 2,720 2,720 -
Income tax paid - - -
</TABLE>
17
<PAGE>
Consolidated Statement of Stockholders' Equity (Deficit)
Accumulated from December 13, 1994 (Inception)
to April 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Common During the
Stock Stock Development
Shares Class "A" Class "B" Stage
# $ $ $
<S> <C> <C> <C> <C>
Balance - December 13, 1994 (Inception) - - - -
Shares issued to an officer at inception
for cash at $0.10 per share 100 10 - -
Shares issued, at inception, for property
at a nominal value of $1 in total
or $.00000017 per share 6,000,000 1 - -
Shares issued for cash pursuant to a
private placement at $0.10 per share 700,000 - 70,000 -
Shares issued for cash pursuant to a public
offering memorandum at $0.75 per share 336,333 - 252,250 -
Net loss for the period - - - (83,615)
---------- ---------- ---------- ----------
Balance - April 30, 1995 7,036,433 11 322,250 (83,615)
Shares issued to an officer at inception
donated back and cancelled (100) (10) - -
Share exchange - 322,250 (322,250) -
Shares issued for cash pursuant to
options exercised at $0.25 per share 210,000 52,500 - -
Net loss for the year - - - (480,298)
---------- ---------- ---------- ----------
Balance - April 30, 1996 7,246,333 374,751 - (563,913)
Shares issued for cash pursuant to a
private placement at $1.25 per share 500,000 625,000 - -
Shares issued for services at $0.33 per share 25,000 8,333 - -
Shares issued for cash pursuant to options
exercised at $0.25 per share 139,500 34,875 - -
Shares issued for cash pursuant to options
exercised at $1.25 per share 84,500 105,625 - -
Shares issued for cash pursuant to a
private placement at $2.25 per share 222,000 499,500 - -
Net loss for the year - - - (1,044,516)
---------- ---------- ---------- ----------
Balance - April 30, 1997 8,217,333 1,648,084 - (1,608,429)
---------- ---------- ---------- ----------
</TABLE>
18
<PAGE>
Consolidated Statement of Stockholders' Equity (Deficit)
Accumulated from December 13, 1994 (Inception)
to April 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Common During the
Stock Stock Development
Shares Class "A" Class "B" Stage
# $ $ $
<S> <C> <C> <C> <C>
Carryforward from April 30, 1997 8,217,333 1,648,084 - (1,608,429)
Shares previously issued, for cash during
1994, pursuant to a public offering
memorandum at $0.75 per share,
transferred to shareholders' equity
from redeemable status (Note 7(c)) 263,667 197,750 - -
Shares issued for cash pursuant to options
exercised at $0.25 per share 83,500 20,875 - -
Shares issued for cash pursuant to options
exercised at $1.50 per share 4,000 6,000 - -
Shares issued for cash pursuant to a
private placement at $2.25 per share 7,000 15,750 - -
Shares issued for cash pursuant to a
private placement, at $1.75 per share 575,600 1,007,300 - -
Shares issued for services pursuant to a
performance stock agreement at a
deemed value of $1.17 per share 100,000 117,000 - -
Shares issued for services pursuant to a
performance stock agreement at a
deemed value of $2.50 per share 9,250 23,125 - -
Shares issued for services pursuant to a
performance stock agreement at a
deemed value of $2.00 per share 60,000 120,000 - -
Net loss for the year - - - (1,633,047)
Balance - April 30, 1998 9,320,350 3,155,884 - (3,241,476)
========= ========= ========= =========
</TABLE>
Notes to the Consolidated Financial Statements
1. Development Stage Company
IAS Communications, Inc. herein "the Company" was incorporated on
December 13, 1994, pursuant to the Laws of the State of Oregon.
The Company is a development stage company engaged in the
commercialization of advanced antenna technology known as the
Contrawound Torroidal Helical Antenna, herein "CTHA", for wireless
communications markets including cellular, meter reading and global
positioning
19
<PAGE>
services. The CTHA, developed in conjunction with researchers at
West Virginia University, is a technologically advanced antenna
design which can be incorporated into a wide variety of
telecommunications applications. The Company has been granted
worldwide sublicensing rights for commercial applications, excluding
military and governmental applications, for the CTHA pursuant to an
agreement with Integral Concepts Inc. and West Virginia University
Research Corporation.
In a development stage company, management devotes most of its
activities to establishing a new business. Planned principle
activities have not yet produced significant revenue. The ability
of the Company to emerge from the development stage with respect to
its planned principle business activity is dependent upon its
successful efforts to raise additional equity financing and develop
markets for its products.
The Company has subsequently raised $131,250 to complete a private
placement of units at $1.75 per unit and plans to raise additional
funds through a $5,000,000 units private placement, each unit
consisting of a three year 8% convertible debenture and a warrant to
acquire 25,000 Class "A" shares. The Company also received $67,000
towards a $100,000 non-recurring engieering fee from a potential
licensee. Warrants in the amount of 670,600 at $1.75 may be
exercised to net $1,173,550.
2. Summary of Significant Accounting Policies
(a) Basis of Consolidation
These financial statements include the accounts of the Company
and a newly incorporated company, The Eclipse Antenna
Manufacturing Co. herein "TEAM", which is 50% equity owned and
100% controlled through a voting agreement. All significant
inter-company accounts have been eliminated.
(b) Year-End
The Company's fiscal year-end is April 30.
(c) Research and Development
Research and development costs are expensed in the period in
which they are incurred.
(d) Capital Assets
Capital assets are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives of five
years.
(e) Licence and Patent Protection Costs
Costs associated with patent protection and licences are
amortized over 20 years upon licenceable product being developed
which occurred on February 1, 1997.
(f) Cash and Cash Equivalents
The Company considers all highly liquid instruments with a
maturity of three months or less at the time of issuance to be
cash equivalents.
(g) Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the periods. Actual results could differ
from those estimates.
20
<PAGE>
(h) Tax Accounting
Potential benefits of income tax losses are not recognized in
the accounts until realization is more likely than not. Research
and development costs are deducted in the year incurred and
added to net operating loss.
The Company has adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109") as of its inception. The Company
has incurred net operating losses as scheduled below:
Year of Loss Amount Year of
$ Expiration
1995 89,000 2010
1996 497,000 2011
1997 1,057,000 2012
1998 1,425,000 2013
Pursuant to SFAS 109 the Company is required to compute tax
asset benefits for net operating losses carried forward.
Potential benefit of net operating losses have not been
recognized in these financial statements because the Company
cannot be assured it is more likely than not it will utilize the
net operating losses carried forward in future years.
The components of the net deferred tax asset at the end of April
30, 1998 and 1997, and the statutory tax rate, the effective tax
rate and the elected amount of the valuation allowance are
scheduled below:
1998 1997
$ $
Net Operating Loss 1,425,000 1,056,537
Statutory Tax Rate 113,900 + 34% 113,900 + 34%
in excess of in excess of
$ 335,000 $ 335,000
Effective Tax Rate - -
Deferred Tax Asset 485,000 359,000
Valuation Allowance (485,000) (359,000)
Net Deferred Tax Asset - -
========== ==========
21
<PAGE>
3. Capital Assets
<TABLE>
<CAPTION>
1998 1997
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment 7,991 1,154 6,837 2,181
Research and development equipment 48,000 14,400 33,600 43,200
------ ------ ------ ------
55,991 15,554 40,437 45,381
====== ====== ====== ======
Depreciation per class of capital asset:
Computer equipment 1,030 124
Research and development equipment 9,600 4,800
</TABLE>
4. Licence and Patent Protection Costs
<TABLE>
<CAPTION>
1998 1997
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Licence 250,001 16,667 233,334 245,834
Patent protection costs 140,655 5,153 135,502 40,061
------- ------ ------- -------
390,656 21,820 368,836 285,895
======= ====== ======= =======
</TABLE>
Pursuant to the terms of an option agreement dated November 18, 1994, and
amended December 16, 1994, between SMR Investments Ltd. ("SMR") and
Integral Concepts Inc. ("ICI") and an assignment of this option agreement
dated December 13, 1994, the Company acquired a sublicence to the CTHA,
subject to entering into a formal sublicence agreement. Pursuant to the
terms of the option agreement, the Company paid $250,000 to ICI, which
owns the exclusive licence obtained from West Virginia University
Research Corporation ("WVURC") in an agreement dated April 12, 1994.
SMR, ICI and WVURC are not related to each other. Pursuant to the
assignment agreement, the Company issued 3,000,000 shares to each of
Access Information Systems Inc. (A company controlled by SMR) and a
director of the Company (principal of ICI) for a total deemed value of $1
for all 6,000,000 shares issued.
Pursuant to the original licence agreement between WVURC and ICI, ICI was
granted the exclusive licence to manufacture the CTHA or sublicence
others to manufacture, market, sell copies of, licence and distribute the
CTHA. On July 10, 1995, the Company and ICI entered into a sublicence
agreement, which incorporates the terms and conditions of the original
licence agreement between WVURC and ICI. The sublicence is exclusive,
covering any and all international markets but excludes all military and
governmental applications and resulting procurement interests which are
retained by ICI and WVURC for development purposes. All improvements and
embodiments that are created as a result of these military applications
and additional research and development efforts by ICI and WVURC will be
transferred directly to the Company. The terms of the sublicence
agreement, which incorporates the financial obligations that ICI owes
WVURC pursuant to the original licence agreement, are as follows:
22
<PAGE>
(i) The Company will pay WVURC a minimum annual royalty of $3,000
on or before December 31 of each year.
(ii) The Company will pay WVURC an earned royalty on sales, leases
or sublicences of the CTHA of 10% of net revenues less a credit
for the minimum annual royalty. No revenues have been earned to
date.
(iii) The Company will pay ICI an earned royalty on sales, leases or
sublicences of the CTHA of 3% of gross revenues. As amended on
March 4, 1997, ICI agreed to reduce the amount of royalties to
be paid by 50% in an amount not to exceed $5,000,000 for up to
3 years.
All royalties are payable within 30 days of each calendar quarter.
The term of the original licence agreement and the sublicence
agreement, subject to compliance with the terms thereof, is perpetual
and renewable annually.
5. Joint Venture Agreement
The Company entered into a Joint Venture Agreement ("JVA") with
Emergent Technologies Corporation (ETC) on March 4, 1997. The JVA
required a new company to be incorporated (TEAM) whereby the Company
owns 50% and ETC owns 50%. Pursuant to a voting agreement the Company
can vote 100% of the shares of TEAM and therefore the accounts of TEAM
are consolidated with the accounts of the Company. The President of
ETC is the President of TEAM. TEAM was organized on June 4, 1997,
under the laws of the State of West Virginia. The Company retains the
worldwide commercial sublicence rights to the CTHA excluding all
military and governmental applications.
The business purpose of TEAM is to cooperate in the research and
development of certain applications for the CTHA and to assemble and
manufacture certain products relating thereto. IAS can buy product
from TEAM at cost to manufacture plus 30% for all commercial
applications and ETC can buy product from TEAM at cost to manufacture
plus 30% for all military applications. ETC acquired the worldwide
sublicence from ICI for all military and governmental applications on
January 2, 1997.
TEAM entered into a contract with ETC to carry out combined research
and development activities to December 31, 1997. This contract is
renewable on a monthly basis at the option of TEAM. ETC and the
Company have each funded TEAM $250,000 as required in the JVA. The
Company has advanced a further $285,700 and ETC has advanced a further
$113,668 towards combined research and development activities.
6. Convertible Debenture
The Company offered, in a private placement a three year, 8 3/4%
interest, convertible debenture to raise $500,000, of which $40,000
was sold prior to closing. Interest is paid annually and the
debenture is convertible into Class "A" common shares at $2.50, $3.00
and $3.50 on June 15, 1998, 1999 and 2000, respectively. In the event
the shares are trading below $4.00 per share over a ten-day average
prior to exercising into shares of the Company during the last month
of the third year, the convertible debenture will be exercisable at
20% below the said ten-day average. The maturity date is June 15,
2000.
7. Common Stock
(a) Stock Option Plan
On October 2, 1996 the Company registered 1,000,000 Class "A"
shares for issuance under a Stock Option Plan. Pursuant to the
Plan the Company has granted stock options to certain directors
and employees. The options are granted for services provided or
to be provided to the Company. Statement of Financial Accounting
Standards No. 123 ("SFAS 123") requires that an enterprise
recognize, or at its option, disclose, the impact of the fair
value of stock options and other forms of stock based
compensation in the determination
23
<PAGE>
of income. The Company has elected under SFAS 123 to continue to
measure compensation cost on the intrinsic value basis set out in
APB Opinion No. 25. As options are granted at exercise prices
based on the market price of the Company's shares at the date of
grant, no intrinsic value adjustment is required.
<TABLE>
<CAPTION>
April 30, Price Granted Exercised April 30, Expiry
1997 $ # # 1998 Date
# #
<S> <C> <C> <C> <C> <C>
173,000 0.25 - 83,500 89,500 December 29, 1999
37,500 0.25 - - 37,500 February 4, 2000
3,000 1.25 - - 3,000 March 4, 2001
25,000 1.50 - 4,000 21,000 August 21, 2001
530,000 2.25 - - 530,000 December 19, 2001
- 2.50 17,500 - 17,500 August 1, 2001
- 2.25 25,000 - 25,000 April 14, 2003
-------- -------- ------- -------
768,500 42,500 87,500 723,500
======== ======== ======= =======
</TABLE>
(b) Units Offering
A total of $1,173,550 ($131,250 received after April 30, 1998)
has been received to July 9, 1998 (date of closing) pursuant to a
private placement and foreign offering of 670,600 units at $1.75
per unit. Each unit has been issued and contained one share and
one warrant to acquire one additional share at $1.75 per share
expiring one year after receipt of funds and $2.25 per share
expiring two years after.
(c) Redeemable Class "A" Shares
Between December 14, 1994 and March 6, 1995, the Company received
subscriptions for 263,667 Class "B" shares and received $197,750
from investors in States where they have the right to revoke
their subscription and demand their investment be returned to
them within three years of subscription as to $161,500 and within
six years as to $36,250. The 263,667 redeemable Class "B" shares
were issued and then exchanged for 263,667 Class "A" shares.
Holders of these shares did not revoke their subscriptions and/or
have sold these shares and thus all 263,667 Class "A" shares are
not considered redeemable and $197,750 has been transferred to
shareholders' equity.
8. Related Party Transactions
Management fees of $60,000 (1997 - $65,000) and rent and secretarial
fees of $18,000 (1997 - $18,500) has been paid to directors or
companies under their control. All fees were recorded at their
exchange amounts.
9. Commitments and Contingencies
(a) Contractual Commitments
(i) The Company entered into an agreement on October 21, 1997
and amended May 15, 1998 with WVURC to fund ongoing
research and development of the CTHA in the amount of
$444,927. The budget ending date is October 20, 1998. A
total of $334,311 of this budget has been spent to April
30, 1998.
(ii) See Note 10 for ongoing compensation commitments including
a Performance Stock Plan.
24
<PAGE>
(iii) See Note 7 for commitments to issue shares upon the
exercise of stock options and warrants.
(b) Contingent liability - Development Stage Company (See Note 1).
(c) Litigation
An action has commenced against the Company by a company
owned by a former student of West Virginia University with
respect to an alleged infringement of a certain U.S.
Patent.
The Company is disputing the validity of this claim and
based on the current legal action with the plaintiff by
West Virginia University regarding the CTHA the Company is
requesting a motion to stay the action.
10. Compensation Agreements and Performance Stock Plan
(a) The Company has allotted up to 1,000,000 shares to be issued
pursuant to a Performance Stock Plan. Compensation is recorded
when the shares are issued, which approximates the period when the
services are rendered, and recorded at the fair market value of
the shares issued.
(i) The Company is committed to issue up to 500,000 shares to
the President of ETC and President of TEAM whom is also an
employee of the Company. A total of 100,000 shares were
issued on May 5, 1997, at a deemed value of $1.17 per share
for compensation of $117,000. The amount of $117,000 was
accrued as at April 30, 1997, and charged to research and
development consulting expense. The remaining 400,000
shares shall be earned as to 100,000 shares for every
1,000,000 CTHA's sold.
(ii) The Company is committed to issue 182,000 shares to two
financial consulting firms. A total of 60,000 shares were
issued during the year at $2.00 per share, 12,000 shares
were issued May 28, 1998 at $2.37 per share ($28,440 was
accrued at April 30, 1998) 55,000 shares were issued June
23, 1998, 30,000 shares are to be issued in July, 1998 and
25,000 shares are to be issued in December, 1998.
(b) The Company is committed to pay compensation of $30,000 to each of
Access Information Systems and Dr. Smith for fiscal 1999.
11. Subsequent Events
Subsequent to April 30, 1998 the Company has:
(i) received a further $131,250 and, together with $35,000
received prior to April 30, 1998, issued 95,000 units at
$1.75 per unit.
(ii) issued 67,000 shares and is committed to issue a further
455,000 shares pursuant to various performance stock
agreements entered into.
(iii) granted stock options to acquire 100,000 shares at prices
between $2.25 and $3.00.
(iv) received $67,000 towards a $100,000 non-recurring
engineering fee from a potential licensee.
(v) issued 2,000 shares pursuant to $5,000 of convertible
debentures converted at $2.50 per share.
25
<PAGE>
(vi) entered into an agreement with an investment banker to
place up to $5,000,000 of units, each unit consisting of
one $500,000, three year, 8% interest, convertible
debenture and one warrant to purchase 25,000 Class "A"
shares. One unit was sold on July 22, 1998.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
26
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- ------- -------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
The following table sets forth the name, age and position of each Executive
Officer and Director of the Company:
<TABLE>
<CAPTION>
==================================================================================================================
NAME AGE POSITION
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
James Earl Smith, Ph.D. 47 Chairman of the Board of Directors
- ------------------------------------------------------------------------------------------------------------------
John G. Robertson 57 President, Principal Executive Officer and a member of
the Board of Directors
- ------------------------------------------------------------------------------------------------------------------
Jennifer Lorette 26 Secretary/Treasurer, Principal Accounting Officer and
Chief Financial Officer
- ------------------------------------------------------------------------------------------------------------------
Patrick Badgley 54 Member of the Board of Directors
- ------------------------------------------------------------------------------------------------------------------
Paul E. Lamarche 55 Member of the Board of Directors
==================================================================================================================
</TABLE>
All Directors of the Company have served since December 13, 1994. The Executive
Officers were elected on February 4, 1995, and will serve for one year or until
their respective successors are elected and qualified. All officers currently
devote part-time to the operation of the Company.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY:
JAMES EARL SMITH PH.D - CHAIRMAN OF THE BOARD OF DIRECTORS
- ----------------------------------------------------------
Dr. Smith is a founder and Chairman of the Board of Directors. Since 1989, Dr.
Smith has been an Associate Professor in the Mechanical and Aerospace
Engineering Department, West Virginia University, Morgantown, West Virginia.
Since September 1990, Dr. Smith has been a Director of the Center for Industrial
Research Applications, West Virginia University. Since February 1994, Dr. Smith
has been President and a Director of Integral Visions Systems, Inc. a West
Virginia corporation engaged in the business of 3-D machine vision calorimetry.
Since September 1992, Dr. Smith has been President and a Director of Integral
Concepts, Inc., a West Virginia corporation engaged in the business of
technology transfer from the research to the commercial sector. From April 1992
to March 1994, Dr. Smith was a consultant to CK Engineering, Inc., located in
Montreal, Canada, which is engaged in the business of mechanism analysis and
development. From January 1992 to March 1993, Dr. Smith was a consultant to Reg
Technologies, Inc. located in Richmond, British Columbia which is engaged in the
business of mechanism analysis and development. Dr. Smith holds the degree of
Doctor of Philosophy in Mechanical Engineering from West Virginia University.
JOHN G. ROBERTSON - PRESIDENT, PRINCIPAL EXECUTIVE OFFICER AND A MEMBER OF THE
- ------------------------------------------------------------------------------
BOARD OF DIRECTORS
- ------------------
Mr. Robertson is a founder, President, Principal Executive Officer and a member
of the Board of Directors of the Company. Since May 1977, Mr. Robertson has
been President and a member of the Board of Directors of SMR Investments Ltd., a
British Columbia corporation engaged in the business of management and
investment consulting. Since October 1984, Mr. Robertson has been President and
a Director of Reg Technologies, Inc., a British Columbia corporation engaged in
the business of developing a rotary engine. Since June 1994, Mr. Robertson has
been President of REGI U.S., Inc. ("REGI U.S."), an Oregon corporation which is
engaged the business of developing a rotary engine. REGI U.S. is controlled by
Rand Energy Group, Inc., a British Columbia corporation of which Reg
Technologies, Inc. is the majority shareholder. Both REGI U.S. and Reg
Technologies, Inc. are engaged in the business of developing a rotary engine and
other devices utilizing Rand Cam(TM) Technology. REGI U.S. owns the U.S. rights
to the Rand Cam(TM) technology and Rand Energy Group, Inc. owns the worldwide
rights exclusive of the U.S. Since May 1980, Mr. Robertson has been President
and a Director of Teryl Resources Corp., a British Columbia corporation, engaged
in exploring and developing gold properties. Since February 1979, Mr. Robertson
has been President and Director of
27
<PAGE>
Flame Petro-Minerals Exploration Co., a British Columbia corporation engaged in
exploration of oil, gas and gold properties.
JENNIFER LORETTE - SECRETARY/TREASURER, PRINCIPAL FINANCIAL OFFICER AND
- -----------------------------------------------------------------------
PRINCIPAL ACCOUNTING OFFICER
- ----------------------------
Ms. Lorette is a founder, Secretary/Treasurer, Principal Financial Officer and
Principal Accounting Officer of the Company. Since April 1994, Ms. Lorette has
been Vice President of Administration of Reg Technologies Inc. Since June 1994,
Ms. Lorette has been a Vice President of REGI U.S. and Chief Financial Officer
and Vice President of Flame Petro Minerals Corp. From February 1994 to April
1994, Ms. Lorette was an executive assistant and from December 1992 to February
1994, she was a receptionist at Reg Technologies, Inc.
PATRICK BADGLEY - A MEMBER OF THE BOARD OF DIRECTORS
- ----------------------------------------------------
Mr. Badgley is a founder and a member of the Board of Directors of the Company.
Since February 1994, Mr. Badgley has been a Vice President of REGI U.S., and
since July 1993 has been a Director of Reg Technologies, Inc. From November
1986 to February 1994, Mr. Badgley was the Director of Research and Development
for Adiabatics, Inc., an Indiana corporation, which was engaged in the business
of advanced engine concepts. Prior to this he worked for Cummins Engine
Company, Curtiss Wright Corporation and Deere and Company. Mr. Badgley holds a
Bachelor of Mechanical Engineering degree from the Ohio State University,
Columbus, Ohio.
PAUL E. LAMARCHE - A MEMBER OF THE BOARD OF DIRECTORS
- -----------------------------------------------------
Mr. Lamarche is a founder and member of the Board of Directors. Since October
1991, Mr. Lamarche has been President of Troy Design Manufacturing, driveline
division, which is engaged in the business of automotive power train engines.
Since 1990, Mr. Lamarche has been a Director of Pioneer Automotive, driveline
division, and President to Neotech Industries, Inc., which is engaged in the
business of engineering services (automotive). Since 1994, Mr. Lamarche has
been a director for the driveline dynamics group for Aerotek Engine Services, a
Michigan corporation. Mr. Lamarche holds a Bachelor of Science degree from the
University of Waterloo, Ontario, Canada.
SIGNIFICANT EMPLOYEES:
LARRY HAWKS
- -----------
Mr. Hawks has been appointed Vice President in charge of Research and
Development and the Chief Engineer for the CTHA project. Mr. Hawks has
extensive experience in ELF, VLF & RF technology. Mr. Hawks has worked for the
Hebrew University in Israel (responsible for radiation studies). He was
previously Engineering Manager in charge of all divisional engineering
operations for producing and design of the IBM PC Junior for AMP Corp. Mr.
Hawks is currently the Chief Engineer for ACM (a division of Eikenberry
Associates in Kokomo, Indiana, an injection moulding company).
BARCLAY HAMBROOK P. ENG. MBA
- -----------------------------
Mr. Hambrook has been appointed Vice President of Business Development. Mr.
Hambrook has acted as advisor to IAS having completed the Company's initial
business plan in 1996. He had been active in communications over the last five
years and successfully negotiated the establishment of technology driven, joint
venture companies in Asia, Europe and North America. Mr. Hambrook as a
principal of Enercana Capital provides corporate finance services.
STEVE GULYAS
- ------------
Mr. Gulyas has been appointed Vice President of Sales for the CTHA for
commercial applications. Mr. Gulyas is an experienced salesperson with several
important connections in the telecommunications industry. He has introduced the
CTHA to several major potential end users.
FAMILY RELATIONSHIPS - none.
28
<PAGE>
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. - none.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, other
than Mr. Badgley and Mr. Lamarche, who filed no Forms during the year, no
officer, director or beneficial owner of more than ten percent of the Common
Stock of the Company failed to file on a timely basis reports required to be
filed by Section 16(a) of the Exchange Act during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
- -------- ----------------------
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate cash compensation paid for
services rendered to the Company during the last three fiscal years by the
Company's Chief Executive Officer and the Company's most highly compensated
executive officers who served as such at the end of the last fiscal year. No
executive officer had an annual salary and bonus in excess of $100,000 during
such year.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ----------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#)(1)
- --------------------------- ---- ---------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
John G. Robertson 1998 -0- -0- -0- -0-
President, Chief 1997 -0- -0- -0- -0-
Executive Officer 1996 -0- -0- -0- 150,000
James E. Smith 1998 $15,000 -0- -0- -0-
Chairman and 1997 $30,000 -0- -0- -0-
Director 1996 $30,000 -0- -0- 150,000
Patrick Badgley 1998 -0- -0- -0- -0-
Director 1997 -0- -0- -0- -0-
1996 -0- -0- -0- 50,000
Paul Lamarche 1998 $ 8,000 -0- -0- -0-
Director 1997 $ 6,000 -0- -0- -0-
1996 -0- -0- -0- 50,000
Jennifer Lorette 1998 -0- -0- -0- -0-
Vice President 1997 -0- -0- -0- -0-
1996 -0- -0- -0- 50,000
</TABLE>
_____________________
(1) Represents options granted under the Company's 1996 Stock Option Plan.
A management fee of $2,500.00 per month is accrued for payment to Access
Information Services, Inc., a corporation controlled by Robertson. Further, the
sum of $1,500.00 is accrued for payment to Access Information Services, Inc. for
rent and secretarial services.
A fee of $2,500.00 per month is accrued for payment to Dr. Smith in his capacity
as a director and as Chairman of the Board of Directors.
29
<PAGE>
Mr. Lamarche is paid $8,000 per year by the Company.
No other compensation is paid to any of the Executive Officers or Directors of
the Company. The Company may in the future create retirement, pension, profit
sharing, insurance and medical reimbursement plans covering its Officers and
Directors. At the present time, no such plans exist. No advances have been
made or are contemplated by the Company to any of its Officers or Directors.
STOCK OPTIONS GRANTED
No stock options were granted to any of the Executive Officers or Directors
during the past fiscal year.
STOCK OPTIONS EXERCISED AND HELD AT YEAR END
The following table sets forth certain information concerning exercises of stock
options pursuant to stock option plans by the named Executive Officers and
Directors during the year ended April 30, 1998 and stock options held at year
end.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Number of Value of
Unexercised Unexercised Options at
Options at Year End Year End
---------------------------------------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John G. Robertson -0- -0- 150,000 -0- $337,500 -0-
- ----------------------------------------------------------------------------------------------------------
Jennifer Lorette -0- -0- 50,000 -0- $112,500 -0-
- ----------------------------------------------------------------------------------------------------------
Patrick Badgley -0- -0- 90.000 -0- $122,500 -0-
- ----------------------------------------------------------------------------------------------------------
Dr. James Smith 40,000 $83,600 200,000 -0- $350,000 -0-
- ----------------------------------------------------------------------------------------------------------
Paul Lamarche 8,000 $17,790 85,000 -0- $121,250 -0-
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) On April 30, 1998, the closing price of Common Stock was $2.12. For
purposes of the foregoing table, stock options with an exercise price less
than that amount are considered to be "in-the-money" and are considered to
have a value equal to the difference between this amount and the exercise
price of the stock option multiplied by the number of shares covered by the
stock option.
LONG TERM INCENTIVE PLAN AWARDS
The Company does not have any Long Term Incentive Plans.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company does not have any employment contracts, termination of
employment and change of control arrangements.
30
<PAGE>
REPRICING OF OPTIONS
The Company has never repriced any outstanding options.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of June 30, 1998, the outstanding Class A
Common Stock of the Company owned of record or beneficially by each person who
owned of record, or was known by the Company to own beneficially, more than 5%
of the Company's Common Stock, and the name and shareholdings of each Executive
Officer and Director and all Executive Officers and Directors as a group. A
person is deemed to be the beneficial owner of securities that can be acquired
by such person within 60 days from the date of this report upon the exercise of
warrants or options. Each beneficial owner's percentage ownership is determined
by assuming that options that are held by such person and which are exercisable
within 60 days from the date are exercised.
<TABLE>
<CAPTION>
==============================================================================================================================
PERCENTAGE OF CLASS A
CLASS A SHARES OWNED
SHARES OWNED
NAME
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
James Earl Smith[1]
Chairman of the Board of Directors 3,205,000 32%
- ------------------------------------------------------------------------------------------------------------------------------
John G. Robertson[1][2] President and member of the Board of
Directors 3,197,200 32%
- ------------------------------------------------------------------------------------------------------------------------------
Jennifer Lorette[1]
Secretary/Treasurer, Chief Financial Officer and Principal 106,000 1%
Accounting Officer
- ------------------------------------------------------------------------------------------------------------------------------
Patrick Badgley[1] 90,000 1%
- ------------------------------------------------------------------------------------------------------------------------------
Paul E. Lamarche[1] 85,000 1%
- ------------------------------------------------------------------------------------------------------------------------------
ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP (FIVE
INDIVIDUALS) 6,683,200 66.40%
==============================================================================================================================
</TABLE>
All shares are held beneficially and of record and each record shareholder has
sole voting and investment power.
[1] These individuals are the Executive Officers and Directors of the Company
and may be deemed to be "parents or founders" of the Company as that term
is defined in the Rules and Regulations promulgated under the Securities
Act of 1933, as amended. Includes options to purchase shares of Class A
Voting Common Stock at exercise prices of $0.25 and $2.25 per share.
[2] 3,000,000 shares are registered in the name of Access Information Services,
Inc., a corporation controlled by Mr. Robertson.
CHANGES IN CONTROL
There are no arrangements known to the Company the operation of which may
result in a change of control of the Company.
31
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
TRANSACTIONS WITH DIRECTORS
Certain Transactions
- --------------------
The Company issued 100 shares of Class A Voting Common Stock to its directors on
December 13, 1994. On July 12, 1995, these shares were donated back to the
Company and canceled.
Dr. Smith, a tenured professor at WVU and the Company's Chairman of the Board of
Directors organized development of the concept of the CTHA at WVU. Pursuant to
terms of his employment at WVU, WVU and WVURC own the world wide rights to any
invention made or developed by WVU personnel. Accordingly ownership rights to
the CTHA belong to WVU and WVURC.
On April 12, 1994, WVURC granted the ICI License to ICI, which is owned by Dr.
Smith to: (1) manufacture CTHAs and (2) sublicense others to manufacture,
market, sell copies of, license and distribute CTHAs. The consideration for the
license was: (1) $1.00 and (2) a royalty of $3,000.00 per year or 10% of the
net revenues received by ICI which ever is greater.
ICI entered into an option agreement with SMR Investments Ltd. ("SMR"), a
corporation owned by Sue Robertson, the wife of Robertson, dated November 18,
1994, and amended December 16, 1994 (the "Option Agreement"). The Option
Agreement provided that ICI would issue a sublicense to SMR for the CTHA subject
to the payment of $250,000; a 3% royalty from gross sales; and a subsequent
public entity to be established. The Company was organized by SMR and Robertson
as a result. ICI retained all military applications and resulting procurement
interests. The contract period relating to the three percent royalty to be paid
to ICI commences when sales are made by SMR/the Company and continue during the
life of the Option Agreement. The term of the Option Agreement is perpetual as
is the ICI License.
On December 13, 1994, SMR assigned the rights to the Option Agreement to the
Company in consideration of $50,000 advanced by Access Information Services,
Inc. (the "Option Assignment"). Access Information Services, Inc. is a
corporation owned and controlled by Robertson.
On December 14, 1994, the Company issued 3,000,000 Class A Shares to Dr. Smith
and 3,000,000 Class A Shares to Access Information Services, Inc., pursuant to
the Option Assignment. The value assigned to the 3,000,000 Class A common
shares issued to Dr. Smith was a total of $0.50 and the value assigned to the
3,000,000 Class A common shares issued to Access Information Services Inc. was
$0.50. The valuation of the 3,000,000 shares issued to Dr. Smith and Access
Information Services, Inc. was arbitrarily determined by the Company's Board of
Directors. The $250,000 has been paid to ICI and was a one time payment.
On July 10, 1995, ICI entered into the Sublicense wherein ICI granted to the
Company the exclusive worldwide right to manufacture, sell copies of, sublicense
and distribute the process and equipment related to the design, construction and
operation of the CTHA and to further sublicense others the rights to
manufacture, sell copies of, license and distribute the same, excluding all
military applications and procurement interests. The Sublicense was the
culmination of the agreement between ICI and SMR, and SMR and the Company. On
December 27, 1995, SMR assigned all of its rights and duties in the CTHA
technology to the Company. The purpose of this assignment was to assign any and
all rights or duties which may have been held by SMR as a result of the Option
Agreement, it being understood that the Option Agreement was nothing more than
an agreement in principle. The term of the Sublicense is perpetual and requires
the payment of a minimum annual royalty of $3,000. Further, the Company will
pay a royalty of 10% of the net revenues derived from sales, licenses or
sublicenses of the CTHA technology with a credit for the minimum royalty. In
addition the Company shall pay a royalty of 3% of the gross revenues derived
from the sales, licenses or sublicenses of the CTHA technology.
The Company and ICI amended the Sublicense in March 1997 to clarify the
applications of CTHA technology subject to the Company's sublicense. As amended,
the Company has exclusive rights to all commercial applications. ETC has the
exclusive rights to all governmental and military applications for the CTHA
antenna. In consideration
32
<PAGE>
for the amendment, the Company received a 50% reduction in royalties to be paid
to ICI over a three year period plus an enlarged definition of Technology to
include all future enhancements to the CTHA technology.
The Company entered into a joint venture with ETC to fund a research and
development laboratory and a manufacturing facility, TEAM. The Company and ETC
each own 50% of TEAM. They granted TEAM certain rights to sell and manufacture
the antennas. All sales of antennas by TEAM will be for the credit of either
the Company or ETC, according to the end user. However the Company and ETC
retained certain rights to sublicense development and manufacturing of antennas.
To date, there have not been any transactions between the Company and its
officers, directors, principal shareholders or affiliates other than as set
forth above. The Company believes that the transactions described here were on
terms more favorable to the Company's officers, and directors, than otherwise
could be obtained if such transactions were with non-related parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- -------- --------------------------------
(a) Index to and Description of Exhibits
<TABLE>
<CAPTION>
Number Description Page No.
- ------ ----------- ---------
<S> <C> <C>
3 Articles of Incorporation and By-Laws
3.1 Articles of Incorporation (1)
3.2 Article of Amendment (1)
3.3 By-Laws (1)
4 Instruments Defining Rights of Security Holders
4.1 Specimen Share Certificate for Class A Shares (1)
4.2 Specimen Share Certificate for Class B Shares (1)
4.3 Specimen Warrant
4.4 Specimen Debenture
10 Material Contracts
10.1 Agreement between West Virginia University Research
Corporation and Integral Concepts, Inc. (1)
10.2 Agreement between Integral Concepts, Inc. and
SMR Investments, Inc. (1)
10.3 Agreement between SMR Investments, Inc. and
the Company (1)
10.4 Agreement with Greg Ruff (1)
10.5 British Columbia Confidential Offering Memorandum. (1)
10.6 Sublicense Agreement between Integral Concepts, Inc. and
the Company. (1)
10.7 Project Agreement between the Company and West Virginia
Center for Industrial Research Applications (1)
10.8 Assignment Agreement between SMR Investments, Inc. and
the Company (1)
10.9 Amendment Agreement, effective March 4, 1997, between
Integral Concepts, Inc. and the Company (2)
10.10 Joint Venture Agreement between Emergent Technologies
Corporation and the Company (2)
23 Consent of Experts and Counsel
23.1 Consent of Elliott Tulk Pryce Anderson
23.2 Consent of Jack Parsons (1)
27 Financial Data Schedule
</TABLE>
____________________
33
<PAGE>
(1) Incorporated by reference from Form S-1 Registration Statement (33-92592).
(2) Incorporated by reference from Form 10-KSB for Fiscal Year 1997.
(b) Reports on Form 8-K:
None
34
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 of the Securities Exchange Act of 1934,
the Registrant has duly caused this report or amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
IAS COMMUNICATIONS, INC.
By: /s/ John G. Robertson
---------------------------------------
John G. Robertson, President
Chief Executive Officer and Director
Dated: July 29, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in-the in the capacities indicated as
of July 29, 1998.
Signature Title
- --------- -----
/s/ John G. Robertson President, Chief Executive
- ---------------------------------------- Officer and Director
John G. Robertson
/s/ James E. Smith Chairman of the
- ---------------------------------------- Board of Directors
James E. Smith
/s/ Patrick Badgley Director
- ----------------------------------------
Patrick Badgley
/s/ Paul Lamarche Director
- ----------------------------------------
Paul Lamarche
/s/ Jennifer Lorette Chief Financial Officer
- ---------------------------------------- and Principal Accounting
Jennifer Lorette Officer
35
<PAGE>
EXHIBIT 4.3
***US***WARRANT CERTIFICATE
THESE WARRANTS WILL EXPIRE AND BECOME NULL AND VOID
AT 4:00 P.M. (VANCOUVER TIME) ON X
X SHARE PURCHASE WARRANTS
TO PURCHASE X COMMON SHARES OF
IAS COMMUNICATIONS, INC.
incorporated in the State of Oregon
THIS IS TO CERTIFY THAT X, of X, (the "Holder") has the right to purchase,
upon and subject to the terms and conditions hereinafter referred to, up to X
fully paid and non-assessable common shares (the "Shares") of IAS
COMMUNICATIONS, INC. (the "Company") on or before 4:00 p.m. (Vancouver time) on
X (the "Expiry Date").
1. ONE WARRANT AND $1.75 U.S. IF EXERCISED DURING THE FIRST YEAR OR $2.25 U.S.
IF EXERCISED DURING THE SECOND YEAR ARE REQUIRED TO PURCHASE ONE SHARE.
THIS CERTIFICATE REPRESENTS X WARRANTS.
2. These Warrants are issued subject to the Terms and Conditions attached to
the Warrants issued by the Company (the "Terms and Conditions") and dated
November 24, 1997, and the Warrant Holder may exercise the right to
purchase Shares only in accordance with those Terms and Conditions.
3. A copy of the Terms and Conditions may be obtained from the head office of
the Company at #185, 10751 Shellbridge Way, Richmond, British Columbia, V6X
2W8.
4. Nothing contained herein or in the Terms and Conditions will confer any
right upon the Holder hereof or any other person to subscribe for or
purchase any Shares at any time subsequent to the Expiry Date, and from and
after such time, this Warrant and all rights hereunder will be void and of
no value.
5. These Warrants are not validly created until this Warrant certificate is
countersigned by Nevada Agency and Trust Company.
IN WITNESS WHEREOF the Company has caused its seal to be affixed and this
Warrant to be signed by the undersigned, this X day of X, 19X.
IAS COMMUNICATIONS, INC. NEVADA AGENCY AND TRUST COMPANY
Per: _________________________ c/s Per: _____________________________
President Authorized Signatory
PLEASE NOTE THAT ALL CERTIFICATES MUST BE LEGENDED AS FOLLOWS:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES TO BE ACQUIRED
UPON EXERCISE OF THESE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE
HOLDER, UNLESS REGISTERED UNDER SAID ACT OR UNLESS, IN THE OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER, THE TRANSFER QUALIFIES FOR AN EXEMPTION FROM OR
EXEMPTION TO THE REGISTRATION PROVISIONS THEREOF.
<PAGE>
******CDN******WARRANT CERTIFICATE
THESE WARRANTS WILL EXPIRE AND BECOME NULL AND VOID
AT 4:00 P.M. (VANCOUVER TIME) ON X
X SHARE PURCHASE WARRANTS
TO PURCHASE X COMMON SHARES OF
IAS COMMUNICATIONS, INC.
incorporated in the State of Oregon
THIS IS TO CERTIFY THAT X, of X, (the "Holder") has the right to purchase,
upon and subject to the terms and conditions hereinafter referred to, up to X
fully paid and non-assessable common shares (the "Shares") of IAS
COMMUNICATIONS, INC. (the "Company") on or before 4:00 p.m. (Vancouver time) on
X (the "Expiry Date").
1. ONE WARRANT AND $1.75 U.S. IF EXERCISED DURING THE FIRST YEAR OR $2.25 U.S.
IF EXERCISED DURING THE SECOND YEAR ARE REQUIRED TO PURCHASE ONE SHARE.
THIS CERTIFICATE REPRESENTS X WARRANTS.
2. These Warrants are issued subject to the Terms and Conditions attached to
the Warrants issued by the Company (the "Terms and Conditions") and dated
November 24, 1997, and the Warrant Holder may exercise the right to
purchase Shares only in accordance with those Terms and Conditions.
3. A copy of the Terms and Conditions may be obtained from the head office of
the Company at #185, 10751 Shellbridge Way, Richmond, British Columbia, V6X
2W8.
4. Nothing contained herein or in the Terms and Conditions will confer any
right upon the Holder hereof or any other person to subscribe for or
purchase any Shares at any time subsequent to the Expiry Date, and from and
after such time, this Warrant and all rights hereunder will be void and of
no value.
5. These Warrants are not validly created until this Warrant certificate is
countersigned by Nevada Agency and Trust Company.
IN WITNESS WHEREOF the Company has caused its seal to be affixed and this
Warrant to be signed by the undersigned, this X day of X, 19X.
IAS COMMUNICATIONS, INC. NEVADA AGENCY AND TRUST COMPANY
Per: _______________________ c/s Per: ______________________________
President Authorized Signatory
PLEASE NOTE THAT ALL CERTIFICATES MUST BE LEGENDED AS FOLLOWS:
THIS WARRANT HAS BEEN SOLD BY THE COMPANY IN RELIANCE UPON THE AVAILABILITY
OF THE PROVISIONS OF REGULATION S ADOPTED PURSUANT TO THE SECURITIES ACT OF
1933, AS AMENDED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. AS
SUCH THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, IN THE UNITED STATES. THE COMPANY RESERVES THE RIGHT TO REFUSE
TO REGISTER ANY TRANSFER NOT MADE IN ACCORDANCE WITH REGULATION S.
<PAGE>
TERMS AND CONDITIONS dated November 24, 1997, attached to the Warrant
Certificates issued by IAS COMMUNICATIONS, INC. for an aggregate of 500,000
Warrants.
ARTICLE 1 - INTERPRETATION
- --------------------------
SECTION 1.1 - DEFINITIONS
In these Terms and Conditions, unless there is something in the subject matter
or context inconsistent therewith:
(a) "COMPANY" means IAS COMMUNICATIONS INC. until a successor corporation
will have become such as a result of consolidation, amalgamation or
merger with or into any other corporation or corporations, or as a
result of the conveyance or transfer of all or substantially all of
the properties and estates of the Company as an entirety to any other
corporation and thereafter "Company" will mean such successor
corporation;
(b) "COMPANY'S AUDITORS" means an independent firm of accountants duly
appointed as auditors of the Company;
(c) "DIRECTOR" means a director of the Company for the time being, and
reference, without more, to action by the directors means action by
the directors of the Company as a Board, or whenever duly empowered,
action by an executive committee of the Board;
(d) "HEREIN", "HEREBY" and similar expressions refer to these Terms and
Conditions as the same may be amended or modified from time to time;
and the expression "ARTICLE" and "SECTION", followed by a number refer
to the specified Article or Section of these Terms and Conditions;
(e) "PERSON" means an individual, corporation, partnership, trustee or any
unincorporated organization and words importing persons have a similar
meaning;
(f) "SHARES" means the common shares in the capital stock of the Company
as constituted at the date hereof and any shares resulting from any
subdivision or consolidation of the shares;
(g) "TRANSFER AGENT" means Nevada Agency and Trust Company, at its head
office in Reno, Nevada or its successors;
(h) "WARRANT HOLDERS" or "HOLDERS" means the holders of the Warrants; and
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(i) "WARRANTS" means the warrants of the Company issued and presently
authorized, as set out in Section 2.01 hereof and for the time being
outstanding.
SECTION 1.2 - GENDER
Words importing the singular number include the plural and vice versa and words
importing the masculine gender include the feminine and neuter genders.
SECTION 1.3 - INTERPRETATION NOT AFFECTED BY HEADINGS
The division of these Terms and Conditions into Articles and Sections, and the
insertion of headings are for convenience of reference only and will not affect
the construction or interpretation thereof.
SECTION 1.4 - APPLICABLE LAW
The Warrants will be construed in accordance with the laws of the State of
Oregon and the laws of the United States of America applicable thereto and will
be treated in all respects as Oregon contracts.
ARTICLE 2 - ISSUE OF WARRANTS
- -----------------------------
SECTION 2.1 - ISSUE OF WARRANTS
Warrants entitling the Holders thereof to purchase up to an aggregate of 500,000
common shares are authorized to be issued by the Company. The Warrant
certificates represent an aggregate of 500,000 Warrants.
SECTION 2.2 - ADDITIONAL WARRANTS
The Company may at any time and from time to time issue additional warrants or
grant options or similar rights to purchase shares of its capital stock.
SECTION 2.3 - WARRANT TO RANK PARI-PASSU
All Warrants and additional warrants, options or similar rights to purchase
shares from time to time issued or granted by the Company, will rank pari-passu
whatever may be the actual dates of issue or grant thereof, or of the dates of
the certificates by which they are evidenced.
SECTION 2.4 - ISSUE IN SUBSTITUTION FOR LOST WARRANTS
(1) In case a Warrant becomes mutilated, lost, destroyed or stolen, the
Company, at its discretion, may issue and deliver a new Warrant of like
date and tenor as the one mutilated, lost, destroyed or stolen, in exchange
for and in place of and upon cancellation of such mutilated Warrant, or in
lieu of, and in substitution for such lost, destroyed or stolen Warrant and
the
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substituted Warrant will be entitled to the benefit hereof and rank equally
in accordance with its terms with all other Warrants issued or to be issued
by the Company.
(2) The applicant for the issue of a new Warrant pursuant hereto will bear the
cost of the issue thereof and in case of loss, destruction or theft furnish
to the Company such evidence of ownership and of loss, destruction, or
theft of the Warrant so lost, destroyed or stolen as will be satisfactory
to the Company in its discretion and such applicant may also be required to
furnish indemnity in an amount and form satisfactory to the Company in its
discretion, and will pay the reasonable charges of the Company in
connection therewith.
SECTION 2.5 - WARRANT HOLDER NOT A SHAREHOLDER
No Warrant Holder, as such, shall be entitled to vote or receive dividends or be
deemed the holder of shares for any purpose, nor shall anything contained in the
Warrant certificate be construed to confer upon any Warrant Holder, as such, any
of the rights of a shareholder of the Company or any right to vote, give or
withhold consent to any action by the Company (whether upon any
recapitalization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings or other action
affecting shareholders, receive dividends or subscription rights, or otherwise,
until any or all Warrant Holders shall have exercised any or all Warrants and
the shares issuable upon exercise thereof shall been issued and delivered.
SECTION 2.6 - REGISTERED HOLDER OF WARRANT
The Company and the Transfer Agent may deem and treat the registered holder of a
Warrant certificate as the absolute owner of such Warrant certificate
(notwithstanding any notation of ownership or writing thereon made by anyone
other than the Company or the Transfer Agent) for all purposes and shall not be
affected by any notice to the contrary.
ARTICLE 3 - NOTICE
- ------------------
SECTION 3.1 - NOTICE TO WARRANT HOLDERS
Any notice to be given to the Holders will be sent by prepaid registered mail
and will be deemed to have been received by the Holder on the fourth day
following the mailing thereof. Any such notice will be addressed to the Holder
at the address of the Holder appearing on the Holder's Warrant or to such other
address as the Holder may advise the Company by notice in writing.
SECTION 3.2 - NOTICE TO THE COMPANY
Any notice to be given to the Company will be sent by prepaid registered mail
addressed to the Company at its registered office and will be deemed to have
been received by the Company on the fourth day following the mailing thereof,
provided that if there shall be at the time of mailing or between the time of
mailing and the actual receipt of the notice a labour dispute, slow down, or
other disruption which might effect the normal delivery of such notice by the
mails, then such notice shall only be effective if and when received by the
Company.
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ARTICLE 4 - EXERCISE OF WARRANTS
- --------------------------------
SECTION 4.1 - METHOD OF EXERCISE OF WARRANTS
The right to purchase shares conferred by the Warrants may be exercised by the
Holder of such Warrant surrendering it, with a duly completed and executed
subscription form attached to the Warrant certificate, together with cash or a
certified cheque payable to or to the order of the Company, at par, in Richmond,
British Columbia, for the purchase price applicable at the time of surrender in
respect of the shares subscribed for in lawful money of the United States of
America.
SECTION 4.2 - EFFECT OF EXERCISE OF WARRANTS
(1) Upon surrender and payment as aforesaid the shares so subscribed for will
be deemed to have been issued and such person or persons will be deemed to
have become the holder or holders of record of such shares on the date of
such surrender and payment, and such shares will be issued at the
subscription price in effect on the date of such surrender and payment.
(2) Within ten business days after surrender and payment as aforesaid, the
Company will forthwith cause to be delivered to the person or persons in
whose name or names the shares so subscribed for are to be issued as
specified in such subscription or mailed to him or them at his or their
respective addresses specified in such subscription, a certificate or
certificates for the appropriate number of shares not exceeding those which
the Warrant Holder is entitled to purchase pursuant to the Warrant
surrendered.
SECTION 4.3 - SUBSCRIPTION FOR LESS THAN ENTITLEMENT
The holder of any Warrant may subscribe for and purchase a number of shares less
than the number which he is entitled to purchase pursuant to the surrendered
Warrant. In the event of any purchase of a number of common shares less than the
number which can be purchased pursuant to a Warrant, the holder thereof upon
exercise thereof will in addition be entitled to receive a new Warrant in
respect of the balance of the shares which he was entitled to purchase pursuant
to the surrendered Warrant and which were not then purchased.
SECTION 4.4 - WARRANTS FOR FRACTIONS OF SHARES
To the extent that the holder of any Warrant is entitled to receive on the
exercise or partial exercise thereof a fraction of a common share, such right
may be exercised in respect of such fraction only in combination with another
Warrant or other Warrants which in the aggregate entitle the holder to receive a
whole number of such common shares.
SECTION 4.5 - EXPIRATION OF WARRANTS
After the expiration of the period within which a Warrant is exercisable, all
rights thereunder will wholly cease and terminate and such Warrant will be void
and of no effect.
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SECTION 4.6 - TIME OF ESSENCE
Time will be of the essence hereof.
SECTION 4.7 - SUBSCRIPTION PRICE
One Warrant and $1.75 U.S. if exercised during the first year of the term of the
Warrants or $2.25 U.S. if exercised during the second year of the term of the
Warrants are required to subscribe for each share.
SECTION 4.8 - ADJUSTMENT OF EXERCISE PRICE
The exercise price and the number of common shares deliverable upon the exercise
of the Warrants will be subject to adjustment in the event and in the manner
following:
(1) If and whenever the shares at any time outstanding are subdivided into a
greater or consolidated into a lesser number of shares the exercise price
will be decreased or increased proportionately as the case may be; upon any
such subdivision or consolidation the number of shares deliverable upon the
exercise of the Warrants will be increased or decreased proportionately as
the case may be.
(2) (a) In case of any capital reorganization or of any reclassification of
the capital of the Company or in the case of the consolidation, merger
or amalgamation of the Company with or into any other Company
(hereinafter collectively referred to as a "Reorganization"), each
Warrant will after such Reorganization confer the right to purchase
the number of shares or other securities of the Company (or of the
Company's resulting from such Reorganization) which the Warrant Holder
would have been entitled to upon Reorganization if the Warrant Holder
had been a shareholder at the time of such Reorganization;
(b) In any such case, if necessary, appropriate adjustments will be made
in the application of the provisions of this Article Four relating to
the rights and interest thereafter of the holders of the Warrants so
that the provisions of this Article Four will be made applicable as
nearly as reasonably possible to any shares or other securities
deliverable after the Reorganization on the exercise of the Warrants;
(c) The subdivision or consolidation of shares at any time outstanding
into a greater or lesser number of shares (whether with or without par
value) will not be deemed to be a Reorganization for the purposes of
this paragraph 4.8(2);
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(3) The adjustments provided for in this Section are cumulative and will
become effective immediately after the record date or, if no record
date is fixed, the effective date of the event which results in such
adjustments.
SECTION 4.9 - DETERMINATION OF ADJUSTMENTS
If any questions will at any time arise with respect to the exercise price or
any adjustment provided for in Section 4.8, such questions will be conclusively
determined by the Company's Auditors, or, if they decline to so act any other
firm of chartered accountants, that the Company may designate and who will have
access to all appropriate records and such determination will be binding upon
the Company and the holders of the Warrants.
SECTION 4.10 - REGISTRATION OR APPROVAL OF SHARES BY GOVERNMENTAL AUTHORITY
If any shares issuable upon the exercise of the Warrants require registration or
approval of any governmental authority, including, without limitation, the
filing of a registration statement or amendments or supplements thereto under
the Securities Act of 1933, as amended, or the taking of any action under the
laws of the United States of America or any political subdivision thereof before
such shares may be validly issued, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval or to
take such other action as the case may be; PROVIDED, HOWEVER, there is no
assurance such registration or approval can be obtained, and the Company is
hereby authorized to suspend the exercise of all Warrants from the period during
which it is endeavoring to obtain such registration or approval or to take such
other action.
ARTICLE 5 - COVENANTS BY THE COMPANY
- ------------------------------------
SECTION 5.1 - RESERVATION OF SHARES
The Company will reserve and there will remain unissued out of its authorized
capital a sufficient number of shares to satisfy the rights of purchase provided
for herein and in the Warrants should the holders of all the Warrants from time
to time outstanding determine to exercise such rights in respect of all shares
which they are or may be entitled to purchase pursuant thereto and hereto.
SECTION 5.2 - COMPANY MAY PURCHASE
The Company may from time to time offer to purchase and purchase, for
cancellation only, any Warrants in such manner, from such persons and on such
terms and conditions as it determines.
ARTICLE 6 - WAIVER OF CERTAIN RIGHTS
- ------------------------------------
SECTION 6.1 - IMMUNITY OF SHAREHOLDERS, ETC.
The Warrant Holder, as part of the consideration for the issue of the Warrants,
waives and will not have any right, cause of action or remedy now or hereafter
existing in any jurisdiction against any past, present or future incorporator,
shareholder, Director or Officer (as such) of the Company for
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the issue of shares pursuant to any Warrant or on any covenant, agreement,
representation or warranty by the Company herein contained or in the Warrant.
ARTICLE 7 - MODIFICATION OF TERMS, MERGER, SUCCESSORS
- -----------------------------------------------------
SECTION 7.1 - MODIFICATION OF TERMS AND CONDITIONS FOR CERTAIN PURPOSES
From time to time the Company may, subject to the provisions of these presents,
modify the Terms and Conditions hereof, for the purpose of correction or
rectification of any ambiguities, defective provisions, errors or omissions
herein.
SECTION 7.2 - TRANSFERABILITY
The right to purchase shares conferred by the Warrants may be transferred or
assigned by any Holder of Warrants by such Warrant Holder completing and
executing an Asssignment of Warrants and delivering such Assignment to the
Company in Richmond, British Columbia or to the Transfer Agent in Reno, Nevada.
DATED this 24th day of November, 1997.
IAS COMMUNICATIONS INC.
----------------------------
President
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EXHIBIT 4.4
NUMBER PRINCIPAL AMOUNT
0106
IAS
COMMUNICATIONS, INC.
8 3/4% CONVERTIBLE SENIOR NOTE DUE 2000
PROMISES TO PAY TO
OR REGISTERED ASSIGNS, THE PRINCIPAL SUM OF DOLLARS ON JUNE 15, 2000
INTEREST PAYMENT DATE: JUNE 15
RECORD DATE: JUNE 01
/s/ Jennifer Lorette /s/ J. G. Robertson
- ---------------------------------- ---------------------------------
Secretary President
[SEAL APPEARS HERE]
<PAGE>
8 3/4% CONVERTIBLE SENIOR NOTE DUE 2000
1. INTEREST. IAS Communications, Inc. ("Company") promises to pay
interest on the principal amount of this Convertible Subordinated Note ("Note"
or "Notes") at the rate per annum shown above. The Company will pay interest
annually on June 15 of each year. Interest on the Convertible Subordinated Note
will accrue from the most recent date to which Interest has been paid or the
date of Issuance. Interest will be corrupted on the basis of a 265-day year.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) to the persons who are registered holders of Notes at the
close of business on the record date for the next interest payment date even
though Notes are canceled after the record date and on or before the interest
payment date. Holders must surrender Notes to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal lender for payment of public
and private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a holder's address.
3. PAYING AGENT, REGISTRAR, CONVERSION AGENT. Initially, Nevada Agency
Trust Co., 50 W. Liberty Street, Reno, Nevada, 89501,, will act as Paying Agent,
Registrar, Co-Registrar or Conversion Agent.
4. CONVERSION. The Notes may be converted to shares of Class A voting
common Stock of the Company ("Common Stock") at any time prior to maturity as
follows:
$2.50 per share of Common Stock during the period June 15, 1997 through
June 15, 1998;
$3.00 per share of Common Stock during the period June 16, 1998 through
June 15, 1999;
$3.50 per share of Common Stock during the period June 16, 1999 through
June 15, 2000.
In the event that the trading price for the Common Stock averages less
than $4.00 during any ten trading day period during the period May 15, 2000
through June 15, 2000, the conversion price on June 15, 2000 shall be equal to
80% of the average closing and price over said fun trading day period.
No fractional shares will be issued upon conversion but, in lieu thereof,
an appropriate amount will be paid in cash by the Company based upon the market
price of the Common Stock at the close of business on the day of conversion.
The Conversion price is not subject to adjustment in any case
To convert a Note, a holder must (a) complete and sign the conversion
notice set forth below and deliver such notice to the Conversion Agent, (b)
surrender the Note to a Conversion Agent, (c) furnish appropriate endorsements
and transfer documents if required by the Registrar or Conversion Agent, and (d)
pay any transfer or similar tax if required. A holder may convert a portion of a
Note if the portion is $1,000 or a whole multiple of $1,000.
If the Company is a party to a consolidation or merger or a transfer or
lease of all or substantially all of its assets, the right to convert a Note
into Common Stock may be changed into a right to convert it into securities,
cash or other assets of the Company or another.
5. DENOMINATIONS, TRANSFER, EXCHANGES. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples thereof. The
transfer of Notes may be registered and Notes may be exchanged. The registrar
may require a holder, among other things, to furnish appropriate endorsements
and transfer document and the Company may require a holder to pay any taxes and
less required by law.
6. PERSONS DEEMED OWNERS. The registered holder of a Note may be treated
as its owner for all purposes.
7. SUBORDINATION. The Notes shall be general unsecured obligation of the
Company and shall be senior in right of payment to all other existing and future
indebtedness of the Company with the exception of existing or future bank
financing, if any.
8. UNCLAIMED MONEY. If money for the payment of principal or interest
remains unclaimed for two years, the Paying Agent will pay the money back to the
Company for payment unless an abandoned properly law designates another person.
9. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Notes may be
amended with the consent of the holders of at least a majority in principal
amount of the then outstanding notes and any existing default may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding Notes. Without the consent of any holder, the Notes may be amended
to: provide for conversion rights of holders of Notes in the event of
consolidation, merger or sale of all or substantially all of the assets of
the Company; evidence the succession of another person to the Company and the
assumption by such successor of the covenants and obligations of the Company
thereunder and in the Notes; reduce the conversion price, provided that such
reduction will not adversely affect the interests of holders of Notes in any
material respect.
10. SUCCESSOR CORPORATION. When a successor corporation assumes all the
obligations of its predecessor under the Notes, the predecessor corporation will
be released from those obligations.
11. DEFAULTS AND REMEDIES. An Event of Default is: default for thirty days
in payment of interest on the Notes; default in payment of principal on them;
failure by the company for sixty days after notice to it to comply with any of
its other agreements in the Notes; and certain events of bankruptcy or
insolvency. If an Event of Default occurs and is continuing, the holders of at
least 25 percent in principal amount of the Notes may declare all the Notes to
be due and payable immediately, except that in the case of an Event of Default
arising from certain event of bankruptcy or insolvency, all outstanding Notes
become due and payable without further action or notice.
12. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Notes or for any claim based on, in
respect of, or by reason of such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Note.
13. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Registrar.
14. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such and TEN COM (tenants in common), TEN ENT (tenants by
the entireties), JT TEN (joint tenants with right of survivorship and not as
tenants in common) CUST (Custodian), and U/G/M/A (Uniform Gifts to Minors Act).
<TABLE>
<CAPTION>
CONVERSION NOTICE
To convert this Note into Common Stock of the Company, check the box: [_]
Any amount required to be paid by the undersigned on account of interest accompanies this Note.
To convert only part of this Note, state the amount to be converted (which must be $1,000 principal amount
of a multiple thereof): $_________________________________________
Dated: ______________________________________________________________
<S> <C>
If you want the stock certificate made out in another person's _________________________________________________________________
name complete the following for such person:
_________________________________________________________________
____________________________________________________________ Signature(s)
(Name)
____________________________________________________________ (Sign exactly as your name appears on the other side of this Note)
(Social Security or Taxpayer Identification Number) The signature(s) should be guaranteed by an eligible guarantor
institution (banks, stockbrokers, savings and loan associates and
____________________________________________________________ credit unions with membership in an approved signature guarantee
(Street Address) medallion program) pursuant to S.E.C. Rule 17Ad-15
____________________________________________________________ _________________________________________________________________
(City, State and Zip Code) (Signature Guarantee)
Please print or type
</TABLE>
ASSIGNMENT FORM
If you the holder want to assign this Convertible Subordinated Note, fill in the
form below and have your signature guaranteed: I or we assign and transfer this
Convertible Subordinated Note to:
_______________________________________________________________________________
(INSERT ASSIGNEES SOCIAL SECURITY
OR TAX IDENTIFICATION NO.)
_______________________________________________________________________________
(Print or type assignees Name, Address and Zip Code)
and irrevocably appoint ____________________ agent to transfer this Convertible
Subordinated Note on the books of the Company. The agent may substitute another
to act for him.
Date:___________ Your Signature:______________________________________________
(Sign exactly as your name appears on the
other side of the Convertible Subordinate Note)
Signature Guarantee:__________________________________
<PAGE>
EXHIBIT 23.1
CONSENT OF CHARTERED ACCOUNTANTS
--------------------------------
Board of Directors
IAS Communications, Inc.
We consent to the use of our report dated July 22, 1998 on the financial
statements of IAS Communications, Inc. as of April 30, 1998 and 1997 that are
included in the Form 10-KSB.
Dated this 29th day of July, 1998
ELLIOTT TULK PRYCE ANDERSON
"Elliott, Tulk, Pryce, Anderson"
Chartered Accountants
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 15,882
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,807
<PP&E> 409,273
<DEPRECIATION> 37,374
<TOTAL-ASSETS> 440,080
<CURRENT-LIABILITIES> 450,672
<BONDS> 40,000
0
0
<COMMON> 3,190,884
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 440,080
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,630,327
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,720
<INCOME-PRETAX> (1,633,047)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,633,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,633,047)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
