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Sunncomm Inc · 10SB12G · On 4/18/01

Filed On 4/18/01 2:46pm ET · SEC File 0-31421 · Accession Number 1086715-1-100

  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 4/18/01  Sunncomm Inc                      10SB12G                1:225                                    Volpe Jeffrey

Registration of Securities of a Small-Business Issuer · Form 10-SB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10SB12G     Registration of Securities of a Small-Business       225±   959K 
                          Issuer

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (RTF, XML, et al.) Agreement Assignee Assignment and Assumption Agreement Assignor Available Information Certain Relationships and Related Transactions Changes in and Disagreements With Accountants Compensation of Directors Competition and the Market Consulting Agreement Content Security Technology History Description of Business/Research and Development Description of Property Description of Securities Directors and Executive Officers Effect of Existing or Probable Governmental Regulations Employees Employment Agreement With John D. Aquilino Employment Agreement With Peter H. Jacobs Employment Agreement With William H. Whitmore Executive Compensation Exhibit 10.05b Exhibit 10.05c Exhibit 10.07 Exhibit 10.08 Exhibit 10.09 Exhibit 10.10 Exhibit 10.11 Exhibit 10.12 Exhibit 10.13 Exhibit 10.14 Exhibit 10.15 Exhibit 10.16 Exhibit 10.17 Fahrenheit Guarantor Indemnification of Directors and Officers Inventor Legal Proceedings Licensee Licensor Management Consulting Services Management's Discussion and Analysis or Plan of Operation Market for Common Equity and Related Shareholder Matters Option Grants in Last Fiscal Year Part F/S: Financial Statements Participant Part Ii Part Iii: Index to Exhibits Patents, Trademarks, Licenses, Franchises, Concessions and Royalty Agreements Plan of Operation Problem, The Product Property Recent Sales of Unregistered Securities Reports to Security Holders Research and Development Security Ownership of Certain Beneficial Owners and Management Signature Table of Contents Tenant Term The Problem Type of Competition and Representative Competitors What Makes Our Product Valuable? Will-Shown Windows Media Compatible
1	1st Page
2	Table of Contents
4	Description of Business/Research and Development
6	Competition and the Market
"	The Problem
"	Content Security Technology History
7	Type of Competition and Representative Competitors
8	What Makes Our Product Valuable?
9	Fahrenheit
"	Will-Shown
10	Patents, Trademarks, Licenses, Franchises, Concessions and Royalty Agreements
"	Effect of Existing or Probable Governmental Regulations
"	Research and Development
"	Employees
11	Available Information
"	Reports to Security Holders
"	Item 2: Management's Discussion and Analysis or Plan of Operation
"	Plan of Operation
12	Item 3: Description of Property
"	Item 4: Security Ownership of Certain Beneficial Owners and Management
14	Item 5: Directors and Executive Officers
16	Item 6: Executive Compensation
"	Option Grants in Last Fiscal Year
17	Compensation of Directors
"	Employment Agreement With Peter H. Jacobs
18	Employment Agreement With John D. Aquilino
"	Employment Agreement With William H. Whitmore
"	Item 7: Certain Relationships and Related Transactions
"	Assignment and Assumption Agreement
19	Consulting Agreement
"	Management Consulting Services
"	Item 8: Description of Securities
20	Part Ii
"	Item 1: Market for Common Equity and Related Shareholder Matters
21	Item 2: Legal Proceedings
22	Item 3. Changes in and Disagreements With Accountants
"	Item 4: Recent Sales of Unregistered Securities
23	Item 5: Indemnification of Directors and Officers
24	Part F/S: Financial Statements
47	Part Iii: Index to Exhibits
48	Signature
77	Inventor
84	Agreement
100	Windows Media Compatible
101	Product
"	Exhibit 10.05b
"	Property
"	Exhibit 10.05c
"	Licensor
"	Licensee
"	Exhibit 10.07
"	Exhibit 10.08
"	Tenant
"	Term
103	Exhibit 10.09
"	Exhibit 10.10
"	Participant
"	Exhibit 10.11
"	Exhibit 10.12
"	Exhibit 10.13
"	Exhibit 10.14
"	Exhibit 10.15
"	Assignor
"	Assignee
"	Guarantor
"	Exhibit 10.16
"	Exhibit 10.17

10SB12G 1st "Page" of 103 TOC Top Previous Next Bottom Just 1st

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-SB

GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934

SUNNCOMM, INC.
(Name of Small Business Issuer in its charter)

Nevada 86-0991301
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

668 North 44th Street, Suite 248, Phoenix, Arizona 85008; 602-267-7500
(Address and telephone number of principal executive offices)

Securities to be registered under Section 12(b) of the Act: None.

Common stock, $0.001 par value per share
Securities to be registered under Section 12(g) of the Act:

10SB12G 2nd "Page" of 103 TOC 1st Previous Next Bottom Just 2nd
1
TABLE OF CONTENTS

PART I .......................................................................1

ITEM 1: DESCRIPTION OF BUSINESS .............................................1
SUNNCOMM HISTORY........................... ...............................1
DESCRIPTION OF BUSINESS/RESEARCH AND DEVELOPMENT...........................1
COMPETITION AND THE MARKET.................................................3
The Problem..............................................................3
Content Security Technology History......................................3
Type of Competition and Representative Competitors.......................4
What Makes Our Product Valuable? ........................................5
CONTRACTS ...............................................................5
Fahrenheit ..............................................................6
Will-Shown ..............................................................6
PATENTS, TRADEMARKS, LICENSES, FRANCHISES,
CONCESSIONS AND ROYALTY AGREEMENTS........................................6
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ...................7
RESEARCH AND DEVELOPMENT...................................................7
EMPLOYEES..................................................................7
AVAILABLE INFORMATION .....................................................7
REPORTS TO SECURITY HOLDERS ...............................................7

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ...........7

PLAN OF OPERATION .........................................................7

ITEM 3: DESCRIPTION OF PROPERTY .............................................8

ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......8

ITEM 5: DIRECTORS AND EXECUTIVE OFFICERS.................................... 9

ITEM 6: EXECUTIVE COMPENSATION .............................................11

OPTION GRANTS IN LAST FISCAL YEAR ........................................12
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES..................................12
COMPENSATION OF DIRECTORS.................................................12
EMPLOYMENT AGREEMENT WITH PETER H. JACOBS ................................12
EMPLOYMENT AGREEMENT WITH JOHN D. AQUILINO ...............................13
EMPLOYMENT AGREEMENT WITH WILLIAM H. WHITMORE ............................13

ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .....................14

ASSIGNMENT AND ASSUMPTION AGREEMENT ......................................14
CONSULTING AGREEMENT .....................................................14
MANAGEMENT CONSULTING SERVICES ...........................................14
CONSULTING AGREEMENT .....................................................15

ITEM 8: DESCRIPTION OF SECURITIES ..........................................14

PART II .....................................................................15

10SB12G 3rd "Page" of 103 TOC 1st Previous Next Bottom Just 3rd
2ITEM 1: MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS ...........15

ITEM 2: LEGAL PROCEEDINGS ..................................................16

ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ......................17

ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES ............................17

ITEM 5: INDEMNIFICATION OF DIRECTORS AND OFFICERS ..........................17

PART F/S: FINANCIAL STATEMENTS .............................................19

PART III: INDEX TO EXHIBITS ................................................20

SIGNATURE ...................................................................20

EXHIBIT 3.01 ................................................................21
EXHIBIT 3.02 ................................................................26
EXHIBIT 4.01 ................................................................41
EXHIBIT 4.02 ................................................................45
EXHIBIT 10.01 ...............................................................50
EXHIBIT 10.01A ..............................................................51
EXHIBIT 10.02 ...............................................................53
EXHIBIT 10.03 ...............................................................56
EXHIBIT 10.04 ...............................................................57
EXHIBIT 10.05A ..............................................................72
EXHIBIT 10.05B ..............................................................79
EXHIBIT 10.05C .............................................................102
EXHIBIT 10.06 ..............................................................116
EXHIBIT 10.07 ..............................................................124
EXHIBIT 10.08 ..............................................................134
EXHIBIT 10.09 ..............................................................171
EXHIBIT 10.10 ..............................................................180
EXHIBIT 10.11 ..............................................................184
EXHIBIT 10.12 ..............................................................187
EXHIBIT 10.13 ..............................................................190
EXHIBIT 10.14 ..............................................................199
EXHIBIT 10.15 ..............................................................207
EXHIBIT 10.16 ..............................................................209
EXHIBIT 10.17 ..............................................................213

[CAPTION]
PART I
ITEM 1: DESCRIPTION OF BUSINESS
---------------------------------
SunnComm History

Our predecessor, Compliance Signage, Inc. ("Compliance"), was incorporated in
Oregon on August 9, 1993. On April 4, 1996, Compliance changed its name to
Ti-Mail, Inc., and increased the number of authorized shares of common stock to
50,000,000.

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3On November 13, 1998, our Company, Desert Winds Entertainment Corporation, a
Nevada corporation, was formed in Nevada and subsequently merged with Ti-Mail
on December 10, 1998. On December 10, 1998, we entered into a "Plan and
Agreement of Reorganization" with the Whitney Corporation whereby all 6,500,000
issued and outstanding shares of Whitney common stock were acquired by us in
exchange for an equal number of shares of its common stock, making Whitney a
wholly-owned subsidiary of the Company. Michael Paloma, as Chairman, Chief
Executive Officer, and President, assumed our primary management at that time.
From December 10, 1998, to April 20, 1999, the mailing and shipping product
business of Ti-Mail and the entertainment production business of Whitney each
continued to be operated independently. On March 1, 2000, Mr. Paloma resigned
as Chairman, Chief Executive Officer and President. On April 20, 1999, we
divested of all assets and liabilities related to the business and operations
of Ti-Mail and agreed to sell all of the assets of Ti-Mail to certain employees
in exchange for their assumption of Ti-Mail's liabilities. As a result of this
transaction, the Company was no longer involved in the manufacture and sale of
packaging products for mailing and shipping.

On June 15, 2000, we entered into an Assignment and Assumption Agreement with
Desert Entertainment, Inc. ("DEI") (a subsidiary in which we had an interest of
49% of the outstanding shares of common stock) and Michael Paloma, pursuant to
which the Company transferred certain assets to DEI and DEI assumed, and
Michael Paloma guaranteed, certain liabilities related to those assets. On June
19, 2000, we sold all of the outstanding capital stock of DEI owned by us to
Michael Paloma in exchange for the forfeiture of his right to receive 500,000
shares of common stock of the Company. As a result of these transactions, we
divested the business of developing, producing and marketing full-scale films,
television shows and live casino and theatre shows.
Beginning in June, 2000, we changed our focus to become a leading provider of
content security technology for digital products worldwide.

Description of Business/Research and Development

We have developed a proprietary technology that inhibits illegal duplication of
digital music recordings through content security processes. The growth of
digital music has raised enormous concern from record companies, artists,
publishers and producers over the loss of revenue from unauthorized
distribution of prerecorded digital product. We intend to significantly reduce
the copy-capability of digitally recorded music and programming. The Company's
process allows record companies to secure their manufactured audio compact
discs, thus significantly reducing the risk that music offered through this
medium will be not be illegally duplicated.

On May 23, 2000, we entered into an Assignment Agreement with Equity Earnings
Corp., d.b.a. Designer Products, an Arizona corporation ("DP"), whereby DP
assigned to us all its right, title and interest in and to a proprietary
Internet digital rights management system more particularly described in that
certain provisional patent application identifiable in the United States Patent
and Trademark Office ("USPTO") by Serial No. 60/207,201, filed May 25, 2000.
(the "Provisional Patent"). John D. Aquilino, as the "inventor", later assigned
all of his rights in this technology to us and we filed a Patent Assignment,
which was recorded with the Commissioner of the USPTO. See Exhibit10.01 for a
copy of the Patent Assignment. Pursuant to the Assignment Agreement, DP agreed
to incur all costs related to developing and delivering to us a working
prototype product based upon the Provisional Patent (the "Prototype").

10SB12G 5th "Page" of 103 TOC 1st Previous Next Bottom Just 5th
4DP further agreed to incur all costs related to converting the Provisional
Patent into a utility patent application and pursuing and obtaining approval of
said application from the USPTO. Upon the execution of the Assignment
Agreement, we transferred to DP 2,000,000 restricted shares of the Company's
common stock and delivered 4,000,000 restricted shares of the Company's common
stock into escrow. Upon delivery of the Prototype and an assignment from the
developer of all right, title and interest related thereto, we have agreed to
deliver to DP from the escrow an additional 2,000,000 shares of the Company's
restricted common stock. Upon our developing and delivering to market any
product based upon or derived from the Prototype, Provisional Patent or any
subsequently approved utility patent based thereon, we shall deliver to DP from
the escrow an additional 2,000,000 restricted shares of the Company's common
stock. We shall pay to DP fifty percent (50%) of any and all royalty revenue
generated from the licensing or other commercial exploitation of any such
product(s). See Exhibit 10.02.

Pursuant to an agreement between Mr. Aquilino, an officer and director of the
Company, and DP, Mr. Aquilino owns a right to receive half of the stock and
royalty compensation received by DP from the Company pursuant to the Assignment
Agreement. Mr. Aquilino has assigned his right to receive his one -half
interest in the royalties and the escrowed stock to the Company. See Exhibit
10.03 for a copy of the Assignment of Royalty.

Although we believe that future applications may be available for our Internet
digital rights management system, we believe that more recently developed
technology has greater potential in the optical media market.

In August of 2000, we engaged BTEK Software, Inc. ("BTEK") to develop and
deliver a technology designed to prohibit the unauthorized duplication of
optical media. On March 6, 2001, we memorialized our relationship with BTEK in
that certain Master Development Agreement ("MDA") whereby BTEK completed and
delivered to us a technology we refer to as "Digital Content Cloaking (tm)
Technology, Version 1.0 ("DC2(tm)")", together with all right, title and
interest in and to the technology. The Company intends to market DC2(tm) under
the tradename "MediaCloQ". The MDA provides that BTEK shall receive an
aggregate of 1,175,000 shares of restricted common stock of the Company, a
royalty of one percent (1%) of the net factory sales price on all sales of
products incorporating MediaCloQ(tm) and a cash payment. See Exhibit 10.04. A
provisional patent application was filed with the USPTO with respect to
DC2(tm).

MediaCloQ(tm) content security features are not resolvable using any single
solution, greatly reducing the probability of loss to illegal duplication. We
intend to charge a royalty to recording companies to incorporate MediaCloQ(tm)
into their products.

Presently, MediaCloQ(tm) secures audio compact discs ("CDs") from unauthorized
duplication. We are seeking to develop proprietary technology applications for
additional optical media formats, including CD Rom (i.e. software programs on
compact discs) , DVD (digital virtual disc), DVDA (digital virtual disc audio)
and VCD (video compact disc). On or about April 17, 2001, pursuant to a license
agreement between the Company and Fahrenheit Entertainment, Inc.

10SB12G 6th "Page" of 103 TOC 1st Previous Next Bottom Just 6th
5(see "Contracts" below), Music City Records will commercially release the
latest CD by country music recording legend Charley Pride incorporating
MediaCloQ(tm).

We have selected Microsoft Windows Media Rights Manager Software Development
Kit7(r) (the "Microsoft Windows MRM") to couple with MediaCloQ(tm) to protect
on-line downloads from unauthorized duplication, pursuant to a license
agreement with Microsoft(r) . See Exhibit 10.05.

Competition and the Market

The Problem

Music publishing is the business of acquiring and developing rights in musical
compositions. The U.S. Copyright Act confers upon songwriters the exclusive
legal right to control the public dissemination of their songs and to receive
compensation for the use of their songs. Generally, the right to receive
copyright royalties extends for the life of the songwriter plus 50 years
following his or her death. Income generated by the use of a song is oftentimes
split between the songwriter and publisher, with the publisher in most
instances responsible for promoting the use of the song, collecting income on
behalf of the songwriter and for distributing his or her share.

Music publishers earn their revenue from licensing the right to use songs in
their catalog - a right they have to the exclusion of all others. Every time a
song is used or performed, the owner of the copyright must grant permission, a
license must be issued and a payment must be made. The more a song gets
performed or used the more income is generated for the publisher and
songwriter. Digital technology brings music to a wider public, affords niche
artists access to their audiences, makes music widely available, and
distributes old, new and unusual music at affordable prices.

A major problem faced by the music publishing and recording industry is "music
piracy." Music piracy generally refers to the illegal duplication and
distribution of video and sound recordings, and includes four specific forms:

1. Illegally copied recordings are the unauthorized duplication of only the
sound of legitimate recordings, as opposed to all the packaging, i.e., the
original art, label, title, sequencing, combination of titles, etc.

2. Counterfeit recordings are unauthorized recordings of the prerecorded sound
as well as the unauthorized duplication of original artwork, label, trademark
and packaging.

3. Bootleg recordings (or underground recordings) are the unauthorized
recordings of a live concert or a musical broadcast on radio or television.

4. Online piracy is the unauthorized uploading of a copyrighted sound recording
and dissemination to the public, even if the recording is not resold.

Content Security Technology History

Before 1986, the government and large companies were the only real users of
content security technology. In 1986, "Pretty Good Privacy" ("PGP") was
introduced, a 128-bit public key encryption program.

10SB12G 7th "Page" of 103 TOC 1st Previous Next Bottom Just 7th
6PGP is now available both in commercial and free products and is one of the
most widely used content security programs on the Internet. Industry vendors
are beginning to adopt elliptic curve cryptography (ECC), which uses complex
mathematical functions to scramble audio and video content.

ECC offers security more difficult to penetrate in a smaller key length, and is
generally regarded as being faster and requiring less processing power. The ECC
technology is available free of charge.

Modern content security is achieved with algorithms that use a "key" to encrypt
and decrypt messages by turning text or other audio and video content into
digital gibberish and then by restoring it to its original form. The longer the
"key," the more computing required to "crack" the code. To decipher an
encrypted message by trial and error, one would need to try every possible key.
Computer keys are made of "bits" of information, binary units of information
that can have the value of zero or one. An eight-bit key has 256 (two to the
eighth power) possible values. A 56-bit key creates 72 quadrillion possible
combinations. If the key is 128 bits long, or the equivalent of a 16-character
message on a personal computer, to crack the code by trial and error would be
4.7 sextillion (4,700,000,000,000,000,000,000) times more difficult than
deciphering a 56-bit key. Given the current power of computers, a 56-bit key is
considered penetrable. To penetrate a 128-bit key, one would need access to an
enormous amount of computing power.

Type of Competition and Representative Competitors

The content security industry is characterized by rapid technological change,
frequent innovations, and evolving operating platforms. To remain competitive,
we must plan to regularly enhance the functionality of our proprietary
technology and introduce new programs while reducing our research and
development costs. Even if successful, alternative technologies may develop,
which, if they achieve widespread market acceptance, could supplant our
technology and make it obsolete. Our failure to respond to any of these market
pressures would adversely affect our business, results of operations and
financial condition.

There are a number of companies that are more established, benefit from greater
market recognition, and have substantially greater financial, development,
manufacturing and marketing resources than us. Our ability to compete
successfully in the rapidly evolving area of content security depends on
factors both within and outside our control, including:

* performance and price;
* features and functionality;
* adaptability of products to specific applications;
* support of product differentiation by our customers;
* length of development cycle;
* support for new communications standards and protocols; and
* technical service and support.

Our failure to compete successfully as to any of these or other factors could
materially and adversely affect us.

10SB12G 8th "Page" of 103 TOC 1st Previous Next Bottom Just 8th
7Security measures either (i) mark copied material as authentic, i.e., digital
watermarking; (ii) modify the content available by reducing the quality of the
music or attaching advertising material to tracks; or (iii) prevent altogether
the unauthorized duplication of copy-written material. Our MediaCloQ(tm)
proprietary technology adopts this latter strategy of barring duplication.
Other means of barring duplication include: systems using on-line "musical"
currency and other micropayment systems, long key encryption, public key
cryptography systems (e.g., Motorola's CipherNET(r) or the prospective public
domain Advanced Encryption Standard), hardware-based protection (chips,
computers, peripherals, secure containers), portable flash memory devices, and
compression codices. In management's judgment, all of these technologies are
inferior to our MediaCloQ(tm). They are either too cumbersome, too expensive,
require additional hardware, or significantly degrade the music quality.
The best-known competitor of the Company is TTR Technologies, Inc., a publicly
traded Israeli development stage company that is in the process of developing
and designing anti-piracy software technologies that purport to provide copy
protection for music distributed on CDs. The company's proprietary product
SafeAudio(tm) Toolkit is purported to be designed to prevent unauthorized CDs
from operating as intended.

While not a direct competitor, the Secure Digital Music Initiative ("SDMI)"is a
forum of more than 180 companies and organizations whose goal is to develop a
voluntary, open framework for playing, storing, and distributing digital music
in a protected form. Member companies develop security measures in a wide array
of technological solutions. To the knowledge of management, none of the
companies within the SDMI consortium have technology which is directly
competitive with ours.

What Makes Our Product Valuable?
MediaCloQ(tm) provides content security qualitatively different from other
technologies. A shrink-wrapped audio compact disc purchased off-the-shelf that
is manufactured incorporating MediaCloQ(tm) cannot be digitally copied.
Incorporating MediaCloQ(tm) causes no degradation in sound quality. A recording
studio simply provides the recording to the mastering facility, while
requesting the mastering facility to incorporate MediaCloQ(tm) during the
manufacturing process. The mastering facility can easily update its encoders to
enable the incorporation of MediaCloQ(tm).

In a simplified scenario, the digital content - a song, for example - is
created and made ready for duplication in the form of CDs. During the mastering
process, a glass master containing the digital sound recording is created to
mass -produce CDs. During the pre-mastering and encoding phase, just prior to
the creation of the glass master, MediaCloQ(tm) is applied to the glass master,
which "cloaks" the digitally recorded content from duplication equipment such
as PC CD-ROM audio CD simulators, CD replicators or other digital duplication
devices. In addition to cloaking the content, MediaCloQ(tm) adds a standard
data track containing a MediaCloQ(tm) Enhanced Table of Contents ("TOC") that
is different from the Redbook TOC as part of the 908 Redbook standard. This
Enhanced TOC contains recording, track and author data as well as encryption
data that allows the user to download the Microsoft Windows MRM protected
versions of the WM8 files associated with the original CD's TOC directly from
the Company's website for use on the user's PC or portable device. These files
are protected with the Microsoft Windows MRM solution and can only be played on
the device for which such files are authorized.

10SB12G 9th "Page" of 103 TOC 1st Previous Next Bottom Just 9th
8In some instances, the digital content rights holder has the option to make
certain rights available to end-users, such as the ability to transfer the
digitally distributed file to a portable media player device, such as a Rio(tm)
MP3(tm) player.

Once transferred, the newly created file can then be further restricted to only
play or delete, thereby remaining secure, even on additional devices. This
option allows for consumers to use protected content on mobile devices while
protecting the rights of the digital content rights holders.

Because our cloaking process is applied at the glass mastering stage, we
believe that it provides greater security to the digital content from skilled
hackers, permits efficient and convenient incorporation into production lines,
and allows quality assurance prior to mass production.
Contracts
The Company intends to actively market MediaCloQ(tm) to major and independent
recording companies on a national and international basis. The Company has
executed the following contracts.

Fahrenheit

On December 1, 2000, we entered into a one-year license agreement with
Fahrenheit Entertainment, Inc., ("Fahrenheit") an independent record label,
granting Fahrenheit a royalty-free, nonexclusive, nontransferable worldwide
license to incorporate MediaCloQ(tm) into its products. In exchange, Fahrenheit
has agreed to act as a technology partner during the term of the agreement.
Fahrenheit must ship 25,000 CD units per month. See Exhibit 10.06. On or about
April 17, 2001, pursuant to this license and in coordination with Fahrenheit,
Music City Records shall commercially release the latest CD by country music
recording legend Charley Pride entitled "A Tribute to Jim Reeves", which
incorporates MediaCloQ(tm). This agreement does not pay any royalties to us.

Will-Shown

On December 5, 2000, we entered into a license agreement with Will-Shown
Technology Company, Ltd. ("Will-Shown"), granting Will-Shown a nonexclusive,
nontransferable worldwide license to incorporate MediaCloQ(tm) into its CD
products. The license is exclusive only as it relates to artists that
Will-Shown promotes and distributes pursuant to a written exclusive recording
agreement with such artists. As a condition to Will-Shown's rights arising
under this license, Will-Shown must pay a $40,000 advanced royalty, and will
pay a three percent (3%) royalty on the net factory sales price on each unit
sold incorporating MediaCloQ(tm) , but in no event shall we receive a royalty
of less than twenty cents ($0.20) for each unit sold. Payment shall be
calculated on a monthly basis and shall be paid within thirty (30) days from
the end of each prior month.

The initial term of the license is seven (7) years with three (3) consecutive
option periods of two (2) years each, beginning at the end of the initial term.
Each option is subject to meeting the minimum performance requirements
described above. See Exhibit 10.07.

Will-Shown has not yet paid the advanced royalty of $40,000, and the Company
and Will-Shown have each mutually agreed to defer the effective date of the
license agreement so we may focus our efforts on the domestic market.

10SB12G 10th "Page" of 103 TOC 1st Previous Next Bottom Just 10th
9Although we intend to enter into additional contracts to distribute our
products, there is no assurance that we will be successful in consummating any
additional agreements.

Patents, Trademarks, Licenses, Franchises, Concessions and Royalty Agreements

"Digital Content Cloaking(tm)", "DC2(tm)", "MediaCloQ(tm)" and "SunnComm(tm) "
are trademarks of SunnComm, Inc. in the United States and other countries.
Otherwise, all trademarks and tradenames referred to in this Form 10-SB are the
property of their respective owners.

We expect to rely on a combination of copyright, trademark, patent and trade
secret laws, and restrictions on disclosure to protect our intellectual
property rights. Although we attempt to protect our intellectual property
rights, we may be unable to prevent the misappropriation of our intellectual
property, particularly in foreign countries where the laws may not protect the
Company's proprietary rights as fully as in the United States.

In addition, other persons or companies may allege that our products infringe
upon their proprietary rights. Any assertion that our products infringe upon
their proprietary rights would force us to defend ourselves or our customers,
manufacturers or suppliers against alleged infringement of intellectual
property rights. We could incur substantial costs to prosecute or defend this
litigation. If we were found to have infringed upon another person's
proprietary rights and were unable to develop non-infringing technology or
license the infringed technology on acceptable terms and on a timely basis, we
could be forced to stop using the infringed technology and our business,
results of operations and financial condition would be materially adversely
affected.

Effect of Existing or Probable Governmental Regulations

Federal patent, trademark and copyright laws protect our technology and
preserve much of the net present value in the Company. If the Federal
government changes the effect or import of the current intellectual property
regime, in response to content security developments or otherwise, we could be
materially adversely affected. The costs and effects of compliance with
environmental laws are minimal.

Research and Development

While we intend to market a product for which extensive research and
development costs have been expended, in 1999 those costs had been borne by the
developers with whom we have contracted. In 2000, however, we incurred $127,500
in research and development expenses.

Employees

We anticipate the establishment of a technical and support department that we
expect will grow to five (5) employees. The establishment of the sales and
marketing departments will initially employ three (3) people. General and
administrative operations are expected to employ approximately ten (10)
in-house personnel. We currently employ eight (8) and expect to employ fifteen
(15) to twenty (20) people within twelve (12) months. We currently contract
with three (3) independent contractors.

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10Available Information

The public may read and copy any materials we file with the Securities and
Exchange Commission (the "SEC") at the SEC's Public Reference Room at 450 Fifth
Street, NW, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800- SEC-0330.
If we elect to file electronically, the SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is <http://www.sec.gov>. Our Internet address is
<http://www.sunncomm.com>. Information contained on our website is not part of
this Form 10-SB or any other securities disclosure.

Reports to Security Holders

The SEC's proxy rules and regulations require us to send an annual report to
security holders, which we will issue in accordance with those rules.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
-----------------------------------------------------------------

Plan of Operation

Until we enter into a distribution contract which provides royalty payments of
a sufficient amount to support our operating costs, we will continue to rely on
the sale of debentures to finance our operations. Although we are actively
seeking record companies and other distributors of digital content to sell
products with our technology incorporated, we have not consummated any
agreement providing any royalties. We are uncertain as to the time required to
educate the market as to the viability and availability of our products. We
anticipate that to meet our payroll obligations, we will need approximately
$35,000 per month for the year ended March 31, 2002. There is no assurance that
this estimate may not increase particularly if we need to allocate a greater
amount to ongoing research and development costs to upgrade our technology.

Most of the proceeds we receive will pay salaries of employees, which we
anticipate to increase from eight (8) to approximately fifteen (15) or twenty
(20) and to independent contractors for research and development costs. We
believe that we will not need to purchase any equipment as we anticipate that
our revenues will come from the licensing of our technology and we do not
anticipate upgrading our computer hardware during the coming year.
Our anticipated revenues will be based on the sale of products by our customers
to consumers, and will be affected by the seasonal buying trends typically
found in the consumer-entertainment retail industry. For example, revenues, if
realized, are likely to be higher during the Christmas buying season, but lower
in the quarter immediately following.

In fiscal 2000 (ending September 30), we raised $455,000 from the sale of
convertible debentures and $87,700 from the sale of unregistered common stock,
all of which was raised after March 12, 2000. From October 1, 2000, through
March 31, 2001, we raised an additional $719,492 from the sale of convertible
debentures and $243,900 from the sale of unregistered common stock.

10SB12G 12th "Page" of 103 TOC 1st Previous Next Bottom Just 12th
11We expect to use the proceeds of financing activities to complete the research
and development, beta testing, and rollout of our proprietary content security
technology for CD Rom, DVD, DVDA, VCD and other digital media.

ITEM 3: DESCRIPTION OF PROPERTY
--------------------------------

We currently own no real property and do not invest in real property. Our
principal place of business is leased pursuant to a long-term, non-cancelable
seventy-two (72) month operating lease for office space in Phoenix, Arizona,
which commenced on July 1, 2000. Future minimum lease rentals aggregate
$813,853 through September 30, 2005. The lease provides for one five-year lease
renewal at market rates. The following is a summary of the minimum lease
rentals payable for each of the next five (5) years as of the end of the fiscal
year.

Year Rent
---- ----
2001 $136,147
2002 $187,548
2003 $197,709
2004 $209,289
2005 $ 83,160
------------------------
For a total of $813,853

See Exhibit 10.08 for more information.

ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
----------------------------------------------------------------------

The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of March 31, 2000, by:

* all Directors;

* each person who is known by the Company to be the beneficial owner of more
than five percent (5%) of the outstanding common stock;

* each executive officer named in the Summary Compensation Table below; and

* all Directors and executive officers as a group.

The number of shares beneficially owned by each Director or executive officer
is determined under the SEC rules, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under the SEC rules,
beneficial ownership includes any shares as to which the individual has the
sole or shared voting power or investment power. In addition, beneficial
ownership includes any shares that the individual has the right to acquire
within sixty (60) days of March 31, 2000, through the exercise of any stock
option or other right. Unless otherwise indicated, each person listed below has
sole investment and voting power (or shares such powers with his or her
spouse).

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12
[Enlarge/Download Table]

In certain instances, the number of shares listed includes, in addition to shares owned directly, shares
held by the spouse or children of the person, or by a trust or estate of which the person is a trustee
or an executor or in which the person may have a beneficial interest.

Number of Shares of Common Stock
Beneficially Owned

Vested
Name and Address of Beneficial Owner Shares Options(1) Total Percent(2)
------------------------------------ --------------------------------------------
Peter H. Jacobs
668 North 44th Street, Suite 248
Phoenix, Arizona 85008 5,666,666 4,000,000 9,666,666 20.47%

John D. Aquilino
668 North 44th Street, Suite 248
Phoenix, Arizona 85008 4,066,666 2,000,000 6,066,666 13.41%

Stephen F. Burg
668 North 44th Street, Suite 248
Phoenix, Arizona 85008 2,466,666 1,500,000 3,966,666 8.87 %

William H. Whitmore
668 North 44th Street, Suite 248
Phoenix, Arizona 85008 25,000 700,000 725,000 1.65%
------------------------------------ --------------------------------------------
All Directors and Executive
Officers as a group 12,224,998 8,200,000 20,424,998 39.71%

Michael Paloma(3) 2,380,000 0 2,380,000 5.50%

(1) Including 2,000,000 options issued to Mr. Jacobs under his Employment Agreement described below. The
balance of options were issued pursuant to Incentive Stock Option Agreements described below.
(2) Assuming that all of the options listed had been exercised.
(3) Mr. Paloma was a director of the Company until March 2000.

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13
[Enlarge/Download Table]

ITEM 5: DIRECTORS AND EXECUTIVE OFFICERS
Other
Directorships
Held In
Reporting
Name Age Position Term of office; periods of service Companies
---- --- -------- ---------------------------------- -------------
Peter H. Director, As an officer, Mr. Jacobs has entered
Jacobs 52 President and an Employment Agreement for 5 years,
Chief Executive beginning June 1, 2000. As a director,
Officer began service on March 8, 2000, and was
elected to another term at the annual
shareholder meeting held on
November 7, 2000.
John D.
Aquilino 35 Chairman, Chief As an officer, Mr. Aquilino has entered an
Technology Employment Agreement for 2 years, beginning
Officer June 1, 2000. As a director, began service on
June 9, 2000, and was elected to another term
at the annual shareholder meeting held on
November 7, 2000.
Stephen
F. Burg 63 Director, As a director, began service on June 9, 2000, Xechem
Corporate and was elected to another term at the annual Pharmaceuticals
Secretary shareholder meeting held on November 7, 2000. (ZKEM)
and Treasurer Wolfstone
Corporation
(WSCO)
William H.
Whitmore 41 Vice President As an officer, Mr. Whitmore has entered an
Employment Agreement for 2 years, beginning
January 26, 2001.

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14
Peter H. Jacobs, age 52, is a Director and is the President and Chief Executive
Officer of the Company. After serving in the Army during the Vietnam Era, Mr.
Jacobs studied math and political science at the University of Oregon. Mr.
Jacobs has over twenty (20) years of executive level telecommunications and
technology experience, with over twelve (12) years of experience, from 1986 to
September 1998, as the President of a nationwide public telecommunications
company, Fone America, Inc. At Fone America he was responsible for the
conception, development, and "roll-out" of important telecommunications
products, including the introduction of the prepaid calling card in the United
States, national "flat-charging" of long distance phone calls, and the
successful "roll-out" of thousands of advanced vending machines nationwide in
an extremely short period of time. From 1998 to February, 2000, he became the
principle consultant to, and significant shareholder in, Sunrise
Communications, LLC, an Oregon limited liability corporation. Mr. Jacobs has
owned and managed several high technology firms, including StellarVision
International, which pioneered satellite-fed, pay-per-day movies in hotels
without the need of set-top converters. In March 2000, he joined SunnComm. He
has owned and marketed low power television stations in San Diego, among other
cities. Mr. Jacobs has authored and published a book on satellite television
for non-technical readers, entitled "Everything You Wanted to Know About
Satellite Television," and earlier in his career, was an on-air personality for
WHBI-FM, a local New York area radio station. He helped finance his college
education by producing live concerts in his own production company. He resides
in Fair Oaks, California.

John D. Aquilino, age 35, is a Director, Chairman, and the Chief Technology
Officer. He has spent ten (10) years performing in major venues throughout the
U.S. and abroad with his musical group, ICON, and subsequently was involved in
the business of the music industry, A&R (artist and repertoire), and
production. Mr. Aquilino's previous experience includes artist production and
development for Capital Records, EMI Records, Atlantic Records and Mega Force
Records, in his capacity as President of Scorpio Entertainment, an Arizona sole
proprietorship, from 1990 to January 2000. In addition, Mr. Aquilino has worked
with such artists as Frank Sinatra, Gladys Knight, Stevie Wonder, Billy Squire,
and Quiet Riot, among others. He resides in Mesa, Arizona.

Stephen F. Burg, age 63, is a Director and is the Secretary of the Company. He
holds a Bachelor's degree in business from Boston University. After twenty (20)
years of senior management within a public corporate environment (Evans
Products Company NYSE), he formed S.B. Corporate Consulting, Inc., in 1986. Mr.
Burg's company offers corporate growth strategies for public and private
companies, and provides services to clients in restructuring an operating base;
guidance in how to prepare for raising of equity financing through public
investment; and assisting in identifying and acquiring additional assets or
other companies or products. Among the clients SB Corporate Consulting, Inc.,
has represented are Xechem International, Inc. (ZKEM), a development stage
biopharmaceutical company that is traded on the OTC-BB as ZKEM, based in New
Brunswick, NJ (Mr. Burg is an active board member for the past five (5) years).
At Wolfstone Corporation (WSCO), Mr. Burg assisted in corporate development,
and now serves on the board of directors. He resides in Fairfield, California.
William H. Whitmore, age 41, is Vice President of Marketing and Communications.
Mr. Whitmore attended Northern Arizona University where he studied business
administration and computer science.

10SB12G 16th "Page" of 103 TOC 1st Previous Next Bottom Just 16th
15He previously served as Executive Vice President for Ekid Network, Inc., a
media content company for children. While in this position, Mr. Whitmore
managed all aspects of administration, technical development and marketing for
the company, which produced educational animated software that enabled children
to safely access the Internet. Concurrently, he was the representative for the
investment group that funded the company and numerous other projects. Mr.
Whitmore managed an extensive portfolio that included restaurants, real estate
and one-stop Internet ventures. Prior to joining Ekid Network, Mr. Whitmore was
the Vice President of Operations for TCGB, a manufacturer and distributor of
unique products for the children's beverage market. In this role, he worked
closely with the production and marketing team managing all aspects of product
development, purchasing and procurement, shipping and receiving, logistics,
customer service and administration.

ITEM 6: EXECUTIVE COMPENSATION

The following table sets forth certain compensation paid or accrued by the
Company to certain employees.

Summary Compensation Table
--------------------------

Annual Restricted Stock
Name and Principal Position Year Salary ($) Award (1)
--------------------------- ---- ---------- ----------------
Peter H. Jacobs, CEO 2000 125,000 $702,000
John D. Aquilino, CTO 2000 75,000 $299,000
Stephen F. Burg, Sec. 2000 104,000 $234,000
--------------------------- ---- ---------- ----------------
(1) On May 25, 2000, a disinterested majority of the board approved a
resolution allocating to Mr. Jacobs, Mr. Aquilino and Mr. Burg 5,400,000,
2,300,000 and 1,800,000 shares, respectively, of the Company's common stock as
compensation for putting together a qualified operating team for the Company.
On that date the closing price of the Company's stock was $0.17, the value of
which has been discounted approximately 20% to $0.13, as this stock is
restricted.

[Enlarge/Download Table]

Option Grants in Last Fiscal Year
---------------------------------
Individual Grants

Number of Percent of Total
Securities Options/SARs
underlying Granted to
Options/ SARs Employees to Exercise or Base
Granted Fiscal Price Expiration
(1)(b) Year(c) ($/.Sh)(d) Date(c)
-----------------------------------------------------------------------------------------------
Peter H. Jacobs 2,000,000(1) 25.81 $0.20 June 1, 2005
Peter H. Jacobs 2,000,000(2) 25.81 $0.20 November 28, 2010
John D. Aquilino 2,000,000(3) 25.81 $0.20 November 28, 2010
Stephen F. Burg 1,500,000(4) 19.35 $0.20 November 28, 2010

(1) Mr. Jacobs received these options pursuant to the terms of his Employment Agreement (see
Exhibit 10.09).

10SB12G 17th "Page" of 103 TOC 1st Previous Next Bottom Just 17th
16(2) Mr. Jacobs received these options pursuant to the terms of his Incentive Stock Option
Agreement (see Exhibit 10.10).
(3) Mr. Aquilino received these options pursuant to the terms of his Incentive Stock Option
Agreement (see Exhibit 10.11).
(4) Mr. Burg received these options pursuant to the terms of his Incentive Stock Option
Agreement (see Exhibit 10.12).

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option

[Enlarge/Download Table]

Number of Unexercised Value of Unexercised In-the
Options at Money Options
Shares Value Fiscal Year End at Fiscal Quarter Ended
Acquired on Realized Exercisable/ December 31, 2000
Name Exercise(#) ($) Unexercisable
-----------------------------------------------------------------------------------------------
Peter H.
Jacobs n/a n/a 4,000,000 / 0 $400,000 / 0

John D.
Aquilino n/a n/a 2,000,000 / 0 $200,000 / 0

Stephen F.
Burg n/a n/a 1,500,000 / 0 $150,000 / 0

(1) The share price on December 29, 2000, was $0.30.

Compensation of Directors

Each Director holds office until the next annual meeting of shareholders, or
until their successors are elected and qualified, whichever is later. Outside
Directors are compensated for expenses incurred in the performance of the
Company's business at the rate of $1,000 per month.

Employment Agreement with Peter H. Jacobs

The Company's employment agreement with Peter H. Jacobs requires him to act as
its Chief Executive Officer and President from June 1, 2000, and continuing for
a period of five (5) years, unless automatically renewed or earlier terminated.
His initial annual base salary is $125,000, subject to annual upward-only
adjustment, and includes the grant of an incentive bonus and stock options.
Pursuant to this agreement, he has received options to acquire up to 2,000,000
shares of the common stock of the Company at a price of $0.20 each, exercisable
until the end of the term of the employment agreement. Other benefits include
health, medical and life insurance, living accommodations for a period of one
(1) year, weekly travel expenses between Sacramento and Phoenix, an automobile,
ordinary and necessary business expenses, a retirement or pension plan, if and
when implemented by the Company, and twelve (12) days paid vacation during the
first year under the Company's vacation policy.1 The Company may end Mr.
Jacobs' employment for "cause," in which case any unexercised stock options
shall automatically expire and his salary shall terminate. The Company may also
terminate Mr. Jacobs' employment at any time, without cause, as in the case of
a change of control of the Company, in which case the Company shall pay a
separation bonus payment in an amount equal to 2.99 times his annual base

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17salary at the time of termination and his salary shall continue to be due until
the end of the term of the agreement. If, at the end of the initial term, Mr.
Jacobs' employment is not renewed by the Company, he shall be entitled to
receive a separation bonus in an amount equal to 2.99 times his annual base
salary at the time of such termination. Mr. Jacobs has entered into a covenant
not to compete with the Company, which is coterminous with the Employment
Agreement. All of Mr. Jacobs' inventions or creations conceived while the
Company employs Mr. Jacobs will belong to the Company. See Exhibit 10.09.

Employment Agreement with John D. Aquilino

The Company's employment agreement with John D. Aquilino requires him to act as
its Chairman and Chief Technology Officer from June 1, 2000, and continuing for
a period of two (2) years, unless automatically renewed or earlier terminated.
His initial annual base salary is $75,000, subject to annual upward-only
adjustment, complimented by an incentive bonus and stock options. Other
benefits include health, medical and life insurance, business-related travel
expenses, ordinary and necessary business expenses, a retirement or pension
plan, and twelve (12) days paid vacation during the first year under the
Company's vacation policy.2 The Company may end Mr. Aquilino's employment only
for cause, in which case his salary shall terminate. Mr. Aquilino has entered
into a covenant not to compete with the Company, which is coterminous with the
Employment Agreement. All of Mr. Aquilino's inventions or creations conceived
while the Company employs Mr. Aquilino will belong to the Company. See Exhibit
10.13.

Employment Agreement with William H. Whitmore

The Company's employment agreement with William H. Whitmore requires him to act
as its Vice President of Marketing and Communications from January 26, 2001,
and continuing for a period of two (2) years, unless automatically renewed or
earlier terminated. His initial annual base salary is $78,000, he received
25,000 shares of common stock as a signing bonus, subject to annual upward-only
adjustment, complimented by an incentive bonus and stock options. Other
benefits include health, medical and life insurance, business-related travel
expenses, ordinary and necessary business expenses, a retirement or pension
plan, and three (3) weeks paid vacation during each of the first two (2) years
of the Term. The Company may end Mr. Whitmore's employment only for cause, in
which case his salary shall terminate. Mr. Whitmore has entered into a covenant
not to compete with the Company, which is coterminous with the Employment
Agreement. All of Mr. Whitmore's inventions or creations conceived while the
Company employs Mr. Whitmore shall belong to the Company. See Exhibit 10.14.

ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Assignment and Assumption Agreement

On June 14, 2000, we entered into an Assignment and Assumption Agreement with
Desert Entertainment, Inc. an Arizona corporation ("DEI"), and Michael Paloma
pursuant to which we transferred certain assets to DEI and DEI assumed, and
Michael Paloma guaranteed, certain liabilities related to those assets. On June
19, 2000, we sold all of the outstanding capital stock of DEI owned by us to
Michael Paloma in exchange for 500,000 shares of common stock of the Company.
Mr. Paloma is a former officer and director of the Company. The board approved
the consideration as fair to the Company.

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18See Exhibit 10.15 for a copy of the Assignment and Assumption Agreement.

Consulting Agreement

On March 17, 2000, we entered into a Consulting Agreement with S.B. Corporate
Consulting, Inc., a Nevada corporation ("SB"), wholly owned by Stephen F. Burg,
a director of the Company, pursuant to which SB agreed to provide corporate
counseling services in exchange for $2,000 per week for the duration of the
consulting relationship. Additionally, SB received a $30,000 bonus for services
provided through June 30, 2000. A disinterested majority of the board approved
the consideration as fair to the Company. See Exhibit 10.16 for a copy of the
Consulting Agreement.

Management Consulting Services

During 2000, we issued 2,000,000 shares of the Company's common stock to Planet
10 Partners, Inc., a Nevada corporation, for management consulting services
valued at $350,000. Mr. Jacobs, Mr. Aquilino and Mr. Burg each own one-third of
Planet 10 Partners. The board of directors believed that this transaction was
fair to the Company in light of the services rendered, particularly as it
involved no payment of cash.

Consulting Agreement

On August 18, 2000, we entered into a Consulting Agreement with Kenneth W.
Fagan, whereby Mr. Fagan agreed to act as Special Advisor to the board of
directors and a corporate consultant. The term of the agreement is one (1)
year. We paid Mr. Fagan an initial payment of $2,500 upon the execution of the
agreement. We also agreed to pay Mr. Fagan $2,000 per month during the term,
along with 250,000 restricted shares of the Company's common stock upon the
execution of the agreement. Mr. Fagan has a right to earn up to 750,000 options
at an exercise price of .22as follows: 34% to be issued upon the signing of
three (3) licensing agreements with major software vendors ($25,000000 + in
revenues) delivered by Mr. Fagan, and 66% to be issued upon the signing of a
licensing agreement with a large independent software vendor (such as Oracle,
Microsoft, etc.) delivered by Mr. Fagan. See Exhibit 10.17 for a copy of the
Consulting Agreement.

ITEM 8: DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 100,000,000 common
shares, par value $0.001, 43,235,097 of which were outstanding as of March 31,
2001, and held of record by approximately 2000 shareholders. The following
summary of certain provisions of the common shares does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions of
the Company's Articles of Incorporation, as amended, and Bylaws, each of which
is attached as Exhibit 3.01 and Exhibit 3.02, respectively, as well as by the
provisions of applicable law.

As disclosed in Part II, Item 4, below, we issued convertible debentures to
various investors. The debentures bear interest at five percent (5%) per annum.
The conversion feature of the debt is automatic upon the effectiveness of any
registration statement to be filed by the Company. See Exhibits 4.01 and 4.02
for more information.

10SB12G 20th "Page" of 103 TOC 1st Previous Next Bottom Just 20th
19In addition, some of the debenture holders received "A" and "B" warrants which
confer upon them the right to buy a share of common stock at the opening bid
price and $2 above the opening bid price, respectively, of our first
underwritten public offering following the warrant issue date, and may be
exercised at any time after the first day of the seventh month and nineteenth
month, respectively, following the issue date. We have the right to redeem the
warrants for $15 and $20 each, respectively, at any time. See Exhibits 4.03 and
4.04 for more information.

Our Articles of Incorporation, as amended, authorize the issuance of up to one
hundred million common shares. Holders of common shares are entitled to receive
ratably such dividends, if any, as may be declared by our board of directors
out of funds legally available therefor. Upon the liquidation, dissolution or
winding up of the Company, after payment of all debts and other liabilities of
the Company, the holders of common shares are thereafter entitled to receive
ratably the remaining net assets of the Company.

Holders of common shares have no preemptive subscription, redemption or
conversion rights. The common shares are, when issued, fully paid and
non-assessable.

The Transfer Agent for the shares is First American Stock Transfer, 1717 East
Bell Road, Suite 2, Phoenix, Arizona 85022, 602-485-1346, facsimile
602-788-0423.

PART II

ITEM 1: MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock is currently traded on the OTC Pink Sheets(r) under the symbol
SUNX, and, as of March 31, 2001, had approximately 2000 shareholders. The Pink
Sheets is a centralized quotation service that collects and publishes market
maker quotes for OTC securities in real time. The quotations listed below
reflect inter-dealer prices without mark-up, markdown or commission and may not
represent actual transactions. As of March 30,2001, the closing price of the
common stock was $0.47 per share.

We have not declared cash dividends on any class of common equity for the last
two fiscal years or in any subsequent period for which financial information is
required. Because we are developing the capacity to generate income and do not
currently expect to generate income within the near future, there is no
assurance that we will pay dividends in the future.

Due to limited trading, the following prices may not reflect actual trades
(selling price) during the applicable periods.

Quarter Ended High Low
------------- ---- ---
March 99 1.125 0.375
June 99 0.875 0.563
Sept. 99 N/A N/A
December 99 N/A N/A
March 00 1.875 0.500
June 00 0.440 0.150
Sept. 00 0.500 0.170

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20 December 00 0.535 0.175
March 01 0.740 0.220

ITEM 2: LEGAL PROCEEDINGS

We are currently a party to two lawsuits. Matthew Bardasian et al v. Desert
Winds Entertainment et al, CV-N-00-0199-DWH (VPC), in the United States
District Court for the District of Nevada, was filed on April 14, 2000 (the
"Bardasian suit"). American Equities Group v. Desert Winds et al, case no.
00-CV-952, in the United States District Court for the Eastern District of
California, was filed on May 2, 2000 (the "AEG suit").

The Bardasian suit alleges that the Company has failed to repay loans in the
aggregate amount of $1.8 million and that the previous management of the
Company violated Federal securities laws by misrepresenting the economic status
of the Company, use of proceeds, and by refusing to authorize the issuance of
shares that plaintiffs claim they were owed by the Company. Plaintiffs
requested that the Company be placed in receivership, and requested
compensatory and punitive damages in an unknown amount. Should the Plaintiffs
prevail, the damages a court may order us to pay could far exceed the capital
previously raised by the Company and most likely curtail future capital raises.
The court could place the Company into receivership. We have filed a
counterclaim alleging that Bardasian personally, and through a corporation or
corporations he owned and controlled, caused shares of the Company stock to be
issued that were not authorized or approved by the Company. The Counterclaim
seeks (i) actual, compensatory and punitive damages in an amount to be proven
at trial (with damages trebled pursuant to the Nevada RICO statutes); (ii)
requesting the court to order Bardasian to indemnify and hold the Company
harmless from any claims brought by reputed shareholders of the Company to whom
Bardasian sold unauthorized share certificates; and for (iii) attorneys' fees
and costs. We are committed to vigorously defending the Company.

The AEG suit alleges that the Company, as the successor of Ti-Mail, is
responsible for Ti-Mail's alleged failure to perform under an accounts
receivable sales agreement, requesting compensatory damages of $275,099.95. On
October 27, 2000, Ti-Mail filed an amended counter-claim, alleging breach of
contract and violations of the California usury laws. We believe that, in the
event that the plaintiff is successful in making its claim, we will be able to
collect a significant portion or all of the judgment through indemnification
from other parties for breaches of certain representations regarding the
subject of the suit. However, if the parties from which we would seek
indemnification became judgment proof or the amount we must pay in damages
prior to obtaining a successful judgment against potential third party payors
exceeds amounts raised by the Company, then we would be forced raise additional
funds, which may have a material adverse effect on the Company. No trial date
has been scheduled.

Additionally, there is a pending SEC formal investigation, HO-7499, styled "In
the Matter of Desert Winds Entertainment, Inc." [sic]. The SEC has made no
findings nor has it established a timeline for resolving issues. We understand
that the SEC investigation is focused on the actions of prior management in
connection with events that occurred between January 1, 1999, and March 20,

10SB12G 22nd "Page" of 103 TOC 1st Previous Next Bottom Just 22nd
212000. If it is ultimately determined that the Company violated federal
securities laws, we may incur substantial fines or penalties or become subject
to lawsuits by shareholders. There is no assurance that the SEC will not levy
substantial fines against the Company and certain former officers and
directors. There is no assurance that the investigation will be limited to
actions taken by the Company and its prior officers and directors between
January 1, 1999, and March 20, 2000. Should the Company incur substantial fines
or penalties or face litigation from shareholders, then it may be forced into
insolvency.

In the future, we may be subject to lawsuits occurring in the regular course of
business. Most of these lawsuits would likely involve claims for money damages.
We carry insurance to protect ourselves against such claims, subject to any
applicable deductibles, but the insurance may not cover any action brought by
the SEC. We can give no assurances that future lawsuits will not have a
material adverse effect on the Company's financial condition or results of
operations.

ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

There have been no disagreements with accountants reportable hereunder.

ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES

For the period beginning April 1, 1998 and ending October 5, 1998, we issued
1,771,970 shares of our common stock to four (4) persons. For the period
beginning December 31, 1998 and ending February 7, 2000, we issued 15,085,129
shares to sixty-seven (67) persons. Of the shares issued between December 31,
1998 and February 7, 2000, 3,787,500 shares were issued to the then serving
Chief Executive Officer as a bonus. Management believes that shares issued
between April 1998 and February 2000, were either issued pursuant to Section
4(2) of the Securities Act or Rule 504 of Regulation D.

From October 2000 through March 2001, we issued approximately 1,351,455 shares
of our common stock for consulting, technology development, compensation,
investor and public relations services for an approximate value of $650,000. In
addition, we issued 500,000 shares of our common stock in conversion of a debt
from discontinued operations of $112,500. Management believes these shares were
issued pursuant to Section 4(2) of the Securities Act.

From March 12, 2000 through March 31, 2001, we issued approximately $1,117,492
of convertible debentures to one hundred sixty-nine (169) investors. The
debentures bear interest at five percent (5%) per annum. The debentures will
automatically convert into approximately 7,844,650 shares of our common stock
upon the effectiveness of a registration statement. The conversion feature of
the debt is automatic upon the effectiveness of any registration statement to
be filed by the Company. See Exhibits 4.01 and 4.02 for more information. If
the registration statement does not become effective, the debentures will
mature one year from the date of issuance. In addition, some of the debenture

Sunncomm Inc · 10SB12G · On 4/18/01

Filed On 4/18/01 2:46pm ET · SEC File 0-31421 · Accession Number 1086715-1-100

Registration of Securities of a Small-Business Issuer · Form 10-SBFiling Table of Contents

Document Table of Contents

Registration of Securities of a Small-Business Issuer · Form 10-SB
Filing Table of Contents