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Codestream Holdings Inc – ‘8-K’ for 6/23/00

On:  Thursday, 6/22/00, at 10:00pm ET   ·   As of:  6/23/00   ·   For:  6/23/00   ·   Accession #:  1013839-0-58   ·   File #:  33-25779

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/23/00  Codestream Holdings Inc           8-K:4       6/23/00    3:111K                                   Kimble Thomas..Assocs/FA

Current Report   —   Form 8-K
Filing Table of Contents

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 


8-K   —   Current Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Codestream Holdings, Inc
2Item 1. Changes in Control of Registrant
5Item 2. Acquisition or Disposition of Assets
6Item 5. Other Events
"Item 7. Financial Statements and Exhibits
24Acquisition
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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)
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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.
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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.
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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.
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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.
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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.
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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
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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)
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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.
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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
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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
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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
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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
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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
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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) q:\shared\finance\presentCodeStream Technologies Dec99 Comp #1607 n:\ace\1607_1299\CodeStream Technologies Dec99 Comp Excel released 5/26/00
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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
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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
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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.
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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.
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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.
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[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.
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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.
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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

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