UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended July 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from___ to ____
Commission File No. 0-10841
AMERICAN MILLENNIUM CORPORATION, INC.
----------------------------------------------
(Name of small business issuer in its charter)
New Mexico 85-0273340
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1010 Tenth St., Suite 100, Golden, Colorado 80401
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (303) 279-2002
--- --- ----
Securities registered pursuant to Section 12 (b) of the Exchange Act:
Title of each class Name of each exchange which registered
----------------------------- --------------------------------------
Common Stock, $.001 Par Value None
Securities registered pursuant to Section 12 (g) of the Act:
None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X]Yes [ ]No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Revenues for the issuer's most recent fiscal year were $282,055.
The aggregate market value of the 25,523,328 shares held by non-affiliates of
the issuer as of November 9, 2001, computed by using the average of the ask and
bid prices on November 9, 2001, of $.17 and $.17 is as follows:
Average $.17/share X 25,523,328 shares = $4,372,966
The number of shares outstanding of the issuer's common stock as of November 9,
2001, is 25,523,328. There are approximately 804 shareholders of record as of
November 9, 2001.
AMERICAN MILLENNIUM CORPORATION, INC.
FORM 10-KSB
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Description of Business 2
Item 2. Description of Property 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 6
Item 6. Management's Discussion and Analysis or Plan of Operation 8
Item 7. Financial Statements 11
Item 8. Change In and Disagreements with Accountants on
Accounting and Financial Disclosure 29
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act 29
Item 10. Executive Compensation 31
Item 11. Security Ownership of Certain Beneficial Owners and Management34
Item 12. Certain Relationships and Related Transactions 37
PART IV
Item 13. Exhibits and Reports on Form 8-K 38
1
--------------------------------------------------------------------------------
PART I
--------------------------------------------------------------------------------
FORWARD LOOKING INFORMATION
This Form 10-KSB contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. For this purpose any
statements contained in this Form 10-KSB that are not statements of historical
fact should be considered by you to be forward-looking statements. Words such as
"may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors, many
of which are not within our control. These factors include, but are not limited
to, economic conditions generally and in the industries in which our customers
participate; competition within our industry, including competition from much
larger competitors; technological advances which could render our products less
competitive or obsolete; failure by us to successfully develop new products or
to anticipate current or prospective customers' product needs; price increases
or supply limitations for components purchased by us for use in our products;
and delays, reductions, or cancellations of orders previously placed with the
us.
--------------------------------------------------------------------------------
Item 1. Description of Business
--------------------------------------------------------------------------------
History
American Millennium Corporation, Inc. is a New Mexico corporation organized in
1979 under the name Energy Optics, Inc. (Energy) to develop various technologies
for industrial and consumer applications. Energy was unable to realize revenue
sufficient to maintain an active status, and was unsuccessful in securing
funding sufficient to aggressively market these devices and systems. After
becoming inactive and ceasing all initiatives to pursue funding for production
and marketing, Energy was de-listed from the NASDAQ Small Cap listing. However,
as an inactive over-the-counter stock, Energy's principals maintained the
corporate books, kept Energy in good standing and retained its status as fully
reporting to the Securities and Exchange Commission.
In order to proceed with its acquisition strategy, Energy recognized that it had
to reduce its overwhelming debt. A settlement agreement was reached to eliminate
the Small Business Administration debt (including accrued interest) by a
combination of cash payments, issuance of stock and forgiveness of debt. The
remainder of the debt was extinguished by forgiveness of some debt and interest
in exchange for common stock. (Most of this debt was to directors of Energy.)
With a clean slate, Management believed that it could pursue its research and
development of products and services.
In June 1997, Energy acquired business assets including real estate in Tavares,
Florida, buildings, equipment and a controlling stock interest of Lean Protein
Foods, Inc., a specialty food company, in a transaction totaling approximately
$3.6 million. In September and October 1997, Energy acquired a total of 80% of
American Millennium Corporation and 20% of Microgravity Aviation Corporation,
both of which were development stage enterprises. Early in 1998, Energy
discontinued operations of Lean Protein Foods, Inc. and on July 31, 1998, sold
its interest. Management also negotiated the rescissions of both the purchase
contracts for a 20% stock ownership held in Microgravity Aviation Corporation
and the contract for purchase of the real estate in Tavares, Florida.
Under an Agreement and Plan of Merger dated May 27, 1998, Energy merged with
American Millennium Corporation, a subsidiary of which Energy owned
approximately an 80% interest, with the parent as the surviving corporation.
Upon completion of the merger, we changed our name to American Millennium
Corporation, Inc.
In July of 2000, we completed our acquisition of CompuGraphics Corporation, a
Florida corporation. As a result of the acquisition, CompuGraphics Corporation
was merged into American Millennium Corporation, Inc.
Our corporate headquarters are located at 1010 Tenth Street, Suite 100, Golden,
Colorado 80401, and our telephone number is (303) 279-2002.
2
Products
Our current focus is on providing hardware and software solutions to facilitate
timely, accurate, and cost effective one-way and two-way delivery of information
via satellite communication and the Internet. We offer a service where customers
can access information about various fixed and mobile assets through a custom
Internet based software application. With our SatAlarm application, customers
can use their existing PC and Internet connection to select a particular asset,
and request various information including location, speed, temperature and
sensor readings.
Through utilization of newly available two-way satellite communication, we can
monitor currently isolated facilities and equipment. We have activated over
three hundred systems for satellite monitoring of oil and gas production and
pipeline equipment as well as systems for monitoring and tracking rail and
highway vehicles. Assets that could not be practically served by land-based
communication systems can now utilize satellite monitoring and tracking to yield
significantly better equipment management. This results in increased production,
less product loss and increased capital efficiency for our customers.
Our principal suppliers of both satellite terminals and satellite airtime
include Vistar Datacom, Inc. and ORBCOMM USA L.P. Under the terms of our
agreement with Vistar Datacom, Inc., we can provide solutions based on Vistar's
GlobalWave network to customers in the oil and gas market throughout the 48
contiguous states and Canada. Under the terms of our past agreement with
ORBCOMM, we are able to offer tracking and remote monitoring for customers in
the oil and gas, rail car, and cargo container industries, although an exception
has been provided for the sale of monitoring units as well as satellite airtime
by us to General Motors Corporation. On September 15, 2000, ORBCOMM USA, LP
filed for relief under Chapter 11 of the United States Bankruptcy Code. Although
some of our applications are completely dependent upon ORBCOMM, most of our
current and future applications can be supported using Vistar airtime with
minimal time and costs involved in switching airtime applications. ORBCOMM has
emerged from bankruptcy and is now under new management. It is expected that the
Company will enter into a new airtime agreement with ORBCOMM shortly or will
obtain airtime from one of ORBCOMM's resellers.
HOW DOES SATALARM WORK?
1. Status, location, malfunction or failure information is sent from our
hardware located on a customer's asset to a satellite network.
2. The information passes through the satellite network to our service
center for analysis. The customer can then either access a web site to
check the status of their asset, or SatAlarm can automatically alert the
customer with various alarms.
Since travel times to remote units can be measured in hours, accurate
information of this nature is of great value. We become a key and ongoing link
in the customer's value chain. We share in that value by charging for our
engineering, installation, and operating services as well as receiving a
recurring fee for the communication traffic. By way of example, several units
have been contracted for by a customer and were provisioned by us to monitor gas
well compressors and the mainline station compressor. Our customer will receive
daily reports that the units are running or not running, as well as alarm
reports whenever the units shut down unexpectedly. We provide a secure website
on the Internet for this customer to view the operating conditions and alarms.
3
CURRENT OPERATIONS
OIL AND GAS CUSTOMERS. We have various initiatives underway with oil and gas
producers as well as manufacturers of gas compressors and control panels for
those compressors. We currently have several hundred of our Sentry units that
are activated and monitoring production assets for our customers. We also have
many potential customers with Sentry units in active field trials. These units
are currently monitoring a variety of assets in the United States. Much of oil
and natural gas production occurs in largely remote areas far beyond the
economic range of wired or terrestrially based wireless communication. Key to
the operation of these production sites are enormous compressors used to
extract, collect, and transfer the oil and gas to transmission pipelines. The
malfunction or failure of one of these compressors is a red-alert event for the
production operator. The economic loss can be measured in thousands of dollars
per hour of down time, resulting in a high value to reducing the duration of an
outage. The Sentry product produced by has been designed for easy
installation and operation. Customers simply place the Sentry on the top of the
compressor facing south and turn it on. There is no connection to the compressor
required as the Sentry is battery powered. Currently, approximately 80% of our
revenues are derived from the oil and gas industry.
In July of 2000, we completed our acquisition of CompuGraphics Corporation.
CompuGraphics has developed Sat-Trac, which is similar to our SatAlarm
application. Sat-Trac is also a user interface that allows customers to view a
variety of conditions for a particular customer owned asset. Our current plans
include marketing Sat-Trac as a stand-alone software product to be used by
customers to monitor assets.
Our current revenues are dependent on a few major customers. As of July 31, 2001
approximately 64% of our accounts receivable are due from three customers, and
approximately 58% of our revenues are generated from three customers.
Predominately all of our expenses during the last two years have been related to
the research and development and customization of our hardware and software
applications. Less than 5% of these total costs have been borne directly by our
customers. We released the first version of SatAlarm in late November 2000,
which was our first commercially available product.
PROPRIETARY TECHNOLOGY APPLICATIONS. We believe that we have now developed
certain proprietary technologies for the monitoring of various types of assets
utilizing the ORBCOMM and Vistar systems. In addition to monitoring of data
communications, we have the ability to remotely control functions at the asset
location. Due to the sensitive and proprietary nature of this technology as well
as our intent to protect us to the extent that is possible with patent
applications, we are unable to disclose specific aspects of the systems.
Nevertheless, we believe that the applications are both valuable and viable. We
are presently in discussion with several companies regarding licensing and/or
joint venture proposals within the scope of the technologies and their
respective applications. We have retained the service of Dorr, Carson, Sloan &
Birney, PC, a Denver, Colorado based patent, trademark and copyright law firm,
to effect these applications. Effective August 31, 2001, our vibration sensing
satellite call out unit has a Patent Pending with the US Patent and Trademark
Office.
MARKETING. We believe that a significant base of recurring revenues derived from
monthly satellite monitoring charges will build our value. Our principal
marketing efforts are directed toward the oil and gas market in the United
States, which has a need for monitoring of high value assets. Our personnel work
with management and engineers in order to determine their technological needs,
cost objectives and to develop solutions for their individualized asset
monitoring requirements. Marketing efforts are performed by both our personnel
and outside sales service providers.
4
COMPETITION. There are numerous competitors to ORBCOMM's and Vistar's satellite
based data and messaging service. However, we are confident that there does not
exist, at present, any competition of a formidable nature for several reasons.
First, geostationary systems and terrestrial-based wireless networks are
regional, not global, in coverage. Secondly, the big Low Earth Orbit systems
such as Iridium and Globalstar must focus on voice telephony to build rapid
revenues to service the multi-billion dollar capitalization costs associated
with their deployment. Also, their electronic architecture makes it expensive to
send data and the end-user equipment is expensive. Additionally, the majority of
the satellite systems in development exist only on paper and have either not
obtained financing or licensing or both. We do not believe that any system
either deployed or in development can compete with the ORBCOMM/Vistar/AMCI
collective ability to provide the low cost service for data transfer, the small,
inexpensive communicators, or the ability to provide global near-real-time
two-way communications, although there is potential competition from other
ORBCOMM and Vistar resellers who are licensed to market services within the same
industries as we have focused. Also, ORBCOMM and Vistar are marketing their own
services to virtually all industries via in-house resellers and employed sales
personnel. We believe that the market is vast and we are protected with mutual
agreements of non-disclosure and non-circumvention with ORBCOMM and Vistar on
any initiatives brought forward by us.
Remote asset monitoring via satellite is a relatively new market, in which no
one supplier has a majority of market share. The market is new and emerging, and
we believe that with our SatAlarm application, we will be participants in the
development of a substantial future market. Potential substitutes for our
product include cellular services. Cellular service is still not available in
all remote areas, which gives our application an advantage, as the possibilities
for satellite access are available virtually everywhere.
MANUFACTURING AND SUPPLIERS. We purchase the satellite terminal component for
our hardware units from Vistar Datacom and ORBCOMM authorized manufacturers. In
the case of Vistar, they are the sole source for that component. Airtime for
satellite monitoring is also purchased from Vistar and ORBCOMM.
GOVERNMENT REGULATIONS. As value-added resellers for Vistar and ORBCOMM, our
services and products are subject to the rules and regulations of the Federal
Communications Commission. We anticipate no problems in obtaining the necessary
certifications in a timely manner as required.
PERSONNEL
As of October 29, 2001, we had ten full-time employees, four of whom are
directors or officers. None of our employees are represented by a labor union,
and we consider our employee relations to be good.
5
--------------------------------------------------------------------------------
Item 2. Description of Property
--------------------------------------------------------------------------------
RENTS AND LEASES
Our corporate headquarters are located in a 4,600 square foot facility in
Golden, Colorado. Under the terms of a lease agreement dated December 8, 1999,
between us and Sucia Corporation, LLC, we are to occupy the Golden
offices for a term of thirty-six months beginning the first day of December 1999
with a monthly rent of $4,600. We believe that our current facilities will be
adequate to accommodate our needs for the foreseeable future.
PROPERTY AND EQUIPMENT
The furniture, fixtures and equipment used in the conduct of our business have a
historical cost of approximately $239,000. We also own monitoring units that are
leased to various customers, as well as demonstration units with a total
historical cost of approximately $23,000.
--------------------------------------------------------------------------------
Item 3. Legal Proceedings
--------------------------------------------------------------------------------
None.
--------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
--------------------------------------------------------------------------------
None.
--------------------------------------------------------------------------------
PART II
--------------------------------------------------------------------------------
Item 5. Market for Common Equity and Related Stockholder Matters
--------------------------------------------------------------------------------
Our common stock is traded on the NASDAQ over-the-counter market. Since May of
1986, it has been listed in the "pink sheets" and is currently listed on the
National Association of Securities Dealers' Electronic Bulletin Board under the
symbol "AMCI". Individual systems may add other symbols for
access. Listed below are the high and low bid for each of the last eight
quarters. The quotations reflect inter-dealer prices, without retail mark-ups,
markdowns or commissions and may not represent actual transactions.
FISCAL YEAR ENDED JULY 31, 2001 HIGH LOW
--------- ---------
First Quarter $ .938 $.406
Second Quarter $ .984 $.375
Third Quarter $ .750 $.203
Fourth Quarter $ .580 $.220
FISCAL YEAR ENDED JULY 31, 2000 HIGH LOW
--------- ---------
First Quarter $ .344 $.250
Second Quarter $1.344 $.203
Third Quarter $1.563 $.906
Fourth Quarter $1.063 $.625
HOLDERS
As of November 9, 2001, there were 804 stockholders of record and approximately
25,523,328 shares of our common stock issued and outstanding.
6
DIVIDEND POLICY
We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain all available funds for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
We made the following unregistered sales of common stock during the year ended
July 31, 2001:
For the year ended July 31, 2001, we issued 128,750 unregistered common shares
to pay professionals and consultants in lieu of cash, or as compensation for
accrued, unpaid wages and salaries to corporate officers. We issued Karen R.
Griffith 25,000 shares of our common stock for interest payment and The
Charterbridge Financial Group 103,750 shares of our common stock for services in
connection with advertising and marketing.
On August 24, 2000, the Board of Directors authorized the issuance of 50,000
shares of restricted common stock to one private investor, Peter Jankowski. We
received net proceeds of $50,000 from the sale of these shares. Each of the
shares issued carries a warrant to purchase one additional share of our common
stock for $1.00 per share.
On September 18, 2000, the Board of Directors authorized the issuance of 131,579
shares of restricted common stock to two private investors, AlphaCom, Inc and
Doug Chalmers, MD. We received net proceeds of $75,000 from the sale of
these shares. Each of the shares issued carries a warrant to purchase one
additional share of our common stock for $1.00 per share.
On November 9, 2000, we entered into a Series 1 Convertible Note Purchase
Agreement providing for the offer, sale, issuance and delivery of up to $675,000
in principal amount of Series 1 Convertible Notes with Purchase Warrants. The
note was issued to two private investors, Options Unlimited and Rodney
Schoemann, Jr. Under the Agreement, we issued $675,000 principal amount of
Convertible Notes convertible into 1,377,551 shares of our Common Stock at $.49
per share. With such Convertible Notes we issued Purchase Warrants entitling the
holder to purchase up to 1,377,551 shares of our Common Stock at an exercise
price of $.63 per share. We received net proceeds of $636,250 from the issuance
of this convertible note. As of November 9, 2001, this note has not been
converted into equity and is still outstanding.
On November 15, 2000, the Board of Directors authorized the issuance of 25,000
shares of restricted common stock to one private investor, Patrick Galvin. The
Company received net proceeds of $25,000 from the sale of these shares. Each of
the shares issued carries a warrant to purchase one additional share of our
common stock for $1.00.
On January 5, 2001, a stockholder, the Chelverton Fund, exercised warrants to
purchase 100,000 shares of our restricted common stock. We received
net proceeds of $25,000 from the exercise of these warrants.
On February 5, 2001, and March 15, 2001, the Board of Directors authorized the
issuance of 985,715 shares of our restricted common stock to two New York
investors, Michael Bowe and the Zable Family Trust, pursuant to an exemption
letter obtained from the New York Department of Law. The shares were sold at
prices ranging from $.35 to $.49 per share; resulting in net proceeds to us of
$433,000. One investor holds a warrant to purchase 285,715 common shares of our
stock at a purchase price of $.35 per share for a period of three years.
7
On April 23, 2001, we entered into a Series 1 Convertible Note Purchase
Agreement providing for the offer, sale, issuance and delivery of up to $300,000
in principal amount of Series 1 Convertible Notes with Purchase Warrants. The
agreement was entered into with Rodney Schoemann, Jr., a private investor. Under
the Agreement, we issued $300,000 principal amount of Convertible Notes
convertible into 1,363,636 shares of our common stock at $.22 per
share. With such Convertible Notes we issued Purchase Warrants entitling the
holder to purchase up to 1,363,636 shares of our common stock at an exercise
price of $.27 per share. We recorded a debt discount of $245,454 relating to the
issuance of this note. Attributable to the beneficial conversion feature is
$145,454 calculated by the excess of the fair value of our common
stock on April 23, 2001 of $.38 and the conversion price of $.22. Attributable
to the stock purchase warrants is $99,998 calculated by the excess of the fair
value of our common stock on April 23, 2001 of $.38 and the warrant
price of $.27 pursuant to APB No. 14. We received net proceeds of
$200,00 from the issuance of this convertible note. As of July 31, 2001 this
note has not been converted into equity and is still outstanding.
On June 18, 2001, the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor, Jerry D. Kennett, MD.
We received net proceeds of $125,000 from the sale of these shares.
Each of the shares issued carries a warrant to purchase one additional share of
the Company's common stock for $0.27 for a period of five years.
--------------------------------------------------------------------------------
Item 6. Management's Discussion and Analysis or Plan of Operation
--------------------------------------------------------------------------------
The following discussion and analysis of our financial condition and results of
operation should be read in conjunction with the "Selected Financial Data" and
our financial statements and the related notes thereto. This discussion contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from historical or anticipated results.
RESULTS OF OPERATIONS
We had a net loss of $2,862,490 (or $.12 per share) on revenues of $282,055 for
the year ended July 31, 2001 compared to a net loss of $2,725,775 (or $.15 per
share) on revenues of $341,418 for the year ended July 31, 2000. The increase in
net loss was primarily attributable to the increase in interest expense,
write-off of equipment and the loss on an impairment of non-compete agreement
for the year ending July 31, 2001.
Gross profit for the year ended July 31, 2001, was $93,540 (33% of sales)
compared to $128,812 (37%) for the year ended July 31, 2000. The cost of sales
for fiscal year 2001 consisted primarily of hardware units and airtime sold
while costs of sales for 2000 were attributable to the costs of joint product
development that were not a true indication of the cost of the product sold.
8
Selling, general and administrative expenses were $2,373,978 for the year ended
July 31, 2001, compared to $2,611,054 for the year ended July 31, 2000. The
decrease in selling, general and administrative expenses is primarily due to
stock options issued to key officers and directors, resulting in a compensation
charge of $1,048,671 for the year ended July 31, 2000, and only $187,000 for the
year ended July 31, 2001.
We earned $282,055 from sales revenue in 2001 compared to $341,418 in 2000. The
revenue was derived primarily from the sale of hardware and airtime to new and
existing customers.
As of July 31, 2001, we had available income tax net operating loss
carryforwards of $12,119,889, tax credits of $21,379 and capital loss
carryforwards of $2,328,670 that can be used to offset future taxable income,
subject to certain restrictions based on significant ownership changes.
EFFECTS OF INFLATION
We believe that our revenues and results of operations have not been
significantly affected by inflation during the three years ended July 31, 2001.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We understand that cash equivalents on hand at July 31, 2001, are not adequate
to meet even our short-term capital needs. We continue to have negative
working capital and a deficiency in assets of approximately $1,562,220 for
fiscal year 2001 and $566,925 for fiscal year 2000. Due to our focus on product
development, we have not been profitable since our re-organization in 1998. We
expect this to continue as we are still firmly committed to new product and
service development. Although our forward-looking business plan calls for a
continual increase in sales of developed products, we are also planning for
increased development costs that will not be offset by increased revenue in the
near future.
To fund our operations we will need to pursue additional sources of cash in the
short term. As of July 31, 2001, we had substantially no working capital. Our
cash funds are not sufficient to cover current operating expenses. Our revenues
are not estimated to cover expenses until June 2002, and in the interim the
Company will need an additional $2 million in capital funding. The availability
of other sources of cash may, or may not, materialize and thus, present a
significant risk that we will exhaust our financial resources in the short term,
with no ability to pay for ongoing operational expenses, before our revenues can
be developed to adequately cover its expenses. Because of these factors, our
auditors have expressed substantial doubt as to our ability to continue as a
going concern, as noted in the financial statements.
We purchase major components for our products from limited sources. The
continued financial viability of each of these companies will significantly
determine our future. Because our technology is dependent on our two major
suppliers, the discontinuance of operations of either one could have a
significant negative impact on the deliverability of our products. Because of
the "new" nature of this product line, each of our suppliers must also be
considered "start-up" in nature, and also subject to the volatility and risk
that comes with a start-up business.
9
We have no material commitments for capital expenditures and expect no
significant changes in the number of employees. We will continue to out-source
production and manufacturing and major marketing efforts will be performed by
the officers and directors.
Net cash used in operating activities was $1,703,560 for the year ended July 31,
2001, compared to $1,228,042 for the year ended July 31, 2000. The increase in
net cash used in operating activities resulted primarily from the fact that for
the year ended July 31, 2000, $1,048,670 of compensation was issued in the form
of stock options, compared to only $231,700 for the year ended July 31, 2001.
Net cash used in investing activities was $165,741 for the year ended July 31,
2001 compared to $282,971 for the year ended July 31, 2000. The decrease in net
cash used in investing activities resulted primarily from decreasing capital
expenditures for computer equipment, purchased software and office equipment.
Also, in 2000, $150,000 in cash was used in the acquisition of a non-compete
agreement related to the CompuGraphics merger.
Net cash provided by financing activities was $1,768,337 for the year ended July
31, 2001, compared to $1,602,925 for the year ended July 31, 2000. The increase
in net cash provided by financing activities resulted primarily from the sale of
common stock and convertible securities to various accredited private investors.
If we are unable to raise additional funds before December 2001, we may have to
limit our operations to an extent not presently determinable by management, but
which may include the sale of any assets owned or our ceasing to conduct
business. Although we have no commitments for capital, we may raise additional
funds through:
- public offerings of equity, securities convertible into equity or debt,
- private offerings of securities or debt, or other sources.
Current shareholders should assume that any additional funding will cause
substantial dilution to their ownership. In addition, we may not be able to
raise additional funds on favorable terms, if at all.
We believe our existing cash, together with projected cash flows from operations
and the availability of future equity offerings, will be sufficient to meet our
cash requirements for at least the following twelve months. In July of 2001, we
began commercial production of our Sentry product, a satellite based modem
equipped with a vibration switch intended to remotely monitor oil and gas
compressors. We currently have orders from customers for approximately 600
Sentry units and are expecting several thousand more orders over the next
several months. We believe that the production and sale of this product line,
along with several others we intend to introduce over the next 12 months, will
place us in a cash flow positive position.
10
--------------------------------------------------------------------------------
Item 7. Financial Statements
--------------------------------------------------------------------------------
Our financial statements are included below (with an index listing all such
statements) in response to this item.
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDING JULY 31, 2001 AND 2000
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT 12
FINANCIAL STATEMENTS
Balance Sheets 13
Statements of Operation 14
Statements of Deficiency in Assets 15
Statements of Cash Flows 16
NOTES TO FINANCIAL STATEMENTS 17 to 28
11
[LOGO]
Dohan and Company 7700 North Kendall Drive, 200
Certified Public Accountants Miami, Florida 33156-7564
A Professional Association Telephone (305) 274-1366
Facsimile (305) 274-1368
E-mail info@uscpa.com
Internet www.uscpa.com
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
American Millennium Corporation, Inc.
Golden, Colorado
We have audited the accompanying balance sheets of American Millennium
Corporation, Inc. as of July 31, 2001 and 2000, and the related statements of
operations, deficiency in assets and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Millennium
Corporation, Inc. at July 31, 2001 and 2000, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has suffered recurring losses from operations,
has a working capital deficiency and has a deficiency in assets that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 10. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Dohan and Company, P.A.
Certified Public Accountants
Miami, Florida
October 21, 2001
12
Member:
Florida Institute of Certified Public Accountants
American Institute of Certified Public Accountants - Private Companies and SEC
Practice Sections
SC International - Offices in Principal Cities World-Wide [LOGO]
AMERICAN MILLENNIUM CORPORATION, INC.
BALANCE SHEETS
--------------------------------------------------------------------------------
July 31, 2001 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................... $ 4,184 $ 105,148
Accounts receivable, less allowance for doubtful
accounts of $14,204 and $1,564................... 53,030 23,899
Inventories........................................ 37,758 21,161
Prepaid expenses................................... 8,224 6,514
Advances to employees ............................. 3,000 --
Short-term portion of non-compete agreement........ 35,000 35,000
Discount on issuance of debt....................... -- 41,875
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS................................. 141,196 233,597
--------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET.......................... 145,409 154,714
--------------------------------------------------------------------------------
OTHER ASSETS
Long-term portion of non-compete agreement......... -- 138,639
Securities in closely-held corporation............. 3,040 3,040
Security deposits.................................. 12,753 7,407
Other assets....................................... 760 760
Deferred income tax asset, less valuation
allowance of $5,207,267 and $3,385,497........... -- --
--------------------------------------------------------------------------------
TOTAL OTHER ASSETS................................... 16,553 149,846
--------------------------------------------------------------------------------
TOTAL ASSETS......................................... $ 303,158 $ 538,157
================================================================================
LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES
Accounts payable.................................... $ 320,950 $ 226,792
Accrued payroll and related taxes................... 79,361 44,149
Accrued liabilities................................. 76,613 468,827
Current portion of capitalized lease obligations.... 9,547 24,473
Notes payable to officers........................... 53,385 210,992
Notes payable to related parties.................... 189,576 62,285
Note payable to stockholder......................... 200,000 25,899
Advances from officers.............................. -- 24,952
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES............................. 929,432 1,088,369
--------------------------------------------------------------------------------
Long-term portion of capitalized lease obligations.... 7,440 16,713
Long-term portion of interest payable ................ 53,506 --
Convertible notes .................................... 875,000 --
--------------------------------------------------------------------------------
TOTAL LONG TERM LIABILITIES .......................... 935,946 16,713
--------------------------------------------------------------------------------
TOTAL LIABILITIES..................................... 1,865,378 1,105,082
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND 12)
DEFICIENCY IN ASSETS
Preferred stock, 10,000,000 shares authorized;
none issued -- --
Common stock, $.001 par value, 60,000,000 shares
authorized; 23,723,328 and 21,402,284 shares
issued and outstanding........................... 23,723 21,402
Additional paid-in capital......................... 15,964,110 14,099,236
Accumulated deficit................................ (17,550,053) (14,687,563)
--------------------------------------------------------------------------------
TOTAL DEFICIENCY IN ASSETS........................... (1,562,220) (566,925)
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS........... $ 303,158 $ 538,157
================================================================================
See accompanying notes.
13
AMERICAN MILLENNIUM CORPORATION, INC.
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
For the Years Ended July 31, 2001 2000
--------------------------------------------------------------------------------
REVENUES............................................. $ 282,055 $ 341,418
COST OF REVENUES..................................... 188,515 212,606
--------------------------------------------------------------------------------
GROSS PROFIT......................................... 93,540 128,812
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Compensation to officers and directors............. 724,778 1,273,153
Consulting - others................................ 279,645 135,641
Professional....................................... 169,128 184,574
Employee salaries.................................. 474,458 423,171
Employee benefits and payroll taxes................ 160,764 59,855
Research and development........................... -- 136,507
Travel............................................. 121,186 110,315
Telephone and utilities............................ 44,100 46,529
Depreciation and amortization...................... 136,772 17,798
Other.............................................. 263,147 223,511
-------------------------------------------------------------------------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 2,373,978 2,611,054
--------------------------------------------------------------------------------
LOSS FROM OPERATIONS................................. (2,280,438) (2,482,242)
OTHER INCOME (EXPENSES)
Interest expense................................... (366,196) (148,208)
Amortization of loan costs......................... (41,875) (109,647)
Loss on disposal of property and equipment......... (74,199) (25,689)
Miscellaneous income............................... 3,760 40,011
Impairment of assets .............................. (103,542) --
--------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSES)........................ (582,052) (243,533)
--------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES............................. (2,862,490) (2,725,775)
INCOME TAXES......................................... -- --
--------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (2,862,490) (2,725,775)
--------------------------------------------------------------------------------
NET LOSS............................................. (2,862,490) (2,725,775)
================================================================================
NET LOSS PER COMMON SHARE
BASIC .......................................... $ (0.12) $ (0.15)
DILUTED .......................................... $ (0.12) $ (0.15)
================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC ............................................. 22,249,332 18,218,392
DILUTED ........................................... 22,249,332 18,218,392
===============================================================================
See accompanying notes.
14
AMERICAN MILLENNIUM CORPORATION, INC.
STATEMENTS OF DEFICIENCY IN ASSETS
FOR THE YEARS ENDED JULY 31, 2001 AND 2000
--------------------------------------------------------------------------------
Additional Total
Common Stock Paid-in Accumulated Deficiency
Description Shares Amount Capital Deficit Other in Assets
--------------------------------------------------------------------------------
Balance -
July 31, 1999 16,403,472 $16,404 $11,200,669 ($11,961,788) $ -- $ (744,715)
Sale of
common stock 3,130,001 3,130 713,520 -- -- 716,650
Common stock
issued for
interest 25,000 25 6,225 -- -- 6,250
Common stock
issued for
compensation 200,000 200 72,300 -- -- 72,500
Common stock
exchanged for
services 165,200 165 87,365 -- -- 87,530
Common stock
exchanged for
100% ownership
in CompuGraphics
Corp. 600,000 600 ( 600) -- -- --
Common stock
issued for
payment of
accounts
payable 23,170 23 19,440 -- -- 19,463
Conversion of
debt to equity 855,441 855 951,646 -- -- 952,501
Stock options
issued for
services -- -- 1,048,671 -- -- 1,048,671
Net loss for
the year -- -- -- (2,725,775) -- (2,725,775)
--------------------------------------------------------------------------------
Balance -
July 31, 2000 21,402,284 $21,402 $14,099,236 $(14,687,563) $ -- $ (566,925)
--------------------------------------------------------------------------------
Sale of
common stock 2,192,294 2,192 660,808 -- -- 663,000
Common stock
issued for
interest 25,000 25 8,475 -- -- 8,500
Common stock
exchanged for
services 70,000 70 54,621 -- -- 54,691
Common stock
issued for
payment of
accounts
payable 33,750 34 13,466 -- -- 13,500
Debt discount -- -- 248,621 -- -- 248,621
Stock options
issued for
services and
payment of debt -- -- 878,883 -- -- 878,883
Net loss for
the year -- -- -- (2,862,490) -- (2,862,490)
--------------------------------------------------------------------------------
Balance -
July 31, 2001 23,723,328 $23,723 $15,964,110 $(17,550,053) $ -- $(1,562,220)
================================================================================
See accompanying notes.
15
AMERICAN MILLENNIUM CORPORATION, INC.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the Years Ended July 31, 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)........................................ $(2,862,490) $(2,725,775)
Adjustments to reconcile net (loss) to net
cash used used by operating activities:
Depreciation and amortization................. 137,217 17,798
Amortization of loan costs..................... 41,875 109,647
Provision for bad debts....................... 12,640 1,564
Loss on disposal of property and equipment.... 74,199 25.689
Common stock exchanged for services........... 68,191 87,530
Stock options issued in consideration for past
services.................................... 231,700 1,048,670
Common stock issued for compensation.......... - 72,500
Common stock issued as interest .......... 8,500 --
Amortization of debt discount ................ 248,621 --
Write down of impaired asset ................. 103,542 --
Stock options issued for compensation ....... 109,647 --
(Increase) decrease in assets:
Accounts receivable........................... (41,771) (5,098)
Inventory..................................... (16,597) (15,186)
Prepaid expenses.............................. (1,710) (6,514)
Other assets.................................. - (42,893)
Increase (decrease) in liabilities:
Accounts payable.............................. 94,158 54,527
Accrued payroll and related taxes............. 35,212 (45,759)
Accrued liabilities........................... - 195,258
Interest payable ............................. 53,506 -
--------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES................. (1,703,560) (1,228,042)
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts
Proceeds from disposal of property and equipment... 400 1,700
--------------------------------------------------------------------------------
RECEIPTS FROM INVESTING ACTIVITIES.................... 400 1,700
--------------------------------------------------------------------------------
Disbursements
Acquisition of property and equipment.............. (157,795) (129,157)
Acquisition of non-compete agreement............... -- (150,000)
Loans to employees ................................ (3,000) -
Additional security deposits and other............. (5,346) (5,514)
--------------------------------------------------------------------------------
DISBURSEMENTS FROM INVESTING ACTIVITIES............... (166,141) (284,671)
--------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES................. (165,741) (282,971)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Proceeds from notes payable to officers............. 172,385 150,000
Proceeds from related parties ...................... 85,000 9,000
Proceeds from note payable stockholder.............. 200,000 200
Proceeds from issuance of common stock, net......... 708,000 1,512,120
Proceeds from issuance of convertible notes, net ... 830,000 --
Proceeds from capitalized leases.................... -- 13,809
--------------------------------------------------------------------------------
RECEIPTS FROM FINANCING ACTIVITIES..................... 1,995,385 1,685,129
--------------------------------------------------------------------------------
Disbursements
Payments on notes due stockholder................... -- (19,948)
Payments on notes due related parties............... (27,849) (16,600)
Payments on advances by officers................... - (13,713)
Payments on notes payable to officers............... (175,000) (30,978)
Payments on capitalized leases...................... (24,199) (965)
--------------------------------------------------------------------------------
DISBURSEMENTS FROM FINANCING ACTIVITIES................ (227,048) (82,204)
--------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 1,768,337 1,602,925
--------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... (100,964) 91,912
CASH AND CASH EQUIVALENTS - BEGINNING.................. 105,148 13,236
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - ENDING.....................$ 4,184 $ 105,148
================================================================================
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest..........................................$ 12,601 $ 5,471
Income taxes......................................$ -- $ --
In addition to amounts reflected above, common stock or common stock
options were issued for:
Notes payable to related parties..................$ 88,183 $ --
Note payable to officer...........................$ 129,992 $ --
Advances to officer reduced accrued liabilities...$ 14,080 $ 52,500
Reduction of accounts payable.....................$ 13,500 $ 19,463
================================================================================
See accompanying notes.
16
AMERICAN MILLENNIUM CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2001 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY American Millennium Corporation, Inc. (the Company), a New Mexico
corporation, was organized in 1979 and has provided engineering services
relating to research and development activities for outside parties as well as
internal product development. The Company has developed various proprietary and
patented technologies for industrial and consumer applications.
BUSINESS COMBINATION A controlling interest (79.3%) of American Millennium
Corporation, a Delaware corporation, was acquired in October 1997. The remaining
interest in American Millennium Corporation was acquired under an Agreement and
Plan of Merger dated May 27, 1998, when the companies merged, with the parent as
the surviving corporation. Upon completion of the merger, the Company changed
its name from Energy Optics, Inc. to American Millennium Corporation, Inc.
NATURE OF OPERATIONS Since the merger, operations have been focused primarily on
hardware and software combinations to facilitate timely, accurate and cost
effective one-way and two-way monitoring of information. This is achieved
through a variety of platforms including satellite, cellular, various radio
frequency protocols and wireline.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt
instruments with an original maturity of three months or less at the date of
purchase to be cash equivalents.
INVENTORIES Inventories consist of Subscriber Communicators and related parts.
Inventories are stated at the lower of cost or market, determined on the
first-in, first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation of
equipment is provided over estimated useful lives ranging from five years to
seven years, using the straight-line method. Expenditures for maintenance and
repairs are charged to expense as incurred. Major improvements are capitalized.
Gains and losses on disposition of property and equipment are included in income
as realized.
AVAILABLE-FOR-SALE EQUITY SECURITIES The Company accounts for marketable
securities in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity securities." This
statement requires securities that are available for sale to be carried at fair
value, with unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity.
INCOME TAXES Income taxes are computed under the provisions of the Financial
Accounting Standards Board (FASB) Statement 109 No. (SFAS 109), Accounting for
Income Taxes. SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of the difference in events that have been recognized in the
Company's financial statements compared to the tax returns.
INCOME TAX CREDITS Income tax credits will be recognized as a reduction of the
provision for income taxes in the year in which utilized.
17
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION The Company develops and sells satellite communication
systems. Revenue from sales of satellite communication systems is recorded at
the time the goods are shipped or access is granted to the service. The Company
provides airtime to its customers on a month-to-month basis, which is recognized
as revenue at the time the service is provided.
AMORTIZATION OF NON-COMPETE AGREEMENT The non-compete agreement is recorded at
cost and amortized on a straight-line basis. Non-compete agreement is amortized
over the term of the agreement, which is five years. Accumulated amortization
was $36,458 as of July 31, 2001. Amoritization expense was $35,000 and $1,458
for the years ending July 31, 2001, and 2000, respectively.
AMORTIZATION OF LOAN COSTS Loan costs incurred in the acquisition of
indebtedness is amortized using the straight-line method over term of the
respective debt instrument.
CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE Concentrations of credit
risk with respect to receivables results from the fact that approximately 56% of
accounts receivable at July 31, 2001, was due from two customers. Further,
approximately 62% of revenues from the sale of products and services are to
three customers.
Risks associated with industry concentrations are limited due to the wide
variety of customers and markets into which the Company's products and services
are provided, as well as their dispersion across many different geographic
areas.
The Company is economically dependent on ORBCOMM USA, L.P. (ORBCOMM), which has
filed for protection under Chapter 11 of the Federal Bankruptcy Act, and Vistar
Datacom, for whom it is a value-added reseller. ORBCOMM and Vistar Datacom both
provide satellite service for the Company's monitoring devices and are also the
suppliers for the main component of the Company's Subscriber Communicators.
USE OF ESTIMATES The process of preparing financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as
incurred.
ADVERTISING Advertising costs are expensed as incurred.
COMPUTER SOFTWARE DEVELOPED FOR INTERNAL USE Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," ("SOP 98-1") issued by the American Institute of Certified Public
Accountants is effective for financial statements beginning after December 15,
1998, SOP 98-1 requires that costs incurred in the preliminary stage of a
development project be expensed as incurred, and that subsequent costs be
capitalized or expensed, depending on criteria defined within SOP 98-1
Capitalized costs should be amortized on a straight-line basis unless another
systematic basis is more representative of the software's use.
18
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED NET LOSS PER COMMON SHARE Basic net loss per common share is
computed by dividing the net loss applicable to common shareholders by the
weighted average number of common shares outstanding during each period. Diluted
net loss per common share is determined by using the weighted average number of
common shares outstanding during the period, adjusted for the dilutive effect of
common stock equivalents, consisting of shares that might be issued upon
exercise of common stock options. In periods where losses are reported, the
weighted average number of common shares outstanding excludes common stock
equivalents, because their inclusion would be anti-dilutive.
IMPAIRMENT OF LONG-LIVED ASSETS The Company follows FASB Statement No. 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS 121 requires that impairment losses are to be
recorded when long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the related carrying
amount may not be recoverable. When required, impairment losses on assets to be
held and used are recognized based on the fair value of the asset. Long-lived
assets to be disposed of, if any, are reported at the lower of the carrying
amount or the fair value less cost to sell.
COMPREHENSIVE INCOME The Company has previously adopted FASB Statement No. 130
(SFAS 130) "Reporting Comprehensive Income". This statement establishes
standards for reporting of comprehensive income and its components (revenues,
expenses, gains, losses) in financial statements and requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Comprehensive income consists
of the unrealized gain on marketable securities and is presented in the
Statements of Deficiency in Assets. The adoption of SFAS 130 had no impact on
the Company's net income or total shareholders' equity.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company has adopted FASB
issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities".
This Statement requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the value of those derivatives would be accounted for depending on
the use of the derivatives and whether it qualifies for hedge accounting. This
statement is not expected to have a material impact on the Company's
consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS Cash, receivables, accounts payable, debt,
accrued expenses and other liabilities are carried at amounts which reasonably
approximate their fair value due to the short-term nature of these amounts or
due to variable rates of interest which are consistent with current market
rates.
RECLASSIFICATIONS Certain amounts in the prior year financial statements have
been reclassified for comparative purposes to conform with the presentation of
the current year financial statements. Additionally, retroactive effect has been
given to the merger for purposes of comparative financial statement
presentation.
19
NOTE 2. RELATED PARTY TRANSACTIONS
NOTES PAYABLE On September 22, 2000, a stockholder advanced $20,000 to the
Company in the form of a 30-day unsecured promissory note bearing interest at
the rate of eight percent per annum. As of July 31, 2001, this note is still
outstanding.
On October 6, 2000, a stockholder advanced $75,000 to the Company in the form of
a 30-day unsecured promissory note bearing interest at the rate of eight percent
per annum. As of July 31, 2001, this note is still outstanding.
On December 28, 2000, a stockholder advanced $125,000 to the Company in the form
of a 45-day unsecured promissory note bearing interest at the rate of eight
percent per annum. The Company received net proceeds of $118,750 from the
issuance of this note. As of July 31, 2001 this note is still outstanding.
Notes payable to officers at July 31, 2001 and 2000, were $53,385
and $210,992, respectively. These notes are unsecured, due at various dates
through July 31, 2002, and provide for annual interest at 6%. For the year ended
July 31, 2001, officers of the Company advanced funds to the Company totaling
$139,500.
On November 10, 2000 a note payable to an officer of the Company in the amount
of $175,000 was paid in full, including accrued interest.
Notes payable to parties related by virtue of common control at July 31, 2001
and July 31, 2000 were $189,576 and $62,285, respectively. These notes are
unsecured, due at various dates through July 31, 2002, and provide for annual
interest at 6%.
STOCK OPTIONS On April 3, 2001 the Board of Directors authorized the issuance of
options to purchase 3,406,225 shares of our common stock at an exercise price
of $.10 per share. These options were issued to nine officers, directors and
related parties in order to settle liabilities due them in the amount of
$647,183. The nature of the liabilities settled with these options were as
follows:
Accrued consulting $298,498
Advances from officers 14,080
Notes payable 245,396
Accrued salaries 89,209
--------
$647,183
========
On April 24, 2001, the Company's Vice President of Technology and Chief
Technology Officer, was granted an option to purchase 1,000,000 shares of the
Company's common stock at an exercise price of $.19 per hare. The option is
fully vested and shall be exercisable for three years. Compensation expense of
$180,000 was recognized, which was determined by the difference between the
option exercise price of $.19 and the market value of our stock on April 24,
2001 of $.37. These options remain unexercised as of July 31, 2001.
On April 24, 2001, the Board of Directors authorized the issuance of options to
purchase 285,000 shares of the Company's common stock at an exercise price of
$.25/share. These options were granted to certain individuals who were employed
by the Company on February 1, 2001. The options are fully vested as of February
1, 2001 and are exercisable for two years. Compensation expense of $34,700 was
recognized, which was determined by the difference between the option exercise
price of $.25 and the market value of our stock on April 24, 2001 of $.37. These
options remain unexercised as of July 31, 2001.
On May 29, 2001, the Controller and Principal Accounting Officer, was granted
an option to purchase 100,000 shares of the Company's common stock at an
exercise price of $.19 per share. The option is fully vested and shall be
exercisable for three years. Compensation expense of $17,000 was recognized,
which was determined by the difference between the option exercise price of $.19
and the market value of our stock on May 29, 2001 of $.36. These options remain
unexercised as of July 31, 2001.
20
NOTE 3. BUSINESS COMBINATION
On July 18, 2000, the Company completed a merger with CompuGraphics Corporation
by exchanging 600,000 shares of its common stock for all of the common stock of
CompuGraphics. The merger was accounted for as a pooling of interest and
accordingly the prior year's financial statements include the combined results
of operations, financial position and cash flows of CompuGraphics.
Prior to the merger, CompuGraphics' fiscal year ended on December 31. In
recording the business combination, CompuGraphics financial statements were
restated to conform with the Company's year end. The effects of conforming
CompuGraphics accounting policies to those of the Company were not material.
NOTE 4. NON-COMPETE AGREEMENT IMPAIRMENT
During the fiscal year, the Company reviewed its non-compete agreement and
realized the sum of the expected future net cash flows is less than the carrying
amount of the asset. As a result, management determined that the useful life of
the agreement should be reduced from five years to two years and an impairment
loss of $103,542 was recognized. The remaining value of $35,000 will be
amortized over the remaining year.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
2001 2000
--------------------------------------------------------------------------------
Office furniture and equipment $ 124,083 $ 114,970
Computer software 115,190 24,089
Demonstrator Subscriber Communicators 18,900 30,754
Subscriber Communicators leased to customer 4,228 7,768
--------------------------------------------------------------------------------
262,401 177,581
Accumulated depreciation ( 116,992) ( 22,867)
--------------------------------------------------------------------------------
Property and equipment, net $ 145,409 $ 154,714
================================================================================
Depreciation expense for the years ending July 31, 2001 and 2000, amounted to
$102,588 and $15,419, respectively. Of these amounts, $101,773 and $14,309 are
included in other selling, general and administrative expenses for July 31, 2001
and 2000, respectively; and $815 and $1,109 are included in cost of revenues for
July 31, 2001 and July 31, 2000, respectively.
NOTE 6. SECURITIES IN CLOSELY-HELD CORPORATION
Archibald Brothers Fine Beverages, Inc. (Archibald) is a closely-held company in
which the Company owns 30,400 shares of common stock. The shares are held in
escrow pursuant to an agreement providing for the sale of shares under an option
to a third party. Under this agreement the J.M. Smucker Company (a minority
shareholder) has the option to acquire all remaining shares of Archibald at a
predetermined formula price at the earlier of three years or upon sales reaching
$28 million. The investment is recorded at the cost of $3,040. The fair value
of this investment as of July 31, 2001 was $14,390.
In addition to the 30,400 shares of Archibald's common stock already owned, the
Company has options to purchase up to 69,600 shares of common stock at $1 per
share on or before October 31, 2001.
21
NOTE 7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued liabilities consisted of the following:
2001 2000
--------------------------------------------------------------------------------
Professional fees $ 20,000 $ 133,874
Consulting - officers 44,077 326,953
Settlement -- 8,000
Employee benefits 3,135 --
Other accrued expenses 9,401 --
-----------------------------------------------------------------------------
$ 76,613 $ 468,827
================================================================================
NOTE 8. COMMON STOCK
STOCK ISSUED FOR SERVICES On April 27, 2000, the Company entered into an
agreement with The Charterbridge Financial Group, Inc. for consultation services
in connection with new business opportunities and promotion of the Company to
the public. The agreement calls for the issuance of 70,000 unregistered shares
of the Company's common stock each quarter along with a monthly cash payment of
$4,500. In October of 2000, the Company terminated the services to be provided
by that company. 70,000 shares of the Company's unregistered common stock valued
at $54,691 was issued on August 1, 2000 and 33,750 unregistered shares of the
Company's common stock valued at $13,500 was issued on May 16, 2001 in
settlement of the final amount due under the contract.
On June 25, 2001 the Board of Directors authorized the issuance of 25,000 shares
of the Company's unregistered common stock to a stockholder as penalty shares
for late payment of a 30 day note due the shareholder dated September 23, 1999.
On August 24, 2000 the Board of Directors authorized the issuance of 50,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $50,000 from the sale of these shares. Each of the shares issued
carries a warrant to purchase one additional share of the Company's common stock
for $1.00.
On September 18, 2000 the Board of Directors authorized the issuance of 131,579
shares of restricted common stock to two private investors. The Company received
net proceeds of $75,000 from the sale of these shares. Each of the shares issued
carries a warrant to purchase one additional share of the Company's common stock
for $1.00.
On November 15, 2000 the Board of Directors authorized the issuance of 25,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $25,000 from the sale of these shares. Each of the shares issued
carries a warrant to purchase one additional share of the Company's common stock
for $1.00.
22
NOTE 8. COMMON STOCK (CONTINUED)
On January 5, 2001, a stockholder exercised warrants to purchase 100,000 shares
of the Company's restricted common stock. The Company received net proceeds of
$25,000 from the exercise of these warrants.
On February 5, 2001 and March 15, 2001 the Board of Directors authorized the
issuance of 985,715 shares of the Company's restricted common stock to two New
York investors pursuant to an exemption letter obtained from the New York
Department of Law. The shares were sold at prices ranging from $.35 to $.49 per
share; resulting in net proceeds to the Company of $433,000. One investor holds
a warrant to purchase 285,715 common shares of the Company's stock at a purchase
price of $.35 per share for a period of three years.
On June 18, 2001 the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $125,000 from the sale of these shares. Each of the shares
issued carries a warrant to purchase one additional share of the Company's
common stock for $0.27 for a period of five years.
STOCK OPTIONS During the year ending July 31, 2001, the Board of Directors
granted to various officers, directors and related parties of the Company
stock options in consideration for past services, in settlement of accrued
liabilities and as future incentive to perform for the Company. At July 31,
2001, there were 6,353,100 shares under option at exercise prices ranging from
$.10 to $.19 per share which expire on various dates through April 24, 2004.
All options vest immediately upon grant. Compensation expense of $197,000 has
been recognized in the current fiscal year relating to the granting of these
options. As of July 31, 2001, none of the options have been exercised.
During the year ending July 31, 2001, the Board of Directors granted to
employees, who were employed by the Company on February 1, 2001, options to
purchase one share of common stock at an exercise price of $.25. These options
vest immediately upon grant and have a maximum term of 2 years. During the
current fiscal year compensation expense of $34,700 has been recognized relating
to the granting of these options. As of July 31, 2001 there were 285,000 shares
reserved for issuance under this plan. All of these options remain unexercised
as of July 31, 2001.
Pursuant to employment agreements entered into during fiscal year 2000 and 2001,
certain employees were granted options to purchase the Company's common stock at
$1.00 per share, which was more than 100% of the market price on the dates the
options were granted. Accordingly, no compensation expense has been recorded in
the current fiscal year relating to these options. The options vest after one
year of service and have a maximum term of 3 years. At July 31, 2001, 600,000
shares were reserved for future issuance under the plan.
23
NOTE 9. INCOME TAXES
Deferred income taxes and benefits for 2001 and 2000 are provided for certain
income and expenses which are recognized in different periods for tax and
financial reporting purposes. The tax effects (computed at 35%) of these
temporary differences and carryforwards that give rise to significant portions
of deferred tax assets and liabilities consist of the following:
Current
Period
2000 Changes 2001
--------------------------------------------------------------------------------
Deferred tax assets:
Accrued officers' compensation $ 114,436 ($114,436) $ --
Allowance for bad debts -- 4,971 4,971
Stock options offered as compensation -- 81,095 81,095
Unamortized portion of non-compete
agreement -- 57,167 57,167
Net operating loss carryforwards 3,013,845 1,228,119 4,241,964
Capital loss carryforwards 815,035 -- 815,035
--------------------------------------------------------------------------------
3,943,316 1,256,916 5,200,232
Investment credit carryforwards 3,836 -- 3,836
Research credit carryforwards 17,543 -- 17,543
--------------------------------------------------------------------------------
3,964,695 1,256,916 5,221,611
Valuation allowance (3,950,273) (1,256,994) (5,207,267)
--------------------------------------------------------------------------------
Deferred tax asset 14,422 ( 78) 14,344
--------------------------------------------------------------------------------
Deferred tax liabilities:
Excess book depreciation over
tax depreciation 14,422 ( 78) 14,344
--------------------------------------------------------------------------------
Deferred tax liability 14,422 -- 14,344
--------------------------------------------------------------------------------
Net deferred tax asset (liability) $ -- $ -- $ --
================================================================================
For the year ended July 31, 2001, the Company generated, for U.S. income tax
purposes, a net operating loss of approximately $2,805,500, resulting in a total
loss carryforward of approximately $12,119,900. Capital loss carryforwards at
July 31, 2001, were $2,328,670. These loss carryforwards expire at various dates
through the year 2019.
A valuation allowance must be established to reduce deferred income tax benefits
if it is more likely than not that a portion of the deferred income tax benefits
will not be realized. It is management's opinion that it is more likely than not
that the entire deferred tax benefit may not be recognized in future years
because the utilization of the remaining carryforwards is dependent on the
Company's ability to generate sufficient taxable income during the carryforward
periods and no further significant changes in ownership. Therefore, a valuation
allowance equal to the deferred tax benefit has been established, resulting in
no deferred tax assets as of the balance sheet dates.
24
NOTE 9. INCOME TAXES (CONTINUED)
During the year ended July 31, 1998, there were significant ownership changes in
the Company as defined in Section 382 of the Internal Revenue Code. As a result
of these changes, the Company's ability to utilize net operating losses
available before the ownership change is restricted to a total of approximately
$1,775,483 per year (approximately 5.33% of the market value of the Company at
the time of the ownership change). Therefore, substantial net operating loss
carryforwards will, in all likelihood, be eliminated in future years due to the
change in ownership.
For the year ended July 31, 2001, no tax credits expired. Remaining tax credits
total $21,379 which expire at various dates through 2005. As a result of
significant changes in ownership as defined in Section 383 of the Internal
Revenue Code, the Company's ability to utilize tax credits available before the
ownership change will be limited.
NOTE 10. OPERATING AND ECONOMIC CONDITIONS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, conditions have limited the ability of the
Company to market its products and services at amounts sufficient to recover its
operating and administrative costs. As a result, the Company has incurred
operating losses of $2,862,490 and $2,725,775 for the years ending July 31, 2001
and 2000, respectively.
In addition, the Company has used substantial working capital in its operations.
As of July 31, 2001 and 2000, current liabilities exceed current assets by
$788,236 and $854,772, respectively. Cash used by operations for the years ended
July 31, 2001 and 2000, amounted to $1,703,560 and $1,228,042, respectively.
Sales are expected to fund day-to-day operations and marketing activities
related to digital, wireless and wireline communications endeavors. Management
plans to raise additional capital by further issuance of the Company's common
stock through the private offering of stock under Regulation D, Rule 506, and
additional offerings to the public under Form SB-2 and other capital
instruments.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts or
classifications of liabilities that might be necessary in the event the Company
cannot continue in existence.
25
NOTE 11. NOTES PAYABLE
On November 9, 2000, the Company entered into a Series 1 Convertible Note
Purchase Agreement providing for the offer, sale, issuance and delivery of up to
$675,000 in principal amount of Series 1 Convertible Notes with Purchase
Warrants. Under the Agreement, the Company shall issue $675,000 principal amount
of Convertible Notes convertible into 1,377,551 shares of Common Stock of the
Company at $.49 per share. With such Convertible Notes the Company will issue
Purchase Warrants entitling the holder to purchase up to 1,377,551 shares of the
Common Stock of the Company at an exercise price of $.63 per share. The Company
received net proceeds of $636,250 from the issuance of this convertible note. As
of July 31, 2001, this note has not been converted into equity and is still
outstanding.
On April 23, 2001, the Company entered into a Series 1 Convertible Note Purchase
Agreement providing for the offer, sale, issuance and delivery of up to $300,000
in principal amount of Series 1 Convertible Notes with Purchase
Warrants. Under the Agreement, the Company is to issue $300,000 principal amount
of Convertible Notes convertible into 1,363,636 shares of Common Stock of the
Company at $.22 per share. With such Convertible Notes the Company will issue
Purchase Warrants entitling the holder to purchase up to 1,363,636 shares of the
Common Stock of the Company at an exercise price of $.27 per share. The Company
has recorded a debt discount of $245,454 relating to the issuance of this note.
Attributable to the beneficial conversion feature is $145,454 calculated by the
excess of the fair value of the Company's common stock on April 23, 2001 of $.38
and the conversion price of $.22. Attributable to the stock purchase warrants is
$99,998 calculated by the excess of the fair value of the Company's common stock
on April 23, 2001 of $.38 and the warrant price of $.27 pursuant to APB No. 14.
The Company received net proceeds of $200,000 from the issuance of this
convertible note and not the full $300,000 as per Purchase Agreement. As of July
31, 2001 this note has not been converted into equity and is still outstanding.
On July 25, 2001, an outside consultant advanced the Company $65,000 in the form
of a short term advance with an interest rate of 10%. As of July 31, 2001 this
advance is still outstanding.
26
NOTE 12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES The Company's corporate headquarters are located in a 4,600
square foot facility in Golden, Colorado. Under the terms of a lease agreement
dated December 8, 1999, the Company is to occupy the Golden offices for a term
of 36 months beginning the first day of December 1999, with a monthly rent of
$4,600. The Company's former President and CEO operates out of an executive
suite in Houston, Texas with a monthly rent of approximately $1,000. This lease
expires October 31, 2001.
The Company also leases office equipment under non-cancelable leases expiring at
various times through May 2003, with monthly payments of $1,007.
Future minimum lease payments under all operating leases for years subsequent to
July 31, 2001 are as follows:
2002 $ 68,404
2003 30,036
2004 5,035
----------
$ 103,475
==========
Total rental expense, primarily from office space and equipment, was $77,271 and
$46,335 for the years ended July 31, 2001 and 2000, respectively.
CAPITAL LEASES The Company leases certain computer and office equipment. The
leases include options for renewal or purchase and contain clauses for payment
of property taxes and insurance. In most cases, management expects that in the
normal course of business, leases will be renewed or replaced by other leases.
Capital lease obligations consisted of the following:
2001 2000
---------- ---------
Lease payments, payable in monthly
installments totaling $1,658 and $2,789,
respectively, inclusive of imputed
interest at a rate of 11.6%, maturing at
various dates through May 2004. $ 16,987 $ 41,186
Current obligations under capital leases ( 9,547) ( 24,473)
---------- -----------
Long-term obligations under capital leases $ 7,440 $ 16,713
========== ===========
Future minimum lease payments under capital leases for years subsequent to July
31, 2001 are as follows:
2002 11,483
2003 4,890
2004 4,075
----------
$ 20,448
Amount representing interest (3,461)
----------
Present value of future minimum lease payments $ 16,987
==========
27
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
SELF-INSURANCE The Company carries a $100,000 policy for general liability and
property insurance. The Company has not obtained product liability insurance to
date due to the cost of such insurance. ORBCOMM and Vistar Datacom provide
one-year warranties on the Subscriber Communicators which is passed along to the
customer. Management presently believes that there is no material risk of loss
to the Company from product liability claims against the Company as a
distributor.
In September 1999, the Company commenced a private offering of its common stock,
which was intended to conform with available exemptions from the registration of
the securities. The Company raised $65,750 in the states of Alabama, Georgia,
Kentucky, and Texas; however, the Company did not forward the appropriate notice
filings and fees to the regulatory agencies in these states. In the event, the
state securities regulatory agencies determine that a violation has defeated any
available Rule 506 exemption, the unregistered sale of securities in Alabama,
Georgia, Kentucky and/or Texas without the benefit of an exemption from
registration could give rise to civil actions against the Company by purchasers
in the offering of such states who may be entitled to rescission and refund of
the total purchase price with interest.
NOTE 13. SUBSEQUENT EVENTS - ADVANCES
On August 8, 2001, a shareholder of the Company advanced $30,130 to the Company
in the form of a 30 day unsecured note bearing interest at the rate of 8% per
annum. As of October 29, 2001, this note is still outstanding.
On September 14, 2001, an officer of the Company advanced $10,000 to the Company
in the form of a short term loan. This note was repaid according to terms.
NOTE 14. SUBSEQUENT EVENTS - COMMON STOCK
On August 22, 2001, the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $125,000 from the sale of these shares. Each of the shares
issued carries a warrant to purchase one additional share of the Company's
common stock for $0.27 for a period of five years.
On September 25, 2001, the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $150,000 from the sale of these shares. Each of the shares
issued carries a warrant to purchase one additional share of the Company's
common stock for $0.27 for a period of five years.
NOTE 15. SUBSEQUENT EVENTS - CHANGE IN CHIEF EXECUTIVE OFFICER
The Company's CEO and President, resigned effective September 30, 2001. On
October 1, 2001, the Board of Directors elected a new CEO and President. The
former CEO will remain on the Board of Directors and will serve as Vice
Chairman.
NOTE 16. SUBSEQUENT EVENTS - JOINT VENTURE
On August 29, 2001 the Company announced the execution of an agreement with
Midland, Texas-based CC Technology, Inc. (CCT) for product integration,
marketing and sales. The agreement calls for the Company's SATAlarm-Sentry (TM)
system to be integrated with CCT's ProFlo (TM) lubrication monitoring device for
compressor systems in the oil and gas industry.
28
--------------------------------------------------------------------------------
Item 8. Changes in and Disagreements With Accountants On Accounting and
Financial Disclosure
--------------------------------------------------------------------------------
None.
--------------------------------------------------------------------------------
PART III
--------------------------------------------------------------------------------
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(A) of the Exchange Act
--------------------------------------------------------------------------------
EXECUTIVE OFFICERS OF THE COMPANY
Our executive officers, some of whom are also our directors are as follows:
NAME TITLE/POSITION AGE
-------- ----------------------- ------
Garrett L. Thomas Chief Executive Officer, President, 56
Director
Stephen F. Watwood Vice President of Business 52
Development, Director, Chairman of
the Board of Directors
Bruce R. Bacon Vice President of Engineering, Chief 42
Technology Officer, Director
Shirley M. Harmon Secretary, Director 54
Ronald J. Corsentino Treasurer, Controller 32
Garrett L. Thomas, 56, Chief Executive Officer/President/Director.
Mr. Thomas is the immediate past CEO of QUAKE Global, Inc., an authorized
subscriber communicator manufacturer and value added reseller for ORBCOMM,
where he was responsible for winning the key contract with Volvo Truck and
setting up the Samsung manufacturing relationship. Since leaving Quake, Mr.
Thomas has been providing consulting and legal services to various wireless
telecommunication entities and high technology startups in Southern
California. Mr. Thomas has considerable experience in business development and
has worked with marketing and sales management in structuring marketing strategy
and distribution channels. In addition, he has led negotiating teams in
transactions with resellers, OEM's, end users and the US Government and in
setting up strategic relationships both in the United States and
internationally. Mr. Thomas has been a senior manager in four startup companies
including Sun Microsystems, Inc., a highly successful Silicon Valley workstation
manufacturer, where he was part of the senior management team that grew Sun's
federal subsidiary to a $1 billion in revenues in just over five years. Prior to
coming to work in the computer industry, Mr. Thomas spent close to
ten years working in the aerospace industry at Bendix, Pratt & Whitney Aircraft
and COMSAT where he specialized in government contracts. His academic
credentials include a Juris Doctor from Georgetown University and also a Masters
in Law from George Washington Law School.
Stephen F. Watwood, 52, Vice President of Business Development/Chairman of the
Board/Director. Mr. Watwood owned and operated a successful commercial and
residential construction company for 24 years where he was directly responsible
for project development, business planning, and management. During that period,
he owned a solar power technology company and was an early pioneer in designing
and installing photo-voltaic systems into remote locations. He is considered by
certain of his peers to be an expert in this technology and, to date, his early
efforts serve as the basis for the status-quo development of this technology in
Northwest Colorado. The duties of Mr. Watwood include development of new
business, project management for ongoing initiatives, and creating technical
solutions for Subscriber Communicator systems.
29
Bruce R. Bacon, 42, Chief Technology Officer (CTO)/Vice President of
Engineering/Director. Mr. Bacon holds a degree in Electrical Engineering from
Montana State University where he was also a graduate research assistant in the
field of semiconductor laser frequency stability and linewidth reduction. His
most recent experience is that of lead design engineer at RadiSys Corporation
where he was responsible for electrical system architecture design, writing
specifications, digital and analog circuit design, prototype debug, design
validation, and production release. He has broad experience in field service,
customer technical support, in-house technical training, new product
development, and manufacturing operations. Mr. Bacon's duties include oversight
of manufacturing, field engineer for development of Subscriber Communicator, and
senior project engineer for our initiative with satellite monitoring of rail,
container, and petroleum assets in industry.
Shirley M. Harmon, 54, Director. Ms. Harmon retired from the United States
Department of Navy in 1995. She was a civilian employee with 28 years in the
financial division. She has held various positions and titles during this
employment, which include the following: Budget Analyst, and Management and
Analyst for the Ship Parts Control Center, financial evaluating and executing
various budget programs. Additional responsibilities included establishing and
maintaining payroll records for over 7,000 government employees throughout the
United States and overseas. After leaving the Department of Navy, Ms. Harmon
took a position with a private trust. Her responsibilities included the
establishment and maintenance of the trust's financial records.
Ronald J. Corsentino, 32, Controller, and Treasurer. Mr. Corsentino has been
Controller since June of 2000 and Treasurer since July 2001. Prior to joining
us, from 1993 to 2000, Mr. Corsentino served as Federal Tax Services
Manager for KPMG Peat Marwick, LLP in Albuquerque, NM and Denver, CO where he
focused on the cable and telecommunications industry. Mr. Corsentino received
his BSBA in Accounting from the University of Southern Colorado and his Masters
of Taxation from the University of Denver.
30
--------------------------------------------------------------------------------
Item 10. Executive Compensation
--------------------------------------------------------------------------------
The following tables summarize the executive compensation earned or paid for
services rendered for the fiscal years ended July 31, 2001, 2000 and 1999:
Other Compensation Total
Fiscal Year Bonus (1),(2) (2)
Name and Principal Position Salary
Andrew F. Cauthen 2001 180,000 -- -- 180,000
Vice Chairman of the 2000 120,000 -- 14,500 134,500
Board of Directors 1999 15,000 -- -- 15,000
Director
(April 1999 to
Present)
Steve Watwood 2001 96,000 -- -- 96,000
VP Business Development 2000 96,000 -- -- 96,000
Chairman of the Board 1999 98,001 -- 186,500 284,501
Director
(May 1998 to Present)
Bruce Bacon 2001 96,000 -- -- 96,000
VP of Engineering 2000 96,000 -- -- 96,000
Chief Technology Officer1999 96,000 -- 106,500 202,500
Director
(September 1998
to Present)
Shirley Harmon 2001 -- -- -- --
Secretary 2000 -- -- -- --
Director 1999 -- -- 13,313 13,313
(May 1998 to Present)
James Statham 2001 16,000 -- -- 16,000
Chief Operation Officer 2000 96,000 -- -- 96,000
Director 1999 98,001 -- 226,250 324,251
(May 1998
to September 2000)
Ronald J. Corsentino 2001 78,000 -- -- 78,000
Controller, 2000 10,000 -- -- 10,000
Treasurer 1999 -- -- -- --
(June 2000 to Present)
All Executives as a Group 2001 466,000 -- -- 466,000
2000 322,000 -- 14,500 432,500
1999 307,002 -- 532,563 839,565
1. Includes the value of restricted common stock issued.
2. Does not include the value of long-term compensation in the form of options
issued to officers, included in the OPTIONS/SAR GRANTS table below.
31
Any increase in officer compensation would be predicated on prevailing industry
standards and our existing financial situation. The Board of Directors may
authorize an increase in the compensation of our executive officers without a
vote of Shareholders.
We did not make any bonus cash payments to our executive officers; however, we
may, in the future, develop programs which may include bonus payments.
We do not compensate our Directors for their participation. We do not provide
for agreements with any of our executive officers. However, we may, in the
future, need to compete for the services of our executive officers, at which
time, the Board of Directors may adopt and require our executive officers to
execute employment agreements.
OPTIONS/SAR GRANTS TABLE
The following options table reflects our long-term compensation in the form of
individual grants of stock options made during the last completed fiscal year to
each of the named executive officers. During the fiscal year ended July 31,
2001, we granted options to purchase 4,841,225 shares of common stock to
employees, officers and directors. The exercise price may be paid in cash,
check, shares of our common stock valued at fair market value on the exercise
date or a cashless exercise procedure involving a same-day sale of the purchased
shares. All option grants are immediately exercisable in full. No stock
appreciation rights were granted to the named executive officers during the
fiscal year ended July 31, 2001. As of July 31, 2001, none of these options have
been exercised.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
------------------ -------------- ------------- ----------- ---------- -------
Percent of
Number of Total Market
Options/SARs Price
Securities on
Underlying Granted to Exercise of Date
Options Employees in Base Price Expiration of
Officer Granted (#) Fiscal Year ($/Sh) Date Grant
------------------ --------------- ------------ ----------- ---------- -------
Andrew F. Cauthen 486,491 10.04% $0.10 4-03-2004 $.29
------------------ --------------- ------------ ----------- ---------- -------
Stephen F. Watwood 1,715,040 35.43% $0.10 4-03-2004 $.29
------------------ --------------- ------------ ----------- ---------- -------
Bruce R. Bacon 1,000,000 20.66% $0.19 4-24-2004 $.37
373,099 7.70% $0.10 4-03-2004 $.29
------------------ --------------- ------------ ----------- ---------- -------
Shirley Harmon 21,372 .44% $0.10 4-03-2004 $.29
------------------ --------------- ------------ ----------- ---------- -------
Ronald J. Corsentino 100,000 2.06% $0.19 6-01-2004 $.36
40,000 .83% $0.25 2-01-2003 $.37
25,000 .51% $0.50 3-01-2003 $.50
25,000 .51% $0.40 5-01-2003 $.40
------------------ --------------- ------------ ----------- ---------- -------
32
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUE
The following table provides information, with respect to the officers named in
the Summary Compensation Table, concerning the exercise of options during the
fiscal year ended July 31, 1001 and unexercised options held by them as of the
end of that fiscal year.
------------------ ----------- ----------------------- -------------------------
Number of Unexercised Value of Unexercised
Shares Options/SARs at in-the-Money Options/SARS
acquired on FY-End(#) at FY-End (#)(1)
Officer exercise (#) Exercisable Unexercisable Exercisable Unexercisable
----------------- ---------- ----------- ------------- ----------- -------------
Andrew F. Cauthen -- 1,686,491 -- $347,353 --
----------------- ---------- ----------- ------------- ----------- -------------
Stephen F. Watwood -- 2,376,692 -- $607,207 --
----------------- ---------- ----------- ------------- ----------- -------------
Bruce R. Bacon -- 1,373,099 -- $280,737 --
----------------- ---------- ----------- ------------- ----------- -------------
Shirley Harmon -- 71,372 -- $ 14,770 --
----------------- ---------- ----------- ------------- ----------- -------------
Ronald J.
Corsentino -- 190,000 -- $ 22,800 --
----------------- ---------- ----------- ------------- ----------- -------------
(1) Based upon the market price of $.037 per share, determined on the basis of
the closing sale price per share of common stock on the OTC Bulletin Board on
the last day of the fiscal year ended July 31, 2001, less the option exercise
price payable per share.
EMPLOYMENT AGREEMENTS
On October 1, 2000, the Board of Directors adopted a policy whereby all our
officers and directors will only be paid 80% of their current salary in cash.
The remainder of their salary will be accrued. All officers and directors
settled their outstanding accrued compensation on April 30, 2001 by receiving
options to purchase our common stock at an exercise price of $.10 when the
market value of the stock was $.29. Amounts that have accrued since April 30,
2001 remain outstanding and will be settled upon approval by the Board of
Directors.
33
Stephen Watwood entered into a letter agreement with us, effective as of July
31, 1997, to serve as Chairman of the Board and Vice President of Business
Development. In 2001, Mr. Watwood received a base salary of $96,000. Pursuant to
Board Policy, in 2001 Mr. Watwood received $76,800 as cash compensation. Mr.
Watwood was granted the option to purchase 1,715,040 shares of common stock at
an exercise price of $.10 per share in settlement of accrued compensation and
notes payable as of April 30, 2001. These stock options are fully vested upon
grant.
Bruce Bacon entered into a letter agreement with us, effective as of September
1, 1998, to serve as Chief Technology Officer and Vice President of Engineering.
In 2001, Mr. Bacon received a base salary of $96,000. Pursuant to Board Policy,
in 2001 Mr. Bacon received $76,800 as cash compensation. In 2001, Mr. Bacon was
granted an option to purchase 1,000,000 shares of common stock at an exercise
price of $.19 per share. Mr. Bacon was also granted the option to purchase
373,099 shares of common stock at an exercise price of $.10 per share in
settlement of accrued compensation and notes payable as of April 30, 2001. These
stock options are fully vested upon grant.
Andrew Cauthen entered into a letter agreement with us, effective as of April
13, 1999, to serve as President and Chief Executive Officer. His two-year
Employment Contract was approved by the Board of Directors on August 15, 1999.
The contract provided for annual compensation of $120,000 for the first year and
$180,000 for the second year. On August 5, 1999, we issued 100,000 shares of
common stock for services provided but not covered under this contract. Pursuant
to Board policy, in 2001 Mr. Cauthen received $76,800 as cash compensation. In
2000, Mr. Cauthen was granted an option to purchase 1,200,000 shares of common
stock at an exercise price of $.19 per share. Mr. Cauthen was also granted the
option to purchase 486,491 shares of common stock at an exercise price of $.10
per share in settlement of accrued compensation and notes payable as of April
30, 2001. All of these stock options are fully vested upon grant. Mr. Cauthen
resigned as President and CEO effective September 30, 2001. He will remain on
the Board of Directors and serve as Vice Chairman.
Ronald J. Corsentino entered into a letter agreement with us, effective as of
June 6, 2000, to serve as the Controller. In July of 2001, Mr. Corsentino was
appointed Principal Accounting Officer and Treasurer. In 2001, Mr. Corsentino
received a base salary of $75,000. In 2001, Mr. Corsentino was granted an option
to purchase 100,000 shares of common stock at an exercise price of $.19 per
share, 40,000 options to purchase common stock at $.25, 25,000 options to
purchase common stock at $.50 and 25,000 options to purchase common stock at
$.40. These stock options are fully vested upon grant.
--------------------------------------------------------------------------------
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known with respect to
the beneficial ownership of our common stock as of October 31, 2001 by (i) all
persons who are beneficial owners of five percent (5%) or more of our common
stock, (ii) each director and nominee for directors, (iii) the named executive
officers and (iv) all current directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o Corporate Security, AMCI,
1010 10th Street, Golden, CO 80401. Percentage of ownership is based on
25,523,328 shares of common stock issued and outstanding on October 31, 2001.
Shares of common stock subject to stock options which are currently exercisable
or will become exercisable within 60 days after October 31, 2001 are deemed
outstanding for computing the percentage of the person or group holding such
options, but are not deemed outstanding for computing the percentage of any
other person or group.
34
Amount of Shares
of Common Stock, Percent Ownership of
par value .001, Class
Name and Address of Owned Beneficially
Beneficial Owner
Named executive officers and directors:
Garrett L. Thomas 1,000,000 (1) 3.12% (1)
Andrew F. Cauthen 1,761,876 (2) 5.50% (2)
Stephen F. Watwood 2,979,942 (3) 9.29% (3)
Bruce R. Bacon 1,483,099 (4) 4.49% (4)
Shirley M. Harmon 151,872 (5) *
Ronald J. Corsentino 190,000 (6) *
Other 5% Stockholders:
Harto Ltd.** 2,157,495 8.45%
Roy Peacock, Director
Victoria House
P.O. Box 1090
The Valley, Anguilla
BWI
Global Investments Ltd., Trustee** 2,500,000 9.80%
Anthony Hulme, Director
Victoria House
P.O. Box 1066
The Valley, Anguilla
BWI
Mali-Suisse Mining Holdings, S.A.** 1,626,000 6.37%
Stephen Hafer, Director
28 Old Brompton Road
Suite 1119
London, England SW7 3DL
Options Unlimited, Inc.** 4,613,154(8) 18.07% (8)
Yolanda Bannister
Alpha & Omega Law Center
Trident House, Broad Street
Bridgestone, Barbados
Rodney R. Shoemann, Sr. 5,657,374 (9) 22.17% (9)
3904 Wheat Drive
Metairie, LA 70002
All Officers and Directors
of AMCI as a Group (7 persons) 7,521,789 (7) 23.47% (7)
*Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
**These entities are not beneficially owned or controlled in any manner by
us or any of our officers, directors or affiliates.
1. Includes an option for the purchase of 1,000,000 shares at a purchase price
of $0.19 per share. Mr. Thomas is the President, CEO and a director.
2. Includes an option for the purchase of 1,200,000 shares at a purchase
price of $0.19 per share and 486,491 shares at a purchase price of $0.10 per
share. Mr. Cauthen is the Vice Chairman of the Board of Directors.
35
3. Includes an option to Mr. Watwood's wife Phyllis Watwood for the
purchase of 383,333 shares at a purchase price of $0.19 per share and 278,319
shares at a purchase price of $0.10 per share and an option to Mr. Watwood to
purchase 1,715,040 shares at a purchase price of $.10 per share. Mr. Watwood is
the acting Vice President of Business Development and the Chairman of the Board
of Directors.
4. Includes an option for the purchase of 1,000,000 shares at a purchase
price of $0.19 per share and 373,099 shares at a purchase price of $0.10 per
share. Mr. Bacon is the acting Vice President of Engineering, Chief Technology
Officer and a director.
5. Includes an option for the purchase of 50,000 shares at a purchase price
of $.019 per share and 21,372 shares at a purchase price of $0.10 per share. Ms.
Harmon is the corporate secretary and a director.
6. Includes an option for the purchase of 40,000 shares at a purchase price
of $0.19 per share, 25,000 shares at a purchase price of $0.59 per share, 25,000
shares at a purchase price of $0.40 per share and 100,000 shares at a purchase
price of $0.19 per share. Mr. Corsentino is the Controller and Treasurer.
7. Includes options held by such officers and directors for the purchase of
an aggregate of 3,921,875 shares at a purchase price of $0.19 per share,
2,874,321 shares at a purchase price of $.010 per share, 25,000 shares at a
purchase price of $.40 per share, 25,000 shares at a purchase price of $.59 per
share and 40,000 shares at a purchase price of $.25 per share.
8. Includes warrants for the purchase of 502,500 additional shares at $1.00
per share, 352,941 additional shares at $0.85 per share, 1,363,636 shares
issuable upon conversion of a $300,000 convertible note at a conversion rate of
1 share per $0.22, an additional 1,363,636 shares issuable upon exercise of
warrants at $0.27 per share; and an additional 175,000 shares issuable upon
exercise of an option at an exercise price of $0.25 per share.
9. Includes: 1,377,551 shares issuable upon conversion of a $675,000
convertible note at a conversion rate of 1 share per $0.49; an additional
1,377,551 shares issuable upon exercise of warrants at an exercise price of
$0.63 per share; 1,363,636 shares issuable upon conversion of a $300,000
convertible note at a conversion rate of 1 share per $0.22; an additional
1,363,636 shares issuable upon exercise of warrants at $0.27 per share; and an
additional 175,000 shares issuable upon exercise of an option at an exercise
price of $0.25 per share.
36
--------------------------------------------------------------------------------
Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------------------------------
On September 22, 2000, a stockholder advanced $20,000 to us in the form of a
30-day unsecured promissory note bearing interest at the rate of eight percent
per annum. As of July 31, 2001, this note is still outstanding.
On October 6, 2000, a stockholder advanced $75,000 to us in the form of a 30-day
unsecured promissory note bearing interest at the rate of eight percent per
annum. As of July 31, 2001, this note is still outstanding.
On December 28, 2000, a stockholder advanced $125,000 to us in the form of a
45-day unsecured promissory note bearing interest at the rate of eight percent
per annum. We received net proceeds of $118,750 from the issuance of
this note. As of July 31, 2001 this note is still outstanding.
Notes payable to officers at July 31, 2001 and 2000, were $53,385 and $210,992,
respectively. These notes are unsecured, due at various dates through July 31,
2002, and provide for annual interest at 6%. For the year ended July 31, 2001,
our officers advanced funds to the Company totaling $139,500.
On November 10, 2000 a note payable to one of our officers in the amount
of $175,000 was paid in full, including accrued interest.
Notes payable to parties related by virtue of common control at July 31, 2001
and July 31, 2000 were $189,576 and $62,285, respectively. These notes are
unsecured, due at various dates through July 31, 2002, and provide for annual
interest at 6%.
On April 3, 2001 the Board of Directors authorized the issuance of options to
purchase 3,406,225 shares of our common stock at an exercise price of $.10 per
share. These options were issued to nine officers, directors and related parties
in order to settle liabilities due them in the amount of $647,183. The nature of
the liabilities settled with these options were as follows:
Accrued consulting $298,498
Advances from officers 14,080
Notes payable 245,396
Accrued salaries 89,209
--------
$647,183
========
On April 24, 2001, the Company's Vice President of Technology and Chief
Technology Officer, was granted an option to purchase 1,000,000 shares of our
common stock at an exercise price of $.19 per hare. The option is fully vested
and shall be exercisable for three years. Compensation expense of $180,000 was
recognized, which was determined by the difference between the option exercise
price of $.19 and the market value of our stock on April 24, 2001 of $.37. These
options remain unexercised as of July 31, 2001.
On April 24, 2001, the Board of Directors authorized the issuance of options to
purchase 285,000 shares of our common stock at an exercise price of $.25/share.
These options were granted to certain individuals whom we employed on February
1, 2001. The options are fully vested as of February 1, 2001 and are exercisable
for two years. Compensation expense of $34,700 was recognized, which was
determined by the difference between the option exercise price of $.25 and the
market value of our stock on April 24, 2001 of $.37. These options remain
unexercised as of July 31, 2001.
On May 29, 2001, our Controller and Principal Accounting Officer, was granted an
option to purchase 100,000 shares of our common stock at an exercise price of
$.19 per share. The option is fully vested and shall be exercisable for three
years. Compensation expense of $17,000 was recognized, which was determined by
the difference between the option exercise price of $.19 and the market value of
our stock on May 29, 2001 of $.36. These options remain unexercised as of July
31, 2001.
37
--------------------------------------------------------------------------------
Item 13. Exhibits and Reports On Form 8-K
--------------------------------------------------------------------------------
(A) Exhibits
The following exhibits are filed with this report:
(3.1) Articles of Incorporation and Bylaws, as amended to date of this report
(incorporated by reference Form 8-K filed June 11, 1998, File No. 000-10841-D)
(3.2) Agreement and Plan of Merger dated May 27, 1998 (incorporated by reference
Form 8-K filed June 11, 1998, File No. 000-10841-D)
(B) No reports were filed on Form 8-K for the quarter ended July 31, 2001.
--------------------------------------------------------------
38
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN MILLENNIUM CORPORATION, INC.
Dated: November 12, 2001 By: /s/ Garrett L. Thomas
Garrett L. Thomas, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of this Registrant and
in the capacities and on the dates indicated.
Dated: November 12, 2001 By: /s/ Garrett L. Thomas
Garrett L. Thomas, Director,
Chief Executive Officer,
President,(Principal Executive
Officer)
Dated: November 12, 2001 By: /s/ Andrew F. Cauthen
Andrew F. Cauthen, Director,
Vice Chairman
Dated: November 12, 2001 By: /s/ Bruce R. Bacon
Bruce R. Bacon, Director,
Vice President of Engineering,
Chief Technology Officer
Dated: November 12, 2001 By: /s/ Shirley M. Harmon
Shirley M. Harmon, Director
Corporate Secretary
Dated: November 12, 2001 By: /s/ Stephen F. Watwood
Stephen F. Watwood, Director,
Chairman of the Board, Vice
President of Business Development
Dated: November 12, 2001 By: /s/ Ronald J. Corsentino
Ronald J. Corsentino, Controller
Treasurer,(Principal Accounting
Officer)