Document/Exhibit Description Pages Size
1: 8-K Current Report 33 115K
2: EX-2 Plan of Acquisition, Reorganization, Arrangement, 19± 81K
Liquidation or Succession
3: EX-3 Articles of Incorporation/Organization or By-Laws 2± 8K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
June 8, 2000
CodeStream Holdings, Inc.
(Formerly Bud Financial Group, Inc.)
Nevada
(State or other jurisdiction of incorporation)
33-25779 84-1100609
(Commission file number) (IRS employer identification no.)
1771 International Pkwy, Suite 121
Richardson, Texas, 75081
(Address of principal executive offices) Zip Code)
(972) 479-0534
(Registrant's telephone number, including area code)
Bud Financial Group, Inc.
311 South State Street, Suite 440,
Salt lake City, Utah 84111
(Former name and address of registrant)
Item 1. Changes in Control of Registrant.
Information contained herein may include forward looking
statements. Such statements involve risks and uncertainties which
could cause actual results to differ materially from those set
forth herein. Factors that could cause actual results to differ
include changes in technology, the company' ability to raise
additional capital, and the ability to develop its products in
accordance with its plans. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof based on
information currently available to it. The company undertakes no
obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof.
The Registrant was incorporated in 1988 for the sole purpose
of raising capital and then seeking out, investigating, and
acquiring any suitable assets or business without regard to any
specific business or industry. In 1991, the Registrant effected
a public offering of its common stock in which it raised a total
of $9,500. The public offering was registered with the
Securities and Exchange Commission under the Securities Act of
1933 pursuant to a Registration Statement on Form S-18. Prior to
the transactions described below, the Registrant's principal
activity had been to investigate potential acquisitions and it
had not engaged in any significant business activities.
In accordance with its business purpose, on February 15,
2000 the Registrant, BFG Subsidiary, Inc. and CodeStream
Technology Corporation, a Delaware corporation ("CTC"), entered
into that certain Agreement and Plan of Reorganization (the
"Acquisition Agreement") pursuant to which CTC agreed to merge
with BFG Subsidary, Inc., with CTC being the surviving company.
BFG Subsidiary, Inc. was a wholly-owned subsidiary of the
Registrant that the Registrant formed for the sole purpose of
effecting the acquisition of CTC (the "Acquisition") in
accordance with the Acquisition Agreement. As a result of the
Acquisition, CTC became, and is now, a wholly-owned subsidiary of
the Registrant. The Registrant currently intends to conduct all
of its operations through CTC, and to move all of the
Registrant's offices to the principal offices of CTC in
Richardson, Texas.
CTC is a development stage company that was formed in 1996
to develop certain technologies it acquired from a government
defense and aerospace contractor. CTC is currently developing
products based on a patented technology that is intended to
enable telecommunications network service providers to increase
the capacity of their new and existing fiber optic networks. CTC
owns the commercial intellectual property rights to a broadband
optical networking technology known as Optical Code Division
Multiple Access ("OCDMA"). This technology, in the opinion of
CTC, can significantly increase the transmission rate and the
channel count of a fiber-optic telecommunications network. The
new optical transport system that CTC is developing utilizes a
proprietary, patented encoding scheme that enables hundreds of
independent channels to coexist on the same fiber optic pair.
Based on the currently estimated development schedule, if CTC is
adequately funded and the technology is successfully developed,
the Registrant expects that the first product using CTC's new
technology can be released in 18 to 24 months.
Since its incorporation, CTC has been funded from the
private sale to certain institutional investors of $12,000,000 of
preferred stock. In addition to the foregoing funding, the
United States Air Force has also provided funding for research
into the bulk optics and photonic integrated circuit technology
now being developed into a product line at CTC. As a result of
the foregoing U.S. governmental funding, the United States Air
Force owns certain rights to non-commercial applications of the
technology. In August 1999, CTC merged with RDL Photonic
Integrated Chip Corporation, a private research firm that owned
certain intellectual property for photonic integrated circuits
that was complimentary to the technology being developed by CTC.
(Unless otherwise specified, all references herein to CTC shall
refer to CodeStream Technologies Corporation, formerly known as
RDL Commercial Technologies Corporation, and RDL Photonic
Integrated Chip Corporation.)
Prior to the Acquisition, a total of 2,000,000 shares of
$0.001 par value common stock of the Registrant (the "Common
Stock") were issued and outstanding. Of the 2,000,000
outstanding shares of Common Stock, 1,643,800 shares were owned
by Thomas Kimble. Mr. Kimble also was the sole officer and the
sole director of the Registrant. As a result, control of the
Registrant resided with Mr. Kimble prior to the Acquisition.
In connection with the merger by which the Acquisition was
effected, and in accordance with the Acquisition Agreement, all
of the issued and outstanding shares of CTC's capital stock were
converted into 10,000,000 shares of the Registrant's Common
Stock. In addition, all of the currently outstanding CTC options
that entitle CTC's employees and former employees to purchase a
total of 783,846 shares of CTC common stock at an exercise price
of $1.00 per share were assumed by the Registrant and became
options to purchase CTC Common Stock at an exercise price of
$1.00 per share.
At the closing of the Acquisition, Mr. Kimble, the sole
officer and sole director of the Registrant resigned as an
officer and as a director. Concurrent with the Acquisition, new
officers and directors of the Registrant were appointed. The
following table sets forth the persons who will continue to serve
as the directors and executive officers of the Registrant.
Directors are elected for a period of one year and thereafter
serve until the next annual meeting at which their successors are
duly elected by the stockholders. Officers and other employees
serve at the will of the Board of Directors.
CodeStream Holdings, Inc.
Name Age Position
D. Gordon 52 President, Chairman, Chief Executive Officer,
Werner acting Chief Financial Officer, and Director
Joseph 33 Director
Ferguson
Michael 38 Director
Magerman
Gordon Werner, President, CEO, acting CFO, Director, Chairman.
Mr. Werner recently joined CTC as President and CEO in January
2000. Mr. Werner brings to the Company over 30 years combined
experience in sales, marketing and operations in the
telecommunications industry. Prior to joining CTC, Mr. Werner
established and operated his own management consulting firm
during 1999. Mr. Werner served as the vice president and general
manager of Tekelec's Network Switching Division from 1997 through
early 1999. From January 1996 to October 1997, Mr. Werner served
as the vice president of global sales for NetEdge Systems. He
has also served as a regional vice president of Siemens-Stromberg
Carlson from January 1994 through December 1995. In addition, he
has provided management consulting services to a variety of
companies in the carrier and internet markets. Mr. Werner has
extensive experience with local exchange carrier markets, both
domestic and foreign.
Joseph Ferguson, Director. Mr. Ferguson has served as a Director
of CTC since February 1998. Mr. Ferguson is currently a Partner
with Kline Hawkes California SBIC, L.P., where he has been
employed since August 1995. Previously, he worked in the
investment banking industry for both Merrill Lynch & Co. and
Smith Barney, Inc. Mr. Ferguson also sits on the board of
directors of various private companies. Mr. Ferguson earned a
B.B.A in Finance from Southern Methodist University and a M.B.A.
from the Anderson School at UCLA.
Michael Magerman, Director. Mr. Magerman has been a director of
CTC since August 1999. He also holds positions on the board of
directors of Xenonics, Autoland, and Bravo Corporation, and he
has served as an executive vice president and a director of Web
Capital Services since January 1, 2000. From June 30, 1999
through January 1, 2000, Mr. Magerman was the CEO of Bravo
Corporation. From November 1997 through June 1999, Mr. Magerman
worked as an independent consultant. Mr. Magerman has also
served as the CEO of Tommy Armour Golf Company from March 1, 1995
through November 21, 1997, and as the CEO of Odyssey Golf, a
company he founded, from October 1990 through July 1997.
In addition to the foregoing listed directors, the Board of
Directors intends to fill four vacancies on the Board of
Directors by appointing up to four additional directors. The
additional directors have not yet been identified.
In order to fund the working capital needs of CTC, and in
order to repay certain outstanding loans, immediately following
the consummation of the Acquisition, the Registrant completed a
$6,900,000 private placement (the "Private Placement") of its
Common Stock to certain accredited investors (including
$2,000,000 of stock that was sold to some of the existing
stockholders of CTC). The shares were sold at a price of $1.00
per share, resulting in the issuance of an additional 6,900,000
shares of Common Stock. Finally, in order to repay $14,900 of
accrued interest, the Registrant issued 14,900 shares of Common
Stock at a price of $1.00 per share. Accordingly, after the
consummation of the Acquisition, the Private Placement, and the
14,900 stock issuance, a total of 18,914,900 shares of Common
Stock of the Registrant were outstanding immediately after the
Acquisition, of which the former stockholders of CTC owned
approximately 63.5%, and Mr. Kimble owned approximately 8.7%.
As a result of the Acquisition the stockholders of CTC
acquired control of the Registrant by acquiring a majority of the
outstanding shares of Common Stock and by replacing the existing
officer and director of the Registrant. The source of
consideration used by the stockholders of CTC in the Acquisition
of the Registrant were the shares of common stock of CTC owned or
held beneficially prior to the Acquisition and $2,000,000 cash
proceeds used to acquire additional shares at $1.00 per share in
the Private Placement. The table set forth below lists the
principal stockholders of CTC who, as of the close of business on
June 8, 2000, beneficially owned 5% or more of the issued and
outstanding shares of Common Stock of the Registrant:
Stockholder Shares Owned Percentage of
Outstanding
Capital 3,433,124 18.1%
Communications CDPQ
Inc.
Kline Hawkes 3,234,702 17.1%
California SBIC,
L.P.
SpaceVest Fund, L.P. 1,937,665 10.2%
Thomas Kimble 1,643,800 8.7%
Research & 1,440,390 7.6%
Development
Laboratories
SpaceVest Fund, L.P., Kline Hawkes California SBIC, L.P.,
Capital Communications CDPQ, Inc. and Seattle-PIC Investment
Partnership have entered into a voting agreement pursuant to
which they have agreed to vote their shares of the Registrant's
stock so as to elect one member of each of them to the Board of
Directors of Registrant.
Item 2. Acquisition or Disposition of Assets.
The Registrant acquired CTC in the Acquisition. See Item 1,
above.
Item 5. Other Events.
In connection with the Acquisition, holders of in excess of
a majority of the Registrant's outstanding Common Stock and the
Registrant's board of directors took the following corporate
actions:
(a) The Registrant's Articles of Incorporation were
amended to (i) change the name of the company to "CodeStream
Holdings, Inc." and (ii) provide for cumulative voting;
(b) Thomas Kimble resigned as the sole officer and
director of the Registrant and, in connection therewith,
elected D. Gordon Werner, Joseph Ferguson and Michael
Magerman to serve as the directors of the Registrant after
the Acquisition; and
(e) The adoption of a 2000 Stock Option Plan pursuant
to which the Registrant can grant options to purchase up to
2,000,000 shares of Common Stock.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The Registrant has determined to file reports as a small
business issuer as defined in Regulation S-B for its fiscal years
ended December 31, 1997, 1998, and 1999 and, accordingly, will
comply with the financial statement requirements of Item 310 of
Regulation S-B. Attached hereto are the unaudited financial
statements of CTC for its fiscal year ended December 31, 1999.
The audited financial statements of CTC required to be filed
under Regulation S-B will be filed by amendment hereto within
the applicable time periods permitted under Form 8-K and
Regulation S-B.
(b) Pro Forma Financial Information.
Pro forma financial information is attached hereto.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization
dated as of February 15, 2000, among Registrant,
CTC and BFG Subsidary, Inc.
3(i).1 Certificate of Amendment to
Articles of Incorporation of Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
CodeStream Holdings, Inc.
By: /s/ D. Gordon Werner, President
Date: June 23, 2000. D. Gordon Werner, President
CODESTREAM HOLDINGS, INC.
(Formerly Bud Financial Group, Inc.)
(A Nevada Corporation)
CODESTREAM TECHNOLOGIES CORPORATION
(A Delaware Corporation)
PROFORMA COMBINED BALANCE SHEET AND INCOME STATEMENT
(UNAUDITED)
CODESTREAM HOLDINGS, INC.
(Formerly Bud Financial Group, Inc.)
CODESTREAM TECHNOLOGIES CORPORATION
PROFORMA COMBINED BALANCE SHEET AND INCOME STATEMENT
(UNAUDITED)
The following unaudited proforma combined balance sheet and statement of
income aggregates the balance sheet and statement of operations of
CodeStream Holdings, Inc. formerly Bud Financial Group, Inc. (Parent) (A
Nevada Corporation) as of December 31, 1999 and the balance sheet and
statement of operations of CodeStream Technologies Corporation
(Subsidiary) (A Delaware Corporation) as of December 31, 1999 giving
effect to a transaction completed on June 8, 2000, wherein Parent
acquired Subsidiary as a wholly-owned subsidiary (the "Acquisition").
This business combination is treated as a reverse acquisition and as a
recapitalization of Subsidiary. Parent issued common stock in exchange
for all of the issued and outstanding shares of Subsidiary. The
following proforma balance sheet and statement of income uses the
assumptions as described in the notes and the historical financial
information available at December 31, 1999. The financial statements of
Parent at December 31, 1999 are audited. The financial statements of
Subsidiary at December 31, 1999 are compiled.
The unaudited proforma combined balance sheet and statement of income
should be read in conjunction with the separate financial statements and
related notes thereto of Parent and Subsidiary. The unaudited proforma
condensed combined balance sheet and statement of income are not
necessarily indicative of the condensed combined balance sheet and
statement of income which might have existed for the periods indicated
or the results of operations as they may appear now or in the future.
CODESTREAM HOLDINGS, INC.
(Formerly Bud Financial Group, Inc.)
CODESTREAM TECHNOLOGIES CORPORATION
PROFORMA COMBINED BALANCE SHEET
(Unaudited)
Giving effect to an Acquisition on June 8, 2000
CodeStream CodeStream Proforma
Holdings, Technologies Increase Proforma
Inc. Corporation (Decrease) Combined
(12-31-99) (12-31-99)
ASSETS
Current Assets:
Cash and cash equivalents $8,507 $188,729 $1,200,000(1)$7,047,236
5,700,000(5)
(50,000)(5)
0 0 0 0
______________________________________
Total Current Assets 8,507 188,729 6,850,000 7,047,236
Property and Equipment, net 0 728,105 0 728,105
Other Assets - Deposits 0 13,066 0 13,066
______________________________________
Total Assets $8,507 $929,900 $6,850,000 $7,788,407
======== =============================
The accompanying notes are an integral part of this balance sheet.
2
CODESTREAM HOLDINGS, INC.
(Formerly Bud Financial Group, Inc.)
CODESTREAM TECHNOLOGIES CORPORATION
PROFORMA COMBINED BALANCE SHEET
(Unaudited)
Giving effect to an Acquisition on June 8, 2000
CodeStream CodeStream Proforma
Holdings, Technologies Increase Proforma
Inc. Corporation (Decrease) Combined
(12-31-99) (12-31-99)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of capital lease $0 $ 166,082 $ 0 $166,082
obligation
Notes payable 0 1,091,121 1,200,000(1) 0
(1,091,121)(4)
(1,200,000)(5)
Accounts payable 400 744,149 744,549
Accrued payroll and payroll taxes 0 20,240 20,240
Other accrued liabilities 0 37,621 0 37,621
______________________________________
Total Current Liabilities 400 2,059,213(1,091,121) 968,492
Capital lease obligations, net of 0 40,196 0 40,196
current portion ______________________________________
Total Liabilities 400 2,099,409(1,091,121) 1,008,688
______________________________________
Stockholders' Equity
Preferred stock, Series A, $.001 par
value, 23,156 shares authorized, 0 23 (23)(3) 0
23,156 shares issued and outstanding
Preferred stock, Series B, $.001 par
value, 11,536 shares authorized, 0 12 (12)(3) 0
11,536 shares issued and outstanding
Preferred stock, Series C, $.001 par
value, 7,514 shares authorized, 0 8 (8)(3) 0
7,514 shares issued and outstanding
Preferred stock; $.001 par value,
1,000,000 shares authorized, no 0 0 0 0
shares issued and outstanding
Common stock; $.001 par value,
50,000,000 shares authorized, 2,000 7,424 (5,066)(2) 18,915
18,914,900 shares issued and
outstanding
4,642(3)
3,000(4)
6,900(5)
15(6)
10,000(7)
(10,000)(7)
Additional paid-in capital 80,360 13,311,751 5,066(2)21,264,431
(4,599)(3)
1,088,121(4)
6,893,100(5)
(50,000)(5)
14,885(6)
(10,000)(7)
10,000(7)
(74,253)(8)
Retained earnings (deficit) (74,253)(14,488,727)(14,900)(6)(14,503,627)
0 0 74,253(8) 0
________ ________ ________ _________
Total Stockholders' Equity (deficit) 8,107 (1,169,509) 7,941,121 6,779,719
________ ________ _________ ___________
Total Liabilities and Stockholders' $8,507 $929,900 $6,850,000 $7,788,407
Equity ======== ========_ ========= ===========
The accompanying notes are an integral part of this balance sheet.
3
CODESTREAM HOLDINGS, INC.
(Formerly Bud Financial Group, Inc.)
CODESTREAM TECHNOLOGIES CORPORATION
PROFORMA COMBINED STATEMENT OF OPERATIONS
(Unaudited)
Giving effect to an Acquisition on June 8, 2000
CodeStream CodeStream Proforma
Holdings, Technologies Increase Proforma
Inc. Corporation (Decrease) Combined
(Year ended (Year ended
12-31-99) 12-31-99)
REVENUE $0 $0 $0 $0
__________________________________________
OPERATING EXPENSES
Research and development 0 675,692 0 675,692
General and administrative 10,225 4,346,747 0 4,356,972
______________________________ _________
Total operating expenses 10,225 5,022,439 0 5,032,664
__________________________________________
INCOME (LOSS) FROM OPERATIONS (10,225) (5,022,439) 0 (5,032,664)
INTEREST AND OTHER INCOME 164 84,294 0 84,458
INTEREST EXPENSE 0 (39,265) (14,900)(6) (54,165)
______________________________ _________
INCOME BEFORE INCOME TAXES (10,061) (4,977,410) (14,900) (5,002,371)
PROVISION FOR INCOME TAXES 0 0 0 0
______________________________ _________
NET INCOME (LOSS) $(10,061)$(4,977,410)$(14,900) $(5,002,371)
============================== =========
The accompanying notes are an integral part of this statement of income
4
CODESTREAM HOLDINGS, INC.
(Formerly Bud Financial Group, Inc.)
CODESTREAM TECHNOLOGIES CORPORATION
PROFORMA COMBINED NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
CODESTREAM HOLDINGS, INC. (THE COMPANY) - (Formerly Bud Financial Group,
Inc.) was originally incorporated under the laws of the State of
Colorado in 1988 for the sole purpose of raising capital and then
seeking out, investigating, and acquiring any suitable assets or
business without regard to any specific business or industry. In 1991,
the Company effectuated a public offering of its common stock which
raised a total of $9,500, which offering was registered under the
Securities Act pursuant to a Registration Statement on Form S-18.
Subsequent to the public offering in 1991, the Company raised additional
proceeds through an offering of its Common Stock. The Company's
principal activity was to investigate potential acquisitions and prior
to the acquisition of CodeStream Technologies Corporation it had not
engaged in any significant business activities. The Company changed it
corporate domicile to the State of Nevada in March 1999. In accordance
with its business purpose, the Company on June 8, 2000 acquired
CodeStream Technologies Corporation as a wholly-owned subsidiary and is
conducting all of it's business activities through the subsidiary.
CODESTREAM TECHNOLOGIES CORPORATION (CTC) - is a Delaware corporation
that was formed in 1996 to develop certain technologies acquired from a
government defense and aerospace contractor. Since it incorporation, CTC
has privately sold $12,000,000 of preferred stock to certain
institutional investors. In August 1999, CTC merged with RDL Photonic
Integrated Chip Corporation, a company that owned certain intellectual
property for photonic integrated circuits for optical code division
multiple access that was complimentary to the technology being developed
by CTC. CTC currently is a development stage company that is developing
technology intended to increase the fiber optic network capacity of
telecommunications traffic carriers.
PROFORMA ADJUSTMENTS - (1) Subsequent to December 31, 1999, CTC had
borrowings totaling $1,200,000. (2) CTC reversed split its common stock
on a 1 for 3.148149 basis to 2,358,295 shares outstanding at completion
of the reverse. (3) CTC exchanged all of its Series A, B, and C
preferred stock for 4,641,705 shares of common stock. (4) CTC converted
notes payable into 3,000,000 shares of common stock. (5) The Company
sold 6,900,000 shares of common stock in a private placement for $1.00
per share for $6,900,000. The $6,900,000 consisted of cash of $5,700,000
and the conversion of the $1,200,000 debt explained above to stock.
Costs of the offering were $50,000. (6) Also, the Company issued
14,900 shares valued at $1.00 per share as payment of interest on the
above promissory notes converted to equity. (7) The Company acquired
all of the issued and outstanding shares of CTC in exchange for
10,000,000 restricted shares of previously authorized but unissued
shares of its common stock. The business combination is a reverse
acquisition and is treated as a recapitalization of CTC. (8) This is
part of the recapitalization transaction and entry. It eliminates the
retained deficit of the Company accounting for the transaction as if the
shares were exchanged by CTC for the net assets of the Company.
STOCK OPTION PLAN - The Company has adopted, with the approval of its
stockholders, a Stock Option Plan (the "Plan"), pursuant to which it is
authorized to grant options to purchase up to 2,000,000 shares of common
stock to the Company's key employees, officers, directors, consultants,
and other agents and advisors. Awards under the Plan will consist of
stock options (both non-qualified options and options intended to
qualify as "Incentive Stock Options" under Section 422 of the Internal
Revenue Code of 1986, as amended), restricted stock awards, deferred
stock awards, stock appreciation rights and other stock-based awards,
which are described in the Plan.
The Plan will be administered by the Board of Directors which will
determine the persons to whom awards will be granted, the number of
awards to be granted and the specific terms of each grant, including the
vesting thereof, subject to the provisions of the Plan.
5
CODESTREAM HOLDINGS, INC.
(Formerly Bud Financial Group, Inc.))
CODESTREAM TECHNOLOGIES CORPORATION
PROFORMA COMBINED NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
STOCK OPTION PLAN - CONTINUED - In connection with qualified stock
options, the exercise price of each option may not be less than 100% of
the fair market value of the common stock on the date of grant (or 110%
of the fair market value in the case of a grantee holding more than 10%
of the outstanding stock of the Company). The aggregate fair market
value of shares for which qualified stock options are exercisable for
the first time by such employee (10% shareholder) during any calendar
year may not exceed $100,000. Non-qualified stock options granted under
the Plan my be granted at a price determined by the Board of Directors,
not to be less than the fair market value of the common stock on the
date of grant.
All of the outstanding CTC options that entitled CTC's employees and
former employees to purchase a total of 783,846 shares of CTC common
stock at an exercise price of $1.00 per share have been assumed by the
Company and have become options to purchase CTC stock at an exercise
price of $1.00 per share
.
PRIVATE PLACEMENT OF COMMON STOCK - The Company has granted a thirty
day assignable option from June 8, 2000 to Thomas G. Kimble to purchase
up to an additional 600,000 shares of common stock at a price of $1.00
per share.
6
CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JANUARY 17, 1996 (INCEPTION) TO
DECEMBER 31, 1999
(UNAUDITED)
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CODESTREAM TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
December 31, 1999
Page
COMPILATION REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2 - 3
Statements of Operations 4
Statements of Shareholders' Deficit 5 - 6
Statements of Cash Flows 7 - 8
Notes to Financial Statements 9 - 18
COMPILATION REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
CodeStream Technologies Corporation
(a development stage company)
We have compiled the accompanying balance sheet of CodeStream
Technologies Corporation (a development stage company) as of
December 31, 1999, and the related statements of operations,
shareholders' deficit, and cash flows for each of the two years
in the period ended December 31, 1999, and for the period from
January 17, 1996 (inception) to December 31, 1999, in accordance
with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management.
We have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or any
other form of assurance on them.
As discussed in Note 1, the Company has been in the development
stage since its inception on January 17, 1996. The Company has
incurred losses from operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 25, 2000
ASSETS
Current assets
Cash $ 188,729
Total current assets 188,729
Property and equipment, net 728,105
Other assets
Deposits 13,066
Total assets $ 929,900
See Accompanying Compilation Report of Independent Certified Public Accountants
The accompanying notes are an integral part of these financial statements.
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Current portion of capital lease obligations $ 166,082
Notes payable 1,091,121
Accounts payable 744,149
Accrued payroll and payroll taxes 20,240
Other accrued liabilities 37,621
Total current liabilities 2,059,213
Capital lease obligations, net of current portion 40,196
Total liabilities 2,099,409
Commitments and contingencies
Shareholders' deficit
Preferred stock, Series A, $0.001 par value
23,156 shares authorized
23,156 shares issued and outstanding
$133.33 per share liquidation preference
dividends of $238,333 in arrears 23
Preferred stock, Series B, $0.001 par value
11,536 shares authorized
11,536 shares issued and outstanding
$294.74 per share liquidation preference
dividends of $254,012 in arrears 12
Preferred stock, Series C, $0.001 par value
7,514 shares authorized
7,514 shares issued and outstanding 8
$745.30 per share liquidation preference
dividends of $336,000 in arrears
Common stock, $0.001 par value
15,730,656 shares authorized
7,424,233 shares issued and outstanding 7,424
Paid-in capital 13,311,751
Accumulated deficit (14,488,727)
Total shareholders' deficit (1,169,509)
Total liabilities and shareholders' deficit $ 929,900
See Accompanying Compilation Report of Independent Certified Public Accountants
The accompanying notes are an integral part of these financial statements.
For the
Period from
January 17,
1996
For the Year Ended (Inception)to
December 31, December 31,
1999 1998 1999
Research and development expenses $ 675,692 $ 3,004,518 $ 3,789,310
General and administrative expenses 4,346,747 3,231,489 10,968,911
Loss from operations (5,022,439) (6,236,007) (14,758,221)
Other income (expense)
Interest income 84,294 92,479 334,036
Interest expense (39,265) (5,277) (64,542)
Total other income (expense) 45,029 87,202 269,494
Net loss $(4,977,410) $(6,148,805) $(14,488,727)
Basic and diluted loss per common
share $ (1.03) $ (1.22) $ (3.88)
Weighted-average number of common
shares outstanding 4,847,848 5,057,600 3,732,979
See Accompanying Compilation Report of Independent Certified Public Accountants
The accompanying notes are an integral part of these financial statements.
[Enlarge/Download Table]
Preferred Stock
Series A Series B Series C Common Stock Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
Balance, January 17,
1996 (Inception) $ $ $ $ $ $ $
Initial capitalization 2,194,499 2,194 (2,167) 27
Issuance of Series A
preferred stock
for cash 20,625 20 2,749,980 2,750,000
Net loss (54,929) (54,929)
Balance, December
31, 1996 20,625 20 2,194,499 2,194 2,747,813 (54,929) 2,695,098
Net loss (3,307,583) (3,307,583)
Balance, December
31, 1997 20,625 20 2,194,499 2,194 2,747,813 (3,362,512) (612,485)
Issuance of Series A
preferred stock
Upon conversion
of intercompany
payable 656 1 87,499 87,500
Upon conversion
of note payable 1,875 2 249,998 250,000
Issuance of Series B
preferred stock
for cash 11,536 12 3,400,146 3,400,158
Issuance of Series C
preferred stock
for cash 7,514 8 5,599,992 5,600,000
See Accompanying Compilation Report of Independent Certified Public Accountants
The accompanying notes are an integral part of these financial statements.
Preferred Stock
Series A Series B Series C Common Stock Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
Issuance of common
stock upon
conversion of
intercompany
payable 3,404,012 $3,404 $ 259,096 $ 262,500
Net loss $(6,148,805) (6,148,805)
Balance, December
31, 1998 23,156 $ 23 11,536 $ 12 7,514 $ 8 5,598,511 5,598 12,344,544 (9,511,317) 2,838,868
Issuance of common
stock
Upon conversion
of note payable 250,000 250 249,750 250,000
Acquisition of
RDL Photonic
Integrated Chip
Corporation 1,575,722 1,576 717,457 719,033
Net loss (4,977,410) (4,977,410)
Balance, December
31, 1999 23,156 $ 23 11,536 $ 12 7,514 $ 8 7,424,233 $7,424 $13,311,751 $(14,488,727) $(1,169,509)
See Accompanying Compilation Report of Independent Certified Public Accountants
The accompanying notes are an integral part of these financial statements.
For the
Period from
January 17,
1996
For the Year Ended (Inception) to
December 31, December 31,
1999 1998 1999
Cash flows from operating activities
Net loss $(4,977,410) $(6,148,805) $(14,488,727)
Adjustments to reconcile net loss
to net cash used in operating
activities
Depreciation and amortization
of property and equipment 289,878 100,345 390,223
(Increase) decrease in
Other receivables 60,948 (60,948) -
Increase (decrease) in
Accounts payable 487,548 228,108 744,149
Accrued expenses 18,325 26,368 44,693
Net cash used in operating activities (4,120,711) (5,854,932) (13,309,662)
Cash flows from investing activities
Capital expenditures on property and
equipment (128,815) (581,227) (710,042)
Acquisition of RDL Photonic Integrated
Chip Corporation 642,856 642,856
Other assets (975) (12,091) (13,066)
Net cash provided by (used in) investing
activities 513,066 (593,318) (80,252)
Cash flows from financing activities
Borrowings on notes payable 1,307,351 33,770 4,191,121
Payments on notes payable (2,600,000) (2,600,000)
Repayment of advances from affilia (192,144) (192,144)
Advances from affiliate 542,144
Proceeds from preferred stock $ $ 9,000,158 $ 11,750,158
Payments on capital leases (112,663) (112,663)
Proceeds from common stock 27
Net cash provided by financing
activities 1,194,688 6,241,784 13,578,643
Net increase (decrease) in cash (2,412,957) (206,466) 188,729
Cash, beginning of period 2,601,686 2,808,152 -
Cash, end of period $ 188,729 $ 2,601,686 $ 188,729
Supplemental schedule of non-cash investing and financing activities
During the year ended December 31, 1998, the Company issued 3,404,012 shares
of common stock valued at $262,500 as settlement of an intercompany payable.
During the year ended December 31, 1999, the Company entered into capital lease
agreements for computer and lab equipment valued at $318,941.
During the years ended December 31, 1999 and 1998, the Company issued 250,000
shares of common stock and 1,875 shares of Series A convertible preferred stock
valued at $250,000 and $250,000, respectively, as settlement of notes payable.
During the year ended December 31, 1998, the Company issued 656 additional
shares of Series A convertible preferred stock valued at $87,500 to reimburse
the holder of the Company's Series A convertible preferred stock for the
holder's payment of an intercompany payable for $87,500 to the Company's
parent.
See Accompanying Compilation Report of Independent Certified Public Accountants
The accompanying notes are an integral part of these financial statements.
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business Activity
CodeStream Technologies Corporation (the "Company") (a
development stage company) was incorporated on January 17,
1996 in the State of Delaware. The Company is in the
development stage.
Acquisition
During August 1999, pursuant to an Agreement and Plan of
Merger, the Company acquired the 975,000 issued and
outstanding shares of common stock of an affiliated
company, RDL Photonic Integrated Chip Corporation ("PIC"),
a Delaware corporation. The Company is now the sole owner
of PIC. The Company acquired the shares from its parent,
Research & Development Laboratories ("RDL").
The Company purchased the net assets of PIC through the
issuance of 975,000 shares of its common stock. In
addition, as part of the Company's sale of its Series A, B,
and C convertible preferred stock, PIC issued warrants to
the purchasers of the Company's preferred stock to purchase
shares of preferred stock of PIC. As part of the
acquisition of PIC, the Company exchanged an aggregate of
600,722 shares of its common stock for the warrants. The
acquisition was accounted for in a manner similar to a
pooling of interests since PIC was acquired from a related
party. The assets acquired and the liabilities assumed
were as follows:
Cash $ 642,856
Property and equipment, at net book value 89,345
Accrued expenses (13,168)
Total net assets $ 719,033
The information provided in the above table is based on
PIC's unaudited financial statements as of August 18, 1999.
Basis of Presentation
The Company has been in the development stage since its
inception on January 17, 1996. The Company has incurred
losses from operations. These factors raise substantial
doubt about the Company's ability to continue as a going
concern.
Stock Split
On November 13, 1998, the Company effected a 80.59122334-
for-one stock split of its common stock. All share and per
share data have been retroactively restated to reflect this
stock split.
See Accompanying Compilation Report of Independent Certified Public Accountants
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimates
The preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires the Company's management to make estimates and
assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual
results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. For financial reporting
purposes, depreciation and amortization are provided using
the straight-line method over the estimated useful lives as
follows:
Machinery and equipment 3 years
Furniture and office equipment 3 years
Computer software 3 years
Leasehold improvementslife of the asset or the lease
term, whichever is shorter
Betterments, renewals, and extraordinary repairs that
extend the life of the asset are capitalized; other repairs
and maintenance charges are expensed as incurred. The cost
and related accumulated depreciation applicable to assets
retired are removed from the accounts, and the gain or loss
on disposition is recognized in the statement of
operations.
Loss per Share
The Company utilizes SFAS No. 128, "Earnings per Share."
Basic loss per share is computed by dividing the loss
available to common shareholders by the weighted-average
number of common shares outstanding. Diluted loss per
share is computed similar to basic loss per share except
that the denominator is increased to include the number of
additional common shares that would have been outstanding
if the potential common shares had been issued and if the
additional common shares were dilutive. Because the Company
has incurred net losses, basic and diluted loss per share
are the same.
Income Taxes
The Company uses the asset and liability method of
accounting for income taxes. The asset and liability
method accounts for deferred income taxes by applying
enacted statutory rates in effect for periods in which the
difference between the book value and the tax bases of
assets and liabilities are scheduled to reverse. The
resulting deferred tax asset or liability is adjusted to
reflect changes in tax laws or rates. Because the Company
is in the development stage and has incurred a loss from
operations, no benefit is realized for the tax effect of
the net operating loss carryforward due to the uncertainty
of its realization.
See Accompanying Compilation Report of Independent Certified Public Accountants
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long Lived Assets
The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of the assets to future
net cash flows expected to be generated by the assets. If
the assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the
carrying amount exceeds the fair value of the assets. To
date, no such impairment has occurred.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities
in accordance with generally accepted accounting
principles. For certain of the Company's financial
instruments, including cash, accounts payable, and accrued
expenses, the carrying amounts approximate fair value due
to their short maturities. The amounts shown for capital
leases and notes payable also approximate fair value
because current interest rates offered to the Company for
capital leases and notes payable of similar maturities are
substantially the same or the difference is immaterial.
Comprehensive Income
The Company utilizes SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting
comprehensive income and its components in a financial
statement. Comprehensive income as defined includes all
changes in equity (net assets) during a period from non-
owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income,
include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale
securities. Comprehensive income is not presented in the
Company's financials statements since the Company did not
have any of the items of comprehensive income in any period
presented.
Recently Issued Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board
("FASB") issued SFAS No. 136, "Transfer of Assets to a Not-
for-Profit Organization or Charitable Trust that Raises or
Holds Contributions for Others." This statement is not
applicable to the Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities." The
Company does not expect adoption of SFAS No. 137 to have a
material impact, if any, on its financial position or
results of operations.
See Accompanying Compilation Report of Independent Certified Public Accountants
NOTE 2 - CASH
The Company maintains its cash balances in several banks
located in Southern California. The balances are insured by
the Federal Deposit Insurance Corporation up to $100,000.
As of December 31, 1999, the uninsured portions of those
balances held at the banks aggregated to $195,828.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 are estimated
to be the following:
Machinery and equipment $ 901,748
Furniture and office equipment 148,258
Computer software 26,633
Leasehold improvements 41,689
1,118,328
Less accumulated depreciation and amortization 390,223
Total $ 728,105
Depreciation and amortization expense for the years ended
December 31, 1999 and 1998 was $289,878 and $100,345,
respectively..
NOTE 4 - NOTES PAYABLE
Notes payable consisted of 10 notes payable to various
lenders, including the holders of the Series A, B, and C
convertible preferred stock and certain holders of the
Company's common stock, collateralized by all of the
Company's assets, with interest at 12% compounded
quarterly. The notes mature on March 31, 2000. Subsequent
to December 31, 1999, the maturity dates were extended to
June 9, 2000. The aggregate outstanding balance at
December 31, 1999 was $1,091,121.
See Accompanying Compilation Report of Independent Certified Public Accountants
NOTE 5 - COMMITMENTS
Leases
The Company leases its office and laboratory space. The
Company also leases equipment under terms of various
operating and capital leases which have been personally
guaranteed by the Company's majority shareholders. Future
minimum lease payments relating to these leases were
estimated to be as follows:
Year Ending Operating Capital
December 31, Leases Leases
2000 $ 93,654 $ 184,740
2001 46,827 41,157
$140,481 225,897
Less amount representing interest 19,619
206,278
Less current portion 166,082
Long-term portion $ 40,196
Rent expense was $86,070 and $76,281 for the years ended
December 31, 1999 and 1998, respectively.
Leased capital assets included in property and equipment at
December 31, 1999 were estimated to be as follows:
Computer equipment $ 78,830
Lab equipment 240,111
Less accumulated amortization 119,603
Total $ 199,338
Litigation
During May 1999, RDL was served with a subpoena duces tecum
to produce documents and to testify before the Grand Jury
of the United States District Court, Central District of
California. The subpoena appeared to relate to allegations
of mischarging or improper billing with respect to federal
government contracts and was directed to RDL and, among
others, all of its then present and former officers and
directors, together with its then affiliates, including the
Company (then named RDL Commercial Technologies
Corporation).
See Accompanying Compilation Report of Independent Certified Public Accountants
NOTE 5 - COMMITMENTS (Continued)
Litigation (Continued)
At a meeting with the Assistant United States Attorney
("AUSA") in charge of the investigation during July 1999,
the attorneys for the Company were advised that the Company
was a subject of the investigation. Subsequent to this
meeting, the Company produced to the AUSA all documents
requested by the subpoena and provided the AUSA with a copy
of an analysis of cash receipts and disbursements of the
Company since its inception prepared by
PricewaterhouseCoopers LLP showing that the Company has
never received funds from the federal government under any
government contracts. The Company also offered to
cooperate completely with the Grand Jury investigation and
on November 30, 1999, the CFO of the Company met with the
AUSA and agents of the FBI to answer their questions
concerning RDL and the Company. At the conclusion of this
meeting, the AUSA indicated that she believed the CFO's
commentary to be truthful and also indicated that, based
upon the government's investigation to date, the Company
was no longer a subject of the investigation. The AUSA
indicated that if indictments were to be forthcoming as a
result of the investigation, they would name persons and
entities other than the Company. To the Company's
knowledge, no such indictments have yet been issued. It
should be noted that the AUSA has absolute discretion as to
who, if anyone, will be indicted and until this matter is
completely resolved, the Company remains as a possible
target of the investigation.
NOTE 6 - SHAREHOLDERS' DEFICIT
Preferred Stock, Series A
In August 1996, the Company issued 20,625 shares of Series
A convertible preferred stock for cash proceeds of
$2,750,000. In February 1998, the Company issued 1,875 and
656 additional shares of Series A convertible preferred
stock upon the conversion of a note payable for $250,000
and for cash proceeds of $87,500, respectively. This stock
has a cumulative cash dividend of 4% per annum, payable
quarterly. The holders of this stock have voting rights
equal to the holders of common stock. Each share of
preferred stock is convertible at any time at the option of
the holder into shares of the Company's common stock at a
conversion price of $1.6544. The shares are subject to
automatic conversion upon the effective date of an
underwritten public offering of the Company's common stock
with net proceeds of not less than $20,000,000. At December
31, 1999, the Company had dividends in arrears of $238,333.
The purchaser was also issued 10,000 warrants to purchase
shares of Series A preferred stock of PIC. The warrants
have an exercise price of $1,300 and expire the earlier of
10 years from the date of grant or upon the effective date
of an underwritten public offering of the Company's common
stock with net proceeds of not less than $20,000,000.
See Accompanying Compilation Report of Independent Certified Public Accountants
NOTE 6 - SHAREHOLDERS' DEFICIT (Continued)
Preferred Stock, Series B
In February and July 1998, the Company issued 10,179 and
1,357 shares of Series B convertible preferred stock for
cash proceeds of $3,000,158 and $400,000, respectively.
This stock has a cumulative cash dividend of 4% per annum,
payable quarterly. The holders of this stock have voting
rights equal to the holders of common stock. Each share of
preferred stock is convertible at any time at the option of
the holder into shares of the Company's common stock at a
conversion price of $1.6544. The shares are subject to
automatic conversion upon the effective date of an
underwritten public offering of the Company's common stock
with net proceeds of not less than $20,000,000. At
December 31, 1999, the Company had dividends in arrears of
$254,012. The purchasers were also issued 4,286 and 571
warrants, respectively, to purchase shares of Series A
preferred stock of PIC. The warrants have an exercise
price of $1,300 and expire the earlier of 10 years from the
date of grant or upon the effective date of an underwritten
public offering of the Company's common stock with net
proceeds of not less than $20,000,000.
Preferred Stock, Series C
In July 1998, the Company issued 6,709 and 805 shares of
Series C convertible preferred stock for cash proceeds of
$5,000,000 and $600,000, respectively. This stock has a
cumulative cash dividend of 4% per annum, payable
quarterly. The holders of this stock have voting rights
equal to the holders of common stock. Each share of
preferred stock is convertible at any time at the option of
the holder into shares of the Company's common stock at a
conversion price of $1.6544. The shares are subject to
automatic conversion upon the effective date of an
underwritten public offering of the Company's common stock
with net proceeds of not less than $20,000,000. At December
31, 1999, the Company had dividends in arrears of $336,000.
The purchasers were also issued 2,825 and 339 warrants,
respectively, to purchase shares of Series A preferred
stock of PIC. The warrants have an exercise price of $1,300
and expire the earlier of 10 years from the date of grant
or upon the effective date of an underwritten public
offering of the Company's common stock with net proceeds of
not less than $20,000,000.
Stock Options
The Company adopted the 1998 Stock Option Plan (the "1998
Plan") during February 1998, which was amended during
November 1998. Under the terms of the 1998 Plan, the
aggregate number of shares that may be issued pursuant to
the exercise of options granted initially will not exceed
1,500,000. Options are not considered to be granted until
an option agreement is executed. Incentive stock options
must be granted at a price not less than 100% of the fair
market value of the common stock on the grant date. Non-
qualified options must be granted at a price not less than
85% of the fair market value of the common stock on the
grant date.
See Accompanying Compilation Report of Independent Certified Public Accountants
NOTE 6 - SHAREHOLDERS' DEFICIT (Continued)
Stock Options (Continued)
Incentive and non-qualified stock options granted to
individuals who own stock representing more than 10% of the
voting power of the Company must have an exercise price of
more than 110% of the fair market value of the common stock
on the grant date. Incentive and non-qualified stock
options vest over various periods as determined by the
Company for each grant, ranging from zero to five years,
and expire up to 10 years from the grant date. The 1998
Plan has a term of 10 years from the date of its adoption
by the Board of Directors.
The following summarizes the stock option transactions
under the stock option plans:
Weighted-
Average
Stock Options Exercise
Outstanding Price
Outstanding, December 31, 1997 19,671 $ 1.00
Granted 270,594 $ 1.61
Outstanding, December 31, 1998 290,265 $ 1.57
Granted 362,995 $ 1.00
Forfeited (170,523) $ 1.78
Outstanding, December 31, 1999 482,737 $ 1.07
Exercisable, December 31, 1999 56,583 $ 1.37
NOTE 7 - YEAR 2000 ISSUE
The Company has completed a comprehensive review of its
computer systems to identify the systems that could be
affected by ongoing Year 2000 problems. Upgrades to
systems judged critical to business operations have been
successfully installed. To date, no significant costs have
been incurred in the Company's systems related to the Year
2000.
Based on the review of the computer systems, management
believes all action necessary to prevent significant
additional problems has been taken. While the Company has
taken steps to communicate with outside suppliers, it
cannot guarantee that the suppliers have all taken the
necessary steps to prevent any service interruption that
may affect the Company.
See Accompanying Compilation Report of Independent Certified Public Accountants
NOTE 8 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, the Company paid
$98,370 to a former officer/director for consulting
services rendered pursuant to a consulting agreement.
Under the terms of the consulting agreement, the Company is
committed to pay this former officer/director $163,950
during the year ended December 31, 2000.
During the year ended December 31, 1998, certain employees
and officers of RDL provided administrative services to the
Company. The Company paid RDL $112,900 for these services.
At the direction of RDL, the Company paid $75,000 of the
$112,900 directly to the controlling shareholder of RDL.
During the years ended December 31, 1999 and 1998, the
Company paid $105,468 and $720,338, respectively, to an
affiliated company to reimburse the affiliate for the
salaries of certain employees of the affiliate used by the
Company. The Company also reimbursed the affiliate for
expenses incurred on behalf of the Company by the affiliate
for $42,262 and $187,713 during the years ended December
31, 1999 and 1998, respectively.
During the years ended December 31, 1999 and 1998, the
Company paid rent of $30,000 and $157,500, respectively, to
an affiliated company for using office space in the
affiliated company's building.
During the years ended December 31, 1999 and 1998, the
Company paid $274,815 and $339,314, respectively, in legal
fees to a law firm in which one of the Company's directors
is a partner.
At December 31, 1997, the Company had an account payable to
RDL for $542,144. During February 1998, the Company repaid
$192,144 of the amount outstanding and issued 3,404,012
shares of its common stock valued at $262,500 as an
additional payment. The remaining amount due of $87,500 was
repaid by one of the holders of the Series A convertible
preferred stock. The Company reimbursed this shareholder
during March 1998 by issuing 656 shares of its Series A
convertible preferred stock.
NOTE 9 - SUBSEQUENT EVENTS
Reorganization
In February 2000, the Company entered into a plan of
reorganization with a company incorporated in the State of
Nevada. The acquisition of the Company is contingent upon
the successful closing of a private placement of common
stock by the buyer. The reorganization is planned to close
in June 2000.
See Accompanying Compilation Report of Independent Certified Public Accountants
NOTE 9 - SUBSEQUENT EVENTS (Continued)
Borrowings
In February 2000, the Company borrowed $500,000 from a
third party to provide additional interim working capital
for the operations of its business.
In March 2000, under an addendum to a loan agreement with
its existing lenders, the Company borrowed $500,000 to
provide additional interim working capital for the
operations of its business.
In April 2000, under an addendum to a loan agreement with
its existing lenders, the Company borrowed $200,000 to
provide additional interim working capital for the
operations of its business.
In May 2000, under an addendum to a loan agreement with its
existing lenders, the Company borrowed $200,000 to provide
additional interim working capital for the operations of
its business.
Stock Options
Subsequent to December 31, 1999, the Board of Directors of
the Company approved the repricing of all the granted stock
options so that the exercise price is $1.
Subsequent to December 31, 1999, the Company granted
683,500 stock options to certain employees at an exercise
price of $1.
Severance Agreement
Subsequent to December 31, 1999, the Company entered into a
severance agreement with an employee under which it may be
liable for $82,500.
See Accompanying Compilation Report of Independent Certified Public Accountants
Dates Referenced Herein and Documents Incorporated by Reference
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