NATURAL BLUE RESOURCES, INC. - 10KSB/A - 20040420 - PART_I
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
We are a development stage technology company focused on developing new
technologies, software applications and products primarily for the data and
telecommunications industries. We recently completed the initial release of
our Network Assurance Product. However, we have earned no revenues since
we commenced our current business.
DataMEG Corp. is a New York corporation and was incorporated in October, 1982 as
The Viola Group, Inc. In August 2000 the Company exchanged 90% of our common
stock for 100% of the stock of DataMEG Corp., a Virginia corporation that was
incorporated in January 1999. We subsequently changed our name to DataMEG Corp.
We have two subsidiaries: CASCommunications, Inc., a Florida corporation, of
which the Company owns 40%, and North Electric Company, Inc., a North Carolina
corporation, which we wholly own. We, along with our subsidiaries are a
development stage enterprise.
CASCommunications focuses on developing devices related to high-speed broadband
access. CASCommunications' initial focus is in developing a device that will
accelerate the speed of information over the part of the cable fiber between the
neighborhood network hub to the home of each end user, this part is often called
the last mile. CASCommunications' device is based on a communication technology
called MPTC - Multi Phase Poly Tone Communication. MPTC delivers new advantages
to the cable operator compared to existing last mile high-speed communication
technologies.
North Electric focuses on becoming a provider of network assurance products and
services. North Electric
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network assurance products are designed to enable communications network
operators and service providers to quickly and automatically determine if their
network is meeting its quality and service expectations, while lowering network
operating costs. North Electric is developing software that will provide
products that cover the existing traditional telephone networks, networks that
use the same communication technology as the Internet, and converged networks
comprised of both of these network types. Communications networks that deploy
advanced technologies will receive additional fault isolation and related
benefits.
We operate under the name of DataMEG Corp. and trades under the symbol DTMG on
the Over-the-Counter Bulletin Board.
As of April 9, 2004, we had a total of four full-time employees and 13 full-time
and 9 part-time independent contractors or consultants. Of these, one full-time
employee, eleven full-time contractors and two part-time contractors focus on
product engineering and development, one full-time contractor and one part-time
contractor focus on sales and marketing and two full-time employees serve in
administrative and senior management capacities at our subsidiary North Electric
Company, Inc. We also have one part-time contractor who focuses on product
engineering and development at Cascommunications, Inc. The balance are comprised
of one full-time employee, our president and sole director, one full-time
management consultant and five part-time consultants who serve in administrative
and senior management capacities for our company as a whole.
We intend to engage in the business of providing products and services that will
ensure the integrity and full functionality of communications networks. These
types of products and services are typically referred to as network assurance
products. We are designing our network assurance products to enable a
communications network operator, such as Verizon Communications, Inc., AT&T
Corp., Qwest Communications International Inc. or Sprint Corp., to quickly and
automatically determine if its network is meeting the quality and service
expectations of its customers, while lowering network operating costs.
We expect that our network assurance products and products in development will
perform this function for the existing traditional telephone networks, networks
that use the same communication technology as the internet and converged
networks that use both of these network types. We believe that our products will
provide communications networks that deploy advanced technologies with an
enhanced ability to detect and locate failures in their networks. The initial
market for our products will be in the traditional wire line telephone industry;
however, we may design these same products in the future to address the cable
television and the wireless telephone industries.
Products in Development
Our products and products in development combine software we have developed with
third party hardware. Our two most significant products in development are the
Network Assurance System and the MPLS Monitor and Test.
Network Assurance System
Since the end of 2002, our primary development focus has been on the Network
Assurance System. We are designing this product to ensure the integrity and full
functionality of communications networks and to quickly and automatically
determine if the networks are meeting the quality and service expectations of
customers. We believe that this product will enable communications network
operators and service providers to quickly, efficiently and automatically
determine if their networks are meeting their quality and service expectations
through active testing and monitoring, automatic detection and location of
errors and confirmation that any corrective actions have been successful. We are
ready to begin accepting customer orders that can be delivered 30 days after the
order is received.
MPLS Monitor and Test
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We are also developing another network assurance product, the MPLS Monitor and
Test, which we expect will provide automatic detection and monitoring of all of
a network's equipment and the identification and location of system or equipment
failures for new communication technologies. We produced a pre-prototype version
of MPLS Monitor and Test in 2002. During the fourth quarter of 2002, economic,
technology deployment and potential customer buying trends caused us to halt
further development of MPLS Monitor and Test, but we expect that once technology
deployment and potential customer buying trends change, and assuming that we
raise appropriate funding, we will resume development of this product.
Description of Primary Industry
Public and private telephone networks are evolving from traditional telephone
networks to an internet-based network infrastructure that makes more efficient
use of network resources. Various new technologies are enhancing internet-based
networks to provide new carrier class services while lowering capital and
operating costs. These rapidly changing technological developments, coupled with
increased bandwidth availability, have enabled the launch of a new generation of
network services, such as internet-based telephony that permits the transfer of
voice data over the internet and secure private networks for the exchange of
sensitive data. As this transition takes place, service providers and large
corporate enterprises are focusing on delivery and receipt of specific high
levels of performance.
The next generation of networks, such as internet-based telephony, are
introducing new capabilities and opportunities for the sale of new products and
services. However, for network operators and service providers, the
implementation of new network technologies introduces a new set of operational
challenges. Many of these challenges arise from the integration of innovative
communications systems technologies with existing operational infrastructure.
Service providers and enterprise network operators must verify that the new
technologies have been installed and are working properly within the framework
of their existing network. This verification process and actions to correct
detected errors can be very labor intensive and may negatively affect customers
by lowering the level of quality below the service level guaranteed to
customers. This market segment is the focus and target of our current and future
technologies, which will assist our customers in satisfying their obligations to
customers with respect to agreed-upon levels of service quality.
Integrated and automated network monitoring, testing and automatic detection and
location of errors are essential to reliable communications on which enterprise
customers depend for mission-critical business communications. Our research and
development is dedicated towards products and services which will solve the
challenging aspects of deploying new technologies into the advanced networks and
network services of the future, and monitoring and testing those technologies.
Competition
We face a broad range of competitive threats. Competition in the current
communications industry is very robust, with many companies from many different
backgrounds wrestling for their piece of the business.
Investors can best understand our competitive environment by considering several
axes that characterize the operational support system and service assurance
market:
- ENTERPRISE VS. CARRIER - Different companies dominate the market for
services to enterprise or large business customers and the market for services
to the public network operators or carriers. We target the carrier market
segment, but focus on new technologies and service types which are typically
first implemented and proven in the enterprise arena. Therefore, we anticipate
that competitive threats will come both from carrier service assurance companies
seeking to expand their established business and from enterprise service
assurance companies seeking to take their expertise from the enterprise into the
carrier domain.
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- DATACOM VS. TELECOM - Different companies dominate the telecom, or
telephone networking sector of the communications networking business, and the
datacom, or data/computer networking sector. Our target market is at the
convergence of telecom and datacom in the networking world. Therefore, we expect
firms specializing in the data/computer networking sector will seek to expand
their market by adding telephone communications functionality to their products
in the carrier network infrastructure areas. Similarly, we expect telecom
infrastructure service assurance companies will try to expand into the data
communications areas.
- TEST EQUIPMENT VS. NETWORK MANAGEMENT SYSTEMS - The market for
operational support systems is generally divided between the test equipment
vendors, who make specialized equipment designed to test particular functions in
a piece of networking equipment, and the network management system vendors, who
make systems that provide integrative overviews of the network status. We are
developing a system that will enable automation of test equipment deployed
around a network. With this system in place, a network operator in a single
location will have the ability to assess the network's quality of service and to
identify and locate errors. This puts us in the path of potential expansion from
both the established test equipment vendors seeking to expand their product line
into systems-level products, and the network management system vendors seeking
to broaden their integrated control of the network to include the network test
functions previously provided by test equipment vendors.
Our current strategy for competing in this complex environment is to:
- remain focused on the network assurance market;
- begin on-site product testing at strategic telecommunication service
providers; and
- establish alliances with selected manufacturers and service
providers and implement international distribution agreements to help us gain
rapid market acceptance on an international scale.
Intellectual Property
We do not presently own any patents or patent filings. Our intellectual property
is in our software products, which are principally protected by copyright and
trade secret law.
Research and Development
For the seven months from inception in September, 2001 until the merger of North
Electric Company with us in April 2002, North Electric Company's research and
development expenses were approximately $632,000. North Electric Company is now
a subsidiary through which we conduct most of our business. For the eight months
from April 2002 to December 31, 2002, our research and development expenses were
approximately $1,192,000. For the year ended December 31, 2003, our research and
development expenses were approximately $1,026,000.
Business Overview of Cascommunications
We conduct a segment of our business through Cascommunications, Inc., a Florida
corporation in which we hold a 40% equity interest. Cascommunications develops
devices related to high-speed broadband access. At present, Cascommunications
primarily focuses on the development of a product that will accelerate the speed
of information over the part of the cable fiber that connects the neighborhood
network hub to the home of each end user, a part of the network that is often
called the "last mile." Cascommunications' product in development is based on a
communications technology called MPTC, which delivers new advantages to the
cable operator in comparison with existing last mile high-speed communication
technologies.
We anticipate that the implementation of Cascommunications technology, if
successful, will provide a cost
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effective product for significantly expanding data transfer capacity in cable
networks.
If appropriate funding becomes available, we expect Cascommunications to make
its device available for customer evaluation approximately 4 months after we
receive appropriate funding. We anticipate completing the development stage and
offering the product for sale after an additional period of approximately 12
months.
The global marketplace for Cascommunications' technology is mature and dominated
by some of the largest telecommunications equipment providers in the world.
Global technical standards for cable infrastructure products are established and
well defined, though adherence is geographically spotty. Improvement of and
change to technical standards of cable systems is very slow and deliberate.
Competition for equipment development and sales is dominated by a few, very
large global telecommunications providers. However, most equipment is produced
through outsourced manufacturing contracts overseas. Some small competitors
continue to innovate in the marketplace with limited success. Cascommunications'
penetration of the market in the face of this entrenched, resourceful,
well-funded competition is problematic and Cascommunications' business strategy
may not be successful.
For the years ended December 31, 2002 and 2003, research and development
expenses related to the development of Cascommunications' technology were
approximately $40,000 and $143,000, respectively.
In June 2003, we executed a term sheet under which we would acquire the
remaining 60% of the outstanding shares of Cascommunications common stock that
we do not already own. Although this term sheet has expired, we are still
examining the possibility of acquiring the remaining equity interests in
Cascommunications. However, at this time our primary business focus is bringing
to market our network assurance products in development through our subsidiary
North Electric Company.
ITEM 2. DESCRIPTION OF PROPERTY
Our wholly owned subsidiary, North Electric Company, sub-leases approximately
2,600 square feet of space at One Springfield Center, 6131 Falls of the Neuse,
Raleigh, North Carolina 27609. The term of the sublease is for 20 months
beginning April 1, 2003 and expiring November 30, 2004. The monthly rent is
$2,383.33. The property is being used to develop North Electric Company's
products. Our management believes that our insurance coverage is adequate.
ITEM 3. LEGAL PROCEEDINGS
On October 29, 2001, we signed a Confessed Judgment Promissory Note with the law
firm of Hunton & Williams, due December 31, 2001, acknowledging monies owed
Hunton & Williams amounting to $568,382. On January 7, 2002, we received a
Notice of Default relating to the Promissory Note. On February 4, 2002, a
judgment was entered against us in the amount of $568,382, plus legal fees and
accrued interest. As of December 31, 2003 we have recorded a $806,000 liability
that includes accrued interest as of that date. We are currently negotiating the
terms upon which we will pay to Hunton & Williams the full amount of the
judgment.
During 2002, we entered into several stock purchase agreements with Hickey Hill
Partners LLC and Miami Associates Investors, LLC to purchase shares of our
common stock. We discounted the purchase price based upon market conditions at
the time of issuance of the stock and the immediately following several days. We
are holding advances in the amount of $35,000 for which stock was not issued. In
January 2003, Hickey Hill Partners LLC filed a lawsuit against us and our
president in the Circuit Court of the 15th Judicial Circuit in and for Palm
Beach County, Florida. On April 3, 2003, the court issued a default judgment
against us and our president in the amount of $64,352 that will bear interest at
the rate of 6% a year. In March 2003, Miami Associates Investors, LLC also filed
a lawsuit against us and our president in
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the Circuit Court of the 17th Judicial Circuit in and for Broward County,
Florida for damages in the amount of $54,850 in addition to treble damages,
attorneys fees and interest. On April 24, 2003, the court determined that we and
our president defaulted. On December 3, 2003, the court ordered a final judgment
against us and our president in the amount of $117,807 that will bear interest
at the rate of 6%. As of December 31, 2003, we recorded an aggregate liability
of $187,295 for these judgments. This liability is recorded in accounts payable
and accrued expenses on our balance sheet as of that date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the last quarter of
our fiscal year.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has been listed on the Over-the-Counter Bulletin Board
sponsored by the National Association of Securities Dealers, Inc. under the
symbol DTMG.OB since September 19, 2000.
The following table sets forth the range of high and low bid prices for the our
common stock as reported on the Over-the-Counter Bulletin Board for each quarter
since January 2002 for the periods indicated, as reported by the
Over-the-Counter Bulletin Board for the each period mentioned below. Such
information reflects inter-dealer prices without retail mark-up, mark down or
commissions and may not represent actual transactions.
Low High
--------------------------------------
January 1, 2002 through March 31, 2002 $ 0.05 $ 0.12
April 1, 2002 through June 20, 2002 $ 0.01 $ 0.06
July 1, 2002 through September 30, 2002 $ 0.02 $ 0.05
October 1, 2002 through December 31, 2002 $ 0.02 $ 0.05
January 1, 2003 through March 31, 2003 $ 0.01 $ 0.27
April 1, 2003 through June 30, 2003 $ 0.13 $ 0.34
July 1, 2003 through September 30, 2003 $ 0.12 $ 0.25
October 1, 2003 through December 31, 2003 $ 0.14 $ 0.23
Dividend Policy
It is our present policy not to pay cash dividends and to retain future earnings
for use in the operations of the business and to fund future growth. Any payment
of cash dividends in the future will depend on the amount of funds legally
available, our earnings, financial condition, capital requirements and other
factors that the board of directors may think are relevant.
We do not contemplate or anticipate paying any dividends in cash on the common
stock in the foreseeable future.
We issued a 10% stock dividend on June 6, 2003 to shareholders of record on
January 8, 2003.
Holders of Record of Common Stock
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As of March 31, 2004, we had outstanding 224,494,898 shares of our common stock
and approximately 350 holders of record.
Equity Compensation Plan Information
In July 2000, we adopted a stock incentive plan for employees. The maximum
number of shares that may be awarded under the plan is 3,000,000. Any person
deemed eligible by the stock incentive committee of the board of directors may
receive shares or options under the plan; option awards may be in the form of an
incentive option or a nonqualified stock option. Stock options issued under the
plan vest over several years, unless accelerated by the stock incentive
committee. Pursuant to the plan, as of March 31, 2004, we granted options to
employees and consultants to purchase up to 3,000,000 shares of our common
stock, all of which were exercised. The stock incentive plan is now expired.
In addition, we granted options and warrants to employees and consultants to
purchase up to 50,395,891 shares of our common stock at prices ranging from
$0.012 to $5 per share from inception (January 13, 1999) through March 31, 2004.
As of March 31, 2004, options and warrants which would permit the purchase of
10,170,238 shares were exercised and options and warrants for which would permit
the purchase of 495,949 shares expired. The remaining options and warrants to
purchase up to 40,729,204 shares expire between August 2005 and October 2008.
The following table shows the aggregate amount of securities authorized for
issuance under all equity compensation plans as of December 31, 2003:
Number of securities
remaining available
Number of Securities to Weighted-average for future issuance under
be exercise equity compensation
issued upon exercise of price of outstanding plans (excluding
outstanding options, options, securities reflected in
Plan Category warrants and rights warrants and rights column (a))
---------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders -- -- --
Equity compensation plans
not approved by security
holders 25,847,352 $ 0.14 --
Securities that were not registered under the Securities Act but were issued
under equity compensation plans:
Exercise
Price
per Share
Date of Number of Type of Cash Non-Cash (if
Issuance Purchaser Securities Securities Consideration Consideration applicable)
--------------------------------------------------------------------------------------------------------------
1/6/2003 A Benson 4,000,000 Common Stock $ 160,000 In Lieu of Compensation $ 0.04
6/11/2003 Frank Noser 300,000 Common Stock $ 51,000 In Lieu of Compensation $ 0.17
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6/20/2003 Yes Intl 2,500,000 Common Stock $ 265,000 In Lieu of Compensation $ 0.11
7/16/2003 Rich Adams 400,000 Common Stock $ 48,000 In Lieu of Compensation $ 0.12
7/16/2003 Carla Erickson 300,000 Common Stock $ 60,000 In Lieu of Compensation $ 0.20
7/16/2003 Carla Erickson 325,000 Common Stock $ 16,250 Exercise of stock ops in
lieu of compensation $ 0.05
7/16/2003 Raj -/Solnet
Krishnan (1) 450,000 Common Stock $ 22,500 In Lieu of Compensation $ 0.05
7/16/2003 Carl Mottayaw 400,000 Common Stock $ 48,000 In Lieu of Compensation $ 0.12
---------- -------------
Total 8,765,000 $ 670,750
========== =============
(1) Resident of India
During the year ended December 31, 2003, we issued 8,675,000 shares of our
common stock in exempt transactions. In consideration, we have received $670,750
in services. These issuances were made in reliance upon the exemptions from
registration set forth in Section 4(2) of the Securities Act and the transaction
did not involve a distribution or public offering.
Recent Sales of Unregistered Securities:
Exercise
Price
per Share
Date of Number of Type of Cash Non-Cash (if
Issuance Purchaser Securities Securities Consideration Consideration applicable)
---------------------------------------------------------------------------------------------------------------
1/6/2003 A Benson 4,000,000 Common Stock In Lieu of Compensation
1/7/2003 La Jolla Cove 5,000,000 Common Stock $ 50,000.00 $ 0.01
1/14/2003 La Jolla Cove 5,000,000 Common Stock $ 50,000.00 $ 0.01
3/12/2003 A Benson 1,272,727 Common Stock To replace forfeited stock
3/12/2003 J Liner 423,077 Common Stock $ 5,500.00 $ 0.0130
5/7/2003 QAT Stock - Conversion of Preferred
David Baker 750,000 Common Stock Stock
5/20/2003 George Rumfh 28,837 Common Stock Conversion of Debenture
5/30/2003 PTR 500,000 Common Stock In Lieu of Compensation
6/5/2003 La Jolla Cove
Investors 5,000,000 Common Stock $ 25,000.00 Exercise of warrants
6/6/2003 10% Stock
Dividend 3,906,474 Common Stock Stock Dividend
6/6/2003 Stock
Dividend -
Hester 60,000 Common Stock Stock Dividend
6/6/2003 Stock
Dividend -
Ference 160,000 Common Stock
6/6/2003 Stock
Dividend -
Noser 30,000 Common Stock Stock Dividend
6/6/2003 Stock
Dividend -
Erickson 30,000 Common Stock Stock Dividend
6/6/2003 Stock
Dividend -
Adams 40,000 Common Stock Stock Dividend
6/6/2003 Stock
Dividend -
Mottayaw 40,000 Common Stock Stock Dividend
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6/11/2003 William
Brantley 2,083,333 Common Stock $ 197,916.64 $ 0.10
6/11/2003 William
Brantley 1,266,667 Common Stock $ 38,000.00 Exercise of stock ops $ 0.03
6/11/2003 Tony Dickman 105,000 Common Stock $ 5,250.00 Exercise of stock ops $ 0.05
6/11/2003 Steve Gibson 30,000 Common Stock $ 1,500.00 Exercise of stock ops $ 0.05
6/11/2003 George Gordon 500,000 Common Stock $ 25,000.00 Exercise of stock ops $ 0.05
6/11/2003 Curt McVey 80,000 Common Stock $ 4,000.00 Exercise of stock ops $ 0.05
6/11/2003 Frank Noser 105,000 Common Stock $ 5,250.00 Exercise of stock ops $ 0.05
6/11/2003 Robert Oberosler 4,000 Common Stock $ 200.00 Exercise of stock ops $ 0.05
6/11/2003 Sally Rugerro 180,000 Common Stock $ 9,000.00 Exercise of stock ops $ 0.05
6/11/2003 Pete Tate 150,000 Common Stock $ 7,500.00 Exercise of stock ops $ 0.05
6/11/2003 George Gordon 800,000 Common Stock $ 8,000.00 $ 0.01
6/11/2003 William
Brantley 548,246 Common Stock $ 52,083.37 $ 0.10
6/11/2003 Frank Noser 300,000 Common Stock In Lieu of Compensation
6/20/2003 Yes Intl 2,500,000 Common Stock In Lieu of Compensation
7/9/2003 QAT 1,500,000 Common Stock Conversion of Pref B
7/9/2003 QAT 1,400,000 Common Stock $ 70,000.00 Option $ 0.05
7/16/2003 Rich Adams 400,000 Common Stock In Lieu of Compensation
7/16/2003 Rich Adams 105,000 Common Stock $ 5,250.00 Exercise of stock ops $ 0.05
7/16/2003 Carla Erickson 300,000 Common Stock In Lieu of Compensation $ 0.00
7/16/2003 Carla Erickson 325,000 Common Stock $ 16,250.00 Exercise of stock ops $ 0.05
7/16/2003 Raj -/Solnet
Krishnan (1) 450,000 Common Stock In Lieu of Compensation $ 0.05
7/16/2003 Carl Mottayaw 400,000 Common Stock In Lieu of Compensation $ 0.00
7/16/2003 Carl Mottayaw 105,000 Common Stock $ 5,250.00 Exercise of stock ops $ 0.05
7/16/2003 Joseph
Tanzini 200,000 Common Stock $ 10,000.00 Exercise of stock ops $ 0.05
7/23/2003 LeRoy Bren 750,000 Common Stock $ 85,500.00 $ 0.11
7/23/2003 Lawrence
Ryback 1,000,000 Common Stock $ 88,000.00 $ 0.09
7/23/2003 William
Brantley 2,832,880 Common Stock $ 170,000.00 $ 0.06
12/16/2003 Mei Chung
Tang Lee (2) 8,823,528 Common Stock $ 1,000,000.00 $ 0.11
12/16/2003 Michael
Zimmer 100,000 Common Stock $ 17,000.00 $ 0.17
12/16/2003 Donald
Balling 90,000 Common Stock $ 15,300.00 $ 0.17
12/17/2003 AMT
Management 2,000,000 Common Stock Cost of Capital
12/17/2003 Michael
Mitsunaga 1,000,000 Common Stock Cost of Capital
----------
(1) Resident of India
(2) Resident of Taiwan
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During the year ended December 31, 2003, we issued approximately 51,676,000
shares of our common stock in exempt transactions. In consideration, we have
received approximately $2,117,000 in cash or cash equivalents and services with
a fair value of $670,750. These issuances were made in reliance upon the
exemptions from registration set forth in Section 4(2) of the Securities Act and
the transaction did not involve a distribution or public offering. We issued
stock to Ms. Mei Chung Tang Lee in reliance on Regulation S of the Securities
Act of 1933.
Repurchases of common stock
Maximum
Total Number Number
Of Shares Of Shares that
Total Purchased as Part May Yet be
Number Average Of Publicly Purchased Under
Of Shares Price Paid Announced Plans The Plans or
Period Purchased Per Share Or Programs Programs
-----------------------------------------------------------------------
Month #1
Oct. 1 -
Oct. 31,
2003 0.00 0.00 0.00 0.00
Month #2
Nov. 1 -
Nov. 30,
2003 260,000 $ 0.17 0.00 0.00
Month #3
Dec. 1 -
Dec. 31,
2003 500,000 $ 0.06 0.00 0.00
Total 760,000 $ 0.10 0.00 0.00
ITEM 6. PLAN OF OPERATION
We are a technology company focused on developing new technologies, software
applications, and products primarily serving the telecommunications sector. We
operate through two subsidiaries, North Electric Company and Cascommunications.
We own 100% of North Electric Company and 40% of Cascommunications.
The following discussion of our plan of operation for the next twelve months
should be read in conjunction with the consolidated financial statements and the
attached notes included elsewhere in this filing. This discussion contains
forward-looking statements that involve risks and uncertainties.
North Electric Company
During the next twelve-month period beginning February 2004, our wholly owned
subsidiary North Electric Company, plans to focus on establishing customers
and Marketing and Sales partners for distribution and sales of its Network
Assurance System. If the required funding becomes available, North Electric
Company expects to have its Network Assurance System product ready for customer
evaluation and sale during the first half of 2004. We are actively seeking
customers to evaluate and purchase North Electric Company's product. We are
also actively seeking partners with considerable market presence that would
broaden the customer reach for North Electric Company's products. To accomplish
the execution of our customer and partner goals for North Electric Company, we
estimate that cash flow needed for operations for the next 12 months beginning
February 2004 is $2,830,000 broken down by quarter as follows:
During the next twelve-month period, Cascommunications plans to continue to
focus on its previously defined course of technology and product development,
primarily through the development efforts at Quantum Advanced Technologies, as
noted above. The majority of Cascommunications' expenditures and resources will
continue to center on technology development with a minority allocated to market
development. Cash flow needed for operations for the next 12 months is broken
down by quarter as follows and includes salaries and expenses related to
corporate activity:
Although an investor has committed to make a $1,000,000 investment in us, we
have only received $80,000 of the investment as of March 31, 2004. On April
13, 2004 we received a letter from counsel of this investor alleging that we
had violated the Securities Act of 1933 and the Securities and Exchange Act
of 1934 in connection with the issuance of our securities and the
solicitation of investment funds from such investor and the general public.
The letter further demanded the rescission of the investor's four stock
subscription agreements and the return of the investor's total equity
investment in us, an amount equal to $1,080,000. Counsel to the investor has
threatened to seek legal remedies with respect to these alleged violations.
The Company intends to contest these claims.
Current cash on hand will not be adequate to execute our plan of operation in
the long-term. We continue to seek additional financing through the offering
and sale of our securities. Given the losses incurred to date and the lack of
any revenue generated, we have little or no access to conventional debt
markets. Funding to support both short and mid-term requirements for product
development and launch will be done through additional sale of shares and
potentially, to a lesser extent, from working capital that might be generated
from contract advances in the future. We are also in preliminary discussions
with another investor group, which, if successful, would provide funding
between one million and five million dollars. No amount has been agreed to at
this time and terms for the funding have yet to be established.
Management believes that if we secure the projected funding requirements for
North Electric Company, we can effectively achieve our stated milestones.
Efforts at Cascommunications, even with the requisite funding, are more
speculative in nature because Cascommunications has not yet tested a prototype.
If we are unable to complete a financing transaction, we would need to curtail
or reduce some of the subsidiaries' intended areas of development and
investment.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of our consolidated financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities and equity and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. These estimates have a material impact on
our financial statements.
Commitments and Contingencies
Commitments and contingencies are evaluated on an individual basis to determine
the impact on current and future liabilities and assets. We make a determination
as to whether such a liability or loss is reasonably possible, and we either
estimate the amount of possible loss or liability or range of loss or
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liability. In rare cases, we are not able to determine the amount of such loss
or liability or even a range of amounts in a way that would not be misleading.
We may be unable to calculate a liability or loss if substantiated information
is unavailable or the amount of the loss or liability depends significantly on
future events.
In addition to evaluating estimates relating to the items discussed above, we
also consider other estimates, including but not limited to, those related to
software development costs, goodwill and identifiable intangible assets. We base
our estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets, liabilities and
equity that are not readily apparent from other sources. Actual results and
outcomes could differ from these estimates and assumptions. An explanation of
significant estimates and related judgments made in these areas are noted below.
Since December 31, 2003, there have been no significant changes to our critical
accounting policies.
Goodwill and Identifiable Intangible Assets
Goodwill represents the excess of cost over the fair value of net tangible and
identifiable intangible assets of acquired companies. As a result of the
acquisition of substantially all of the assets and certain of the liabilities of
North Electric Company in April 2002, the Company recorded approximately
$207,000 of goodwill. In accordance with the provisions of SFAS No. 142, we no
longer amortize goodwill. However, goodwill must be reviewed at least annually
for impairment. We have elected to perform its annual review at the end of each
fiscal year. If the carrying value of our goodwill were to exceed the fair value
at some time in the future, we would be required to report goodwill impairment
charges as an operating expense in our statement of operations. Whenever events
or changes in circumstances indicate that the carrying value of goodwill may not
be recoverable, we must conduct an impairment assessment of its goodwill and
identifiable intangible assets. Factors that could trigger an impairment review
include:
- Significant underperformance relative to expected historical or
projected future research and development and operating results;
- Significant changes in the manner of use of the acquired assets
or the strategy for the overall business;
- Significant negative industry or economic trends; and
- When it appears that the carrying value of intangibles or
goodwill might not be recoverable based on one or more of the above criteria,
management will use projected discounted cash flow, independent valuation or
other means to measure any impairment.
Software development costs - Statement of Financial Accounting Standard No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility and readiness of
general release. Costs incurred by us between the completion of technological
feasibility and general release have been insignificant to date and have been
charged to expense in the accompanying consolidated financial statements.
Fair value of financial instruments - The carrying value of cash, notes
receivable and notes payable approximate fair value because of the relatively
short maturity of these instruments.
Software development costs
Statement of Financial Accounting Standard ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed", requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility and readiness of general
13
release. As of December 31, 2003, there have been no costs incurred by the
Company between the completion of technological feasibility and general release
and therefore no such expenses have been capitalized in the accompanying
consolidated financial statements.
Fair value of financial instruments
The carrying value of cash, notes receivable, accounts payable and accrued
expenses and notes payable approximate fair value because of the relatively
short maturity of these instruments.
Stock-based compensation
The Company follows guidance provided in SFAS No. 123, "Accounting for
Stock-Based Compensation", which encourages companies to recognize expense for
stock-based awards based on their estimated fair value on the grant date. SFAS
No. 123 permits companies to account for stock-based compensation based on
provisions prescribed in SFAS No. 123 or based on the authoritative guidance in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company elected in the past to account for its stock based
compensation in accordance with APB 25, which uses the intrinsic value method.
The Company has accounted for all other issuances of equity instruments in
accordance with SFAS No. 123. In January, 2002 the Company adopted the fair
value method of SFAS No. 123, for all stock options including those issued to
employees. This adoption resulted in a change in accounting principles which
was reported using the prospective method as provided in SFAS No. 148.
Income Taxes
Because we are taxed as a C corporation under they Internal Revenue Code, we
account for income taxes under the Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. The principal
differences are net operating losses, start-up costs and the use of accelerated
depreciation methods to calculate depreciation expense for income tax purposes.
Except for the historical information contained herein, this Form 10-K contains
forward-looking statements within the meaning of the Securities and Exchange Act
of 1934, as amended, that involve a number of risks and uncertainties. These
forward-looking statements may be identified by reference to a future period by
use of forward-looking terminology such as "expect", "anticipate", "could",
"would", "will", and "may" and other words of similar nature. There are certain
important factors and risks that could cause results to differ materially from
those anticipated by the statements herein. Such factors and risks include our
history of net losses, the ability to generate revenue from operations, our need
for additional funding, the development of viable products by our subsidiaries,
Cascommunications and North Electric Company and the business conditions and
growth in related areas of telecommunications, wireless and digital
transmission, and in the economy in general. Other factors include the
competitive pressures from the rapid pace of alternative technology
advancements, and our ability to gain market acceptance of its products in
development. Other risks may be detailed from time to time in our filings with
the Securities and Exchange Commission. Neither we nor our subsidiaries
undertake any obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
ITEM 7. FINANCIAL STATEMENTS
INDEX
DataMEG Corp. and Subsidiaries
(A Development Stage Enterprise)
14
Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2003
CONTENTS
PAGE
----
Auditors' report F-1
Balance sheets F-2
Statements of operations F-3
Statements of stockholders' equity (deficit) F-4,5,6
Statements of cash flows F-7
Notes to Consolidated Financial Statements F-8- F-28
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
DATAMEG CORP. (A DEVELOPMENT STAGE ENTERPRISE),
Boston, MA
We have audited the accompanying consolidated balance sheets of DATAMEG CORP.
AND SUBSIDIARIES, (a development stage enterprise), (the "Company") as of
December 31, 2002 and 2003, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DATAMEG CORP. AND
SUBSIDIARIES, as of December 31, 2002 and 2003 and the results of its operations
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note Q to the
consolidated financial statements, the Company has suffered a significant loss
from operations and has a net capital deficiency, which raises substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note Q. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
F-1
/s/ Fitzgerald, Snyder & Co., P.C.
Fitzgerald, Snyder & Co., P.C.
McLean, Virginia
April 13, 2004
DATAMEG CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2002 2003
------------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 9,319 $ 312,321
------------- -------------
Total current assets 9,319 312,321
PROPERTY AND EQUIPMENT, net 6,038 29,036
OTHER ASSETS:
Goodwill 206,746 206,746
Prepaid expenses - 17,267
Deposits - 6,945
------------- -------------
Total other assets 206,746 230,958
------------- -------------
$ 222,103 $ 572,315
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Capital lease obligation $ 8,302 $ 8,302
Promissory notes 701,743 1,075,896
Accounts payable and accrued expenses 902,150 777,500
Accrued compensation 538,248 714,902
Due to stockholders and officers 63,680 44,680
Convertible subordinated debentures 25,000 20,000
Liability for stock to be issued 227,960 818
------------- -------------
Total current liabilities 2,467,083 2,642,098
Total liabilities 2,467,083 2,642,098
COMMITMENTS AND CONTINGENCIES - -
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY (12,345) (67,820)
STOCKHOLDERS' EQUITY (DEFICIT):
Class A convertible preferred stock, $.01 par value, 8,000,000 shares
authorized at December 31, 2002 and December 2003; 2,000,000 shares issued and
outstanding at December 31, 2002 and 2003 20,000 20,000
Class B convertible preferred stock, $.15 par value, 2,000,000 shares authorized
at December 31, 2002 and 2003; 50,000 shares issued and outstanding at
December 31, 2002 and 2003 7,500 7,500
Common stock, $.01 par value; 175,000,000 shares authorized at
December 31, 2002 and 340,000,000 authorized at December 31, 2003;
124,911,990 and 226,029,772 issued and outstanding at December 31, 2002
and December 31 2003, respectively 1,249,120 2,260,298
Common stock subscriptions receivable (56) (120,056)
Additional paid-in capital 9,853,560 12,710,444
Treasury stock - (75,392)
Common stock warrants 25,000 -
Stock options 103,906 357,702
Deferred compensation (47,400) (42,917)
Accumulated deficit during development stage (13,444,265) (17,119,542)
------------- -------------
Total stockholders' equity (deficit) (2,232,635) (2,001,963)
------------- -------------
$ 222,103 $ 572,315
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
DATAMEG CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FOR THE CUMULATIVE
YEAR ENDED YEAR ENDED FROM INCEPTION
DECEMBER 31, DECEMBER 31, (JANUARY 13, 1999 TO
2002 2003 DECEMBER 31, 2003)
(UNAUDITED)
-------------- -------------- --------------------
REVENUE $ - $ - $ -
COST OF REVENUES - - -
-------------- -------------- --------------------
Gross Profit - - -
OPERATING EXPENSES:
General and administrative 1,392,982 2,403,329 13,002,120
Research and development 1,232,209 1,178,595 3,685,885
-------------- -------------- --------------------
Total operating expenses 2,625,191 3,581,924 16,688,005
-------------- -------------- --------------------
Loss from operations (2,625,191) (3,581,924) (16,688,005)
OTHER INCOME (EXPENSES):
Interest income 15 - 225
Interest expense (137,472) (170,196) (327,865)
Loss on acquisition fee - (50,000) (123,950)
Loss on disposal of property and equipment - (401) (1,459)
Loss on impairment of patents (127,274) - (127,274)
Loss on litigation - (105,840) (105,840)
Realized gains on sale of securities - - 8,530
-------------- -------------- --------------------
Total other income (expenses) (264,731) (326,437) (677,633)
-------------- -------------- --------------------
LOSS BEFORE BENEFIT FOR INCOME
TAXES AND MINORITY INTEREST (2,889,922) (3,908,361) (17,365,638)
Benefit for income taxes - - -
-------------- -------------- --------------------
LOSS BEFORE MINORITY INTEREST (2,889,922) (3,908,361) (17,365,638)
MINORITY INTEREST 13,012 233,084 246,096
-------------- -------------- --------------------
NET LOSS $ (2,876,910) $ (3,675,277) $ (17,119,542)
============== ============== ====================
Net loss per common share
(basic and diluted) $ (0.03) $ (0.02) $ (0.22)
============== ============== ====================
Weighted average number of common
shares outstanding 85,056,935 196,798,749 77,490,598
============== ============== ====================
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
PREFERRED COMMON
STOCK SERIES A SERIES B STOCK
PRICE PER SHARES PREFERRED PREFERRED SHARES
SHARE OUTSTANDING STOCK STOCK OUTSTANDING
----------------------------------------------------------------------
BALANCE, JANUARY 13, 1999 - $ - $ - -
January 13, 1999 - stock issued for services at fair
value to Benson, Phillips, Cairns $ 0.00 - - - 27,420,529
January 29, 1999 - stock issued for cash $ 0.35 - - - 138,546
February 12, 1999 - stock issued for cash $ 0.35 - - - 190,501
February 17, 1999 - stock issued for cash $ 0.35 - - - 43,296
March 1, 1999 - stock issued for cash $ 0.35 - - - 127,000
March 2, 1999 - stock issued for cash $ 0.35 - - - 28,864
March 17, 1999 - stock issued for cash $ 0.35 - - - 43,296
March 19, 1999 - stock issued for cash $ 0.35 - - - 43,296
April 2, 1999 - stock issued for cash $ 0.35 - - - 101,023
April 9, 1999 - stock issued for cash $ 0.35 - - - 42,141
April 13, 1999 - stock issued for cash $ 0.35 - - - 14,432
April 14, 1999 - stock issued for cash $ 0.35 - - - 9,236
April 15, 1999 - stock issued for cash $ 0.35 - - - 57,727
April 16, 1999 - stock issued for cash $ 0.35 - - - 28,864
April 23, 1999 - stock issued for cash $ 0.35 - - - 187,614
April 26, 1999 - stock issued for services at fair
value -Driscoll $ 0.35 - - - 28,864
May 3, 1999 - stock issued for cash $ 0.35 - - - 101,023
July 19, 1999 - stock issued for cash $ 0.46 - - - 75,958
July 26, 1999 - stock issued for cash $ 0.46 - - - 21,703
July 30, 1999 - stock issued for services at fair
value - Barr-Haneau $ 0.35 - - - 21,648
July 30, 1999 - stock issued for services at fair
value - Titus $ - - - - 28,864
August 2, 1999 - stock issued for cash $ 0.46 - - - 21,706
August 4, 1999 - stock issued for cash $ 0.46 - - - 23,091
August 10, 1999 - stock issued for cash $ 0.46 - - - 28,864
August 23, 1999 - stock issued for cash $ 0.46 - - - 52,737
August 24, 1999 - stock issued for cash $ 0.46 - - - 43,734
September 13, 1999 - stock issued for cash $ 0.46 - - - 57,727
September 17, 1999 - stock issued for cash $ 0.46 - - - 237,430
October 15, 1999 - stock issued for cash $ 0.46 - - - 17,318
October 21, 1999 - stock issued for cash $ 0.46 - - - 86,808
October 22, 1999 - stock issued for cash $ 0.46 - - - 111,333
October 25, 1999 - stock issued for cash $ 0.46 - - - 119,478
October 26, 1999 - stock issued for cash $ 0.46 - - - 36,080
November 5, 1999 - stock issued for cash $ 0.46 - - - 43,405
November 5, 1999 - stock issued for cash $ 10.00 - - - 100
November 9, 1999 - stock issued for cash $ 10.05 - - - 995
November 18, 1999 - stock issued for cash $ 10.05 - - - 995
November 23, 1999 - stock issued for cash $ 10.06 - - - 11,406
December 3, 1999 - stock issued for cash $ 10.05 - - - 1,194
December 7, 1999 - stock issued for cash $ 10.05 - - - 2,488
December 16, 1999 - stock issued for cash $ 10.05 - - - 398
December 17, 1999 - stock issued for cash $ 10.05 - - - 995
December 31, 1999 - stock issued for cash $ 10.05 - - - 995
December 31, 1999 - adjust stock issued for cash $ - - - - 141
Net loss (comprehensive net loss) - - - -
---------- ---------- ---------- -------------
BALANCE, DECEMBER 31, 1999 - $ - $ - 29,653,843
COMMON COMMON
ADDITIONAL STOCK COMMON STOCK OPTIONS
COMMON PAID-IN SUBSCRIPTIONS STOCK GRANTED AND
STOCK CAPITAL RECEIVABLE WARRANTS NOT EXERCISED
----------------------------------------------------------------------
BALANCE, JANUARY 13, 1999 $ - $ - $ - $ - $ -
January 13, 1999 - stock issued for services at fair
value to Benson, Phillips, Cairns 274,205 (179,205) (31,300) - -
January 29, 1999 - stock issued for cash 1,386 46,614 - - -
February 12, 1999 - stock issued for cash 1,905 64,095 - - -
February 17, 1999 - stock issued for cash 433 14,567 - - -
March 1, 1999 - stock issued for cash 1,270 42,730 - - -
March 2, 1999 - stock issued for cash 289 9,711 - - -
March 17, 1999 - stock issued for cash 433 14,567 - - -
March 19, 1999 - stock issued for cash 433 14,567 - - -
April 2, 1999 - stock issued for cash 1,010 33,990 - - -
April 9, 1999 - stock issued for cash 421 14,179 - - -
April 13, 1999 - stock issued for cash 144 4,856 - - -
April 14, 1999 - stock issued for cash 92 3,158 - - -
April 15, 1999 - stock issued for cash 577 19,423 - - -
April 16, 1999 - stock issued for cash 289 9,711 - - -
April 23, 1999 - stock issued for cash 1,876 63,124 - - -
April 26, 1999 - stock issued for services at fair
value -Driscoll 289 9,711 - - -
May 3, 1999 - stock issued for cash 1,010 33,990 - - -
July 19, 1999 - stock issued for cash 760 34,240 - - -
July 26, 1999 - stock issued for cash 217 9,783 - - -
July 30, 1999 - stock issued for services at fair
value - Barr-Haneau 216 7,284 - - -
July 30, 1999 - stock issued for services at fair
value - Titus 289 (289) - - -
August 2, 1999 - stock issued for cash 217 9,783 - - -
August 4, 1999 - stock issued for cash 231 10,309 - - -
August 10, 1999 - stock issued for cash 289 13,011 - - -
August 23, 1999 - stock issued for cash 529 23,773 - - -
August 24, 1999 - stock issued for cash 437 19,714 - - -
September 13, 1999 - stock issued for cash 577 26,023 - - -
September 17, 1999 - stock issued for cash 2,374 107,031 - - -
October 15, 1999 - stock issued for cash 173 7,807 - - -
October 21, 1999 - stock issued for cash 868 39,132 - - -
October 22, 1999 - stock issued for cash 1,113 50,187 - - -
October 25, 1999 - stock issued for cash 1,195 53,859 - - -
October 26, 1999 - stock issued for cash 361 16,264 - - -
November 5, 1999 - stock issued for cash 434 19,566 - - -
November 5, 1999 - stock issued for cash 1 999 - - -
November 9, 1999 - stock issued for cash 10 9,990 - - -
November 18, 1999 - stock issued for cash 10 9,990 - - -
November 23, 1999 - stock issued for cash 114 114,686 - - -
December 3, 1999 - stock issued for cash 12 11,988 - - -
December 7, 1999 - stock issued for cash 25 24,975 - - -
December 16, 1999 - stock issued for cash 4 3,996 - - -
December 17, 1999 - stock issued for cash 10 9,990 - - -
December 31, 1999 - stock issued for cash 10 9,990 - - -
December 31, 1999 - adjust stock issued for cash - - - - -
Net loss (comprehensive net loss) - - - - -
-------------- ----------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 $ 296,538 $ 863,869 $ (31,300) $ - $ -
DEFICIT ACCUM-
DEFERRED ULATED DURING
DEFERRED TREASURY Financing DEVELOPMENT
Compensation Stock Costs Stage Total
---------------------------------------------------------------------------
BALANCE, JANUARY 13, 1999 $ - $ - $ - $ - $ -
January 13, 1999 - stock issued for services at fair
value to Benson, Phillips, Cairns - - - - 63,700
January 29, 1999 - stock issued for cash - - - - 48,000
February 12, 1999 - stock issued for cash - - - - 66,000
February 17, 1999 - stock issued for cash - - - - 15,000
March 1, 1999 - stock issued for cash - - - - 44,000
March 2, 1999 - stock issued for cash - - - - 10,000
March 17, 1999 - stock issued for cash - - - - 15,000
March 19, 1999 - stock issued for cash - - - - 15,000
April 2, 1999 - stock issued for cash - - - - 35,000
April 9, 1999 - stock issued for cash - - - - 14,600
April 13, 1999 - stock issued for cash - - - - 5,000
April 14, 1999 - stock issued for cash - - - - 3,250
April 15, 1999 - stock issued for cash - - - - 20,000
April 16, 1999 - stock issued for cash - - - - 10,000
April 23, 1999 - stock issued for cash - - - - 65,000
April 26, 1999 - stock issued for services at fair
value -Driscoll - - - - 10,000
May 3, 1999 - stock issued for cash - - - - 35,000
July 19, 1999 - stock issued for cash - - - - 35,000
July 26, 1999 - stock issued for cash - - - - 10,000
July 30, 1999 - stock issued for services at fair
value - Barr-Haneau - - - - 7,500
July 30, 1999 - stock issued for services at fair
value - Titus - - - - -
August 2, 1999 - stock issued for cash - - - - 10,000
August 4, 1999 - stock issued for cash - - - - 10,540
August 10, 1999 - stock issued for cash - - - - 13,300
August 23, 1999 - stock issued for cash - - - - 24,302
August 24, 1999 - stock issued for cash - - - - 20,151
September 13, 1999 - stock issued for cash - - - - 26,600
September 17, 1999 - stock issued for cash - - - - 109,405
October 15, 1999 - stock issued for cash - - - - 7,980
October 21, 1999 - stock issued for cash - - - - 40,000
October 22, 1999 - stock issued for cash - - - - 51,300
October 25, 1999 - stock issued for cash - - - - 55,054
October 26, 1999 - stock issued for cash - - - - 16,625
November 5, 1999 - stock issued for cash - - - - 20,000
November 5, 1999 - stock issued for cash - - - - 1,000
November 9, 1999 - stock issued for cash - - - - 10,000
November 18, 1999 - stock issued for cash - - - - 10,000
November 23, 1999 - stock issued for cash - - - - 114,800
December 3, 1999 - stock issued for cash - - - - 12,000
December 7, 1999 - stock issued for cash - - - - 25,000
December 16, 1999 - stock issued for cash - - - - 4,000
December 17, 1999 - stock issued for cash - - - - 10,000
December 31, 1999 - stock issued for cash - - - - 10,000
December 31, 1999 - adjust stock issued for cash - - - - -
Net loss (comprehensive net loss) - - - (1,046,928) (1,046,928)
----------- ---------- ---------- ------------ --------------
BALANCE, DECEMBER 31, 1999 $ - $ - $ - $ (1,046,928) $ 82,179
F-4
PREFERRED COMMON
STOCK SERIES A SERIES B STOCK
PRICE PER SHARES PREFERRED PREFERRED SHARES
SHARE OUTSTANDING STOCK STOCK OUTSTANDING
----------------------------------------------------------------------
January 3, 2000 - stock issued for cash $ 10.05 - - - 1,991
January 14, 2000 - stock issued for cash $ 5.02 - - - 4,977
Janaury 14, 2000 - stock issued for services at fair
value - Infocall $ 5.02 - - - 3,981
February 9, 2000 - stock issued for cash $ 10.05 - - - 1,991
February 10, 2000 - stock issued for cash $ 10.05 - - - 1,493
February 14, 2000 - stock issued for cash $ 10.04 - - - 498
February 15, 2000 - stock issued for cash $ 10.05 - - - 995
February 22, 2000 - stock issued for cash $ 10.05 - - - 5,424
February 25, 2000 - stock issued for cash $ 10.05 - - - 1,294
February 28, 2000 - stock issued for cash $ 10.05 - - - 1,692
February 29, 2000 - stock issued for cash $ 10.05 - - - 1,991
March 2, 2000 - stock issued for cash $ 10.05 - - - 597
March 7, 2000 - stock issued for cash $ 10.05 - - - 199
March 8, 2000 - stock issued for cash $ 10.05 - - - 13,138
March 10, 2000 - stock issued for cash $ 10.05 - - - 995
March 13, 2000 - stock issued for cash $ 10.05 - - - 995
March 16, 2000 - stock issued for cash $ 10.05 - - - 995
March 20, 2000 - stock issued for cash $ 10.05 - - - 2,389
March 23, 2000 - stock issued for cash $ 10.05 - - - 199
March 24, 2000 - stock issued for cash $ 10.05 - - - 3,981
March 29, 2000 - stock issued for cash $ 10.05 - - - 995
March 30, 2000 - stock issued for cash $ 10.05 - - - 995
April 19, 2000 - stock issued for cash $ 10.05 - - - 995
April 27, 2000 - stock issued for cash $ 10.05 - - - 1,891
May 10, 2000 - stock issued for cash $ 10.05 - - - 995
May 12, 2000 - stock issued for cash $ 10.05 - - - 16,920
May 19, 2000 - stock issued for cash $ 10.05 - - - 2,030
June 19, 2000 - stock issued for cash $ 10.05 - - - 2,986
June 21, 2000 - stock issued for cash $ 10.05 - - - 4,180
June 30, 2000 - adjust stock issued for cash $ 20.00 - - - 1,660
June 30, 2000 - adjust stock issued for cash $ 20.00 - - - (4,620)
July 1, 2000 - adjust stock issued for cash (Driscoll) $ 0.69 - - - (14,500)
July 1, 2000 - adjust stock issued for cash(Wallet) $ 3.88 - - - (3,093)
August 18, 2000 - share exchange adjustment $ - - - - (14,467)
August 18, 2000 - stock issued as part of merger - Viola Group $ 0.00 - - - 3,300,007
August 18, 2000 - stock options granted and exercised
for services at fair value - Clever $ 2.42 - - - 25,000
August 18, 2000 - stock options granted and exercised
for subscription receivable - Benson $ - - - - 93,750
August 18, 2000 - stock options granted and exercised
for subscription receivable, - Phillips $ - - - - 93,750
August 18, 2000 - stock options granted and exercised
for subscriptions receivable - Cairns $ - - - - 32,500
August 22, 2000 - stock options granted at fair value $ 0.45 - - - -
October 1, 2000 - payment of subscription receviable
for services at fair value - Clever - - - -
October 1, 2000 - payment of subscription receviable
for services at fair value - Benson - - - -
October 23, 2000 - stock options granted and exercised
for services at fair value - Clever $ 2.25 - - - 25,000
October 30, 2000 - stock options granted and exercised
for services at fair value - Benson $ 2.90 - - - 93,750
October 30, 2000 - stock options granted and exercised
for services at fair value - Phillips $ 4.60 - - - 93,750
October 30, 2000 - stock options granted and exercised
for services at fair value - Cairns $ 2.92 - - - 32,500
November 14, 2000 - stock issued services at fair
value - Infocall $ 1.91 - - - 990,000
November 28, 2000 - stock issued for services at fair
value - Net Connection Corp $ 2.71 - - - 340,000
November 28, 2000 - stock issued for services at fair
value - Clever $ 2.25 - - - 25,000
November 28, 2000 - stock issued for services at fair
value - Dodrill $ 2.56 - - - 40,000
November 28, 2000 - stock issued for services at fair
value - Richfield $ 2.56 - - - 20,000
November 28, 2000 - share exchange adjustment
(Benson, Phillips, Cairns, miscellaneous) $ - - - - 117,180
December 20, 2000 - stock options granted at fair value $ 0.82 - - -
December 21, 2000 - conversion of debentures $ 2.50 - - - 38,000
December 21, 2000 - stock options granted, exercised and
issued (3rd Round Investors) $ 0.09 - - - 174,590
December 21, 2000 - stock options granted at fair value - - - -
December 31, 2000 - stock options granted at fair value - - - -
Net loss (comprehensive net loss) - - - -
---------- ---------- ---------- -------------
BALANCE, DECEMBER 31, 2000 - $ - $ - 35,235,402
COMMON COMMON
ADDITIONAL STOCK COMMON STOCK OPTIONS
COMMON PAID-IN SUBSCRIPTIONS STOCK GRANTED AND
STOCK CAPITAL RECEIVABLE WARRANTS NOT EXERCISED
----------------------------------------------------------------------
January 3, 2000 - stock issued for cash 20 19,980 - - -
January 14, 2000 - stock issued for cash 50 24,950 - - -
Janaury 14, 2000 - stock issued for services
at fair value - Infocall 40 19,960 - - -
February 9, 2000 - stock issued for cash 20 19,980 - - -
February 10, 2000 - stock issued for cash 15 14,985 - - -
February 14, 2000 - stock issued for cash 5 4,995 - - -
February 15, 2000 - stock issued for cash 10 9,990 - - -
February 22, 2000 - stock issued for cash 54 54,446 - - -
February 25, 2000 - stock issued for cash 13 12,987 - - -
February 28, 2000 - stock issued for cash 17 16,983 - - -
February 29, 2000 - stock issued for cash 20 19,980 - - -
March 2, 2000 - stock issued for cash 6 5,994 - - -
March 7, 2000 - stock issued for cash 2 1,998 - - -
March 8, 2000 - stock issued for cash 131 131,869 - - -
March 10, 2000 - stock issued for cash 10 9,990 - - -
March 13, 2000 - stock issued for cash 10 9,990 - - -
March 16, 2000 - stock issued for cash 10 9,990 - - -
March 20, 2000 - stock issued for cash 24 23,976 - - -
March 23, 2000 - stock issued for cash 2 1,998 - - -
March 24, 2000 - stock issued for cash 40 39,960 - - -
March 29, 2000 - stock issued for cash 10 9,990 - - -
March 30, 2000 - stock issued for cash 10 9,990 - - -
April 19, 2000 - stock issued for cash 10 9,990 - - -
April 27, 2000 - stock issued for cash 19 18,981 - - -
May 10, 2000 - stock issued for cash 10 9,990 - - -
May 12, 2000 - stock issued for cash 169 169,831 - - -
May 19, 2000 - stock issued for cash 20 20,380 - - -
June 19, 2000 - stock issued for cash 30 29,972 - - -
June 21, 2000 - stock issued for cash 42 41,958 - - -
June 30, 2000 - adjust stock issued for cash 17 33,183 - - -
June 30, 2000 - adjust stock issued for cash (31) (92,370) - - -
July 1, 2000 - adjust stock issued for cash (Driscoll) - (10,000) - - -
July 1, 2000 - adjust stock issued for cash(Wallet) - (12,000) - - -
August 18, 2000 - share exchange adjustment (350) 350 - - -
August 18, 2000 - stock issued as
part of merger - Viola Group 33,000 (28,900) - - -
August 18, 2000 - stock options granted and exercised
for services at fair value - Clever 250 60,500 (250) - -
August 18, 2000 - stock options granted and exercised
for subscription receivable - Benson 937 308,438 (309,375) - -
August 18, 2000 - stock options granted and exercised
for subscription receivable, - Phillips 937 308,438 (309,375) - -
August 18, 2000 - stock options granted and exercised
for subscriptions receivable - Cairns 325 106,925 (107,250) - -
August 22, 2000 - stock options granted at fair value - - - - 8,948
October 1, 2000 - payment of subscription receviable
for services at fair value - Clever - - 250 - -
October 1, 2000 - payment of subscription receviable
for services at fair value - Benson - - 31,300 - -
October 23, 2000 - stock options granted and exercised
for services at fair value - Clever 250 56,000 - - -
October 30, 2000 - stock options granted and exercised
for services at fair value - Benson 938 308,436 -37638 - -
October 30, 2000 - stock options granted and exercised
for services at fair value - Phillips 937 308,438 121,885 - -
October 30, 2000 - stock options granted and exercised
for services at fair value - Cairns 325 106,925 (12,243) - -
November 14, 2000 - stock issued services at fair
value - Infocall 9,900 1,883,475 - - -
November 28, 2000 - stock issued for services at fair
value - Net Connection Corp 3,400 917,643 - - -
November 28, 2000 - stock issued for services at fair
value - Clever 250 56,000 - - -
November 28, 2000 - stock issued for services at fair
value - Dodrill 400 102,080 - -
November 28, 2000 - stock issued for services at fair
value - Richfield 200 51,040 - -
November 28, 2000 - share exchange adjustment
(Benson, Phillips, Cairns, miscellaneous) 1,186 (1,186) - -
December 20, 2000 - stock options granted at fair value - - 141,412
December 21, 2000 - conversion of debentures 380 94,610 - - -
December 21, 2000 - stock options granted, exercised and
issued (3rd Round Investors) 1,746 15,713 (2,255) - -
December 21, 2000 - stock options granted at fair value - - - - 760
December 31, 2000 - stock options granted at fair value - - - - 1,221
Net loss (comprehensive net loss) - - - - -
-------------- ----------- --------- --------- ---------
BALANCE, DECEMBER 31, 2000 $ 352,354 $ 6,213,690 $(656,251) $ - $ 152,341
DEFICIT ACCUM-
DEFERRED ULATED DURING
DEFERRED TREASURY Financing DEVELOPMENT
Compensation Stock Costs Stage Total
---------------------------------------------------------------------------
January 3, 2000 - stock issued for cash - - - - 20,000
January 14, 2000 - stock issued for cash - - - - 25,000
Janaury 14, 2000 - stock issued for services at fair
value - Infocall - - - - 20,000
February 9, 2000 - stock issued for cash - - - - 20,000
February 10, 2000 - stock issued for cash - - - - 15,000
February 14, 2000 - stock issued for cash - - - - 5,000
February 15, 2000 - stock issued for cash - - - - 10,000
February 22, 2000 - stock issued for cash - - - - 54,500
February 25, 2000 - stock issued for cash - - - - 13,000
February 28, 2000 - stock issued for cash - - - - 17,000
February 29, 2000 - stock issued for cash - - - - 20,000
March 2, 2000 - stock issued for cash - - - - 6,000
March 7, 2000 - stock issued for cash - - - - 2,000
March 8, 2000 - stock issued for cash - - - - 132,000
March 10, 2000 - stock issued for cash - - - - 10,000
March 13, 2000 - stock issued for cash - - - - 10,000
March 16, 2000 - stock issued for cash - - - - 10,000
March 20, 2000 - stock issued for cash - - - - 24,000
March 23, 2000 - stock issued for cash - - - - 2,000
March 24, 2000 - stock issued for cash - - - - 40,000
March 29, 2000 - stock issued for cash - - - - 10,000
March 30, 2000 - stock issued for cash - - - - 10,000
April 19, 2000 - stock issued for cash - - - - 10,000
April 27, 2000 - stock issued for cash - - - - 19,000
May 10, 2000 - stock issued for cash - - - - 10,000
May 12, 2000 - stock issued for cash - - - - 170,000
May 19, 2000 - stock issued for cash - - - - 20,400
June 19, 2000 - stock issued for cash - - - - 30,002
June 21, 2000 - stock issued for cash - - - - 42,000
June 30, 2000 - adjust stock issued for cash - - - - 33,200
June 30, 2000 - adjust stock issued for cash - - - - (92,401)
July 1, 2000 - adjust stock issued for cash (Driscoll) - - - - (10,000)
July 1, 2000 - adjust stock issued for cash(Wallet) - - - - (12,000)
August 18, 2000 - share exchange adjustment - - - - -
August 18, 2000 - stock issued as part of
merger - Viola Group - - - - 4,100
August 18, 2000 - stock options granted and exercised
for services at fair value - Clever - - - - 60,500
August 18, 2000 - stock options granted and exercised
for subscription receivable - Benson - - - - -
August 18, 2000 - stock options granted and exercised
for subscription receivable, - Phillips - - - - -
August 18, 2000 - stock options granted and exercised
for subscriptions receivable - Cairns - - - - -
August 22, 2000 - stock options granted at fair value - - - - 8,948.00
October 1, 2000 - payment of subscription receviable
for services at fair value - Clever - - - - 250.00
October 1, 2000 - payment of subscription receviable
for services at fair value - Benson - - - - 31,300.00
October 23, 2000 - stock options granted and exercised
for services at fair value - Clever - - - - 56,250.00
October 30, 2000 - stock options granted and exercised
for services at fair value - Benson - - - - 271,736.00
October 30, 2000 - stock options granted and exercised
for services at fair value - Phillips - - - - 431,260.00
October 30, 2000 - stock options granted and exercised
for services at fair value - Cairns - - - - 95,007.00
November 14, 2000 - stock issued services at fair
value - Infocall - - - - 1,893,375.00
November 28, 2000 - stock issued for services at fair
value - Net Connection Corp - - - - 921,043.00
November 28, 2000 - stock issued for services at fair
value - Clever - - - - 56,250.00
November 28, 2000 - stock issued for services at fair
value - Dodrill - - - - 102,480.00
November 28, 2000 - stock issued for services at fair
value - Richfield - - - - 51,240.00
November 28, 2000 - share exchange adjustment
(Benson, Phillips, Cairns, miscellaneous) - - - - -
December 20, 2000 - stock options granted
at fair value - - - - 141,412.00
December 21, 2000 - conversion of debentures - - - - 94,990.00
December 21, 2000 - stock options granted, exercised
and issued (3rd Round Investors) - - - - 15,204.00
December 21, 2000 - stock options granted
at fair value - - - - 760.00
December 31, 2000 - stock options granted
at fair value - - 1,221.00
Net loss (comprehensive net loss) - - - (6,783,550) (6,783,550.00)
----------- ---------- ---------- ------------ --------------
BALANCE, DECEMBER 31, 2000 $ - $ - $ - $ (7,830,478) $ (1,768,344)
F-5
PREFERRED COMMON
STOCK SERIES A SERIES B STOCK
PRICE PER SHARES PREFERRED PREFERRED SHARES
SHARE OUTSTANDING STOCK STOCK OUTSTANDING
----------------------------------------------------------------------
January 2, 2001 - stock issued for services at fair
value - Net Connection Corp. $ 2.84 - - - 340,000
January 29, 2001 - stock issued for services at fair
value - Richfield $ 3.00 - - - 30000
January 29, 2001 - stock issued for services at fair
value - Kolb $ 1.56 - - - 200,000
January 29, 2001 - stock issued for services at fair
value - Silvasy $ 2.56 - - - 5,000
January 29, 2001 - stock issued for services at fair
value - Young $ 2.56 - - - 2,500
January 29, 2001 - stock issued for services at fair
value - Adams $ 2.56 - - - 5,000
January 29, 2001 - stock issued for services at fair
value - Transmedia $ 2.92 - - - 9,000
January 29, 2001 - stock options exercised and issued
for cash - 3rd round investors $ 0.10 - - - 27,993
January 29, 2001 - stock issued for cash $ 3.00 - - - 30,800
January 29, 2001 - conversion of debentures $ 2.50 - - - 8,000
March 29, 2001 - stock options exercised and issued
for cash - 3rd round investors $ 0.16 - - - 34,615
March 31, 2001 - payment of subscription receivable for
services at fair value - Benson - - - -
March 31, 2001 - payment of subscription receivable for
services at fair value - Phillips - - - -
March 31, 2001 - payment of subscription receivable for
services at fair value - Cairns - - - -
March 31, 2001 - adjust stock issued for cash $ - - - - (12)
April 4, 2001 - stock issued for services at fair
value - Kolb $ 2.16 - - - 50,000
April 4, 2001 - stock issued for services at fair
value - Annis $ 1.10 - - - 5,000
May 4, 2001 - stock issued for services at fair
value - Dove $ 1.54 - - - 30,000
May 21, 2001 - stock issued for services at fair
value - Dove $ 0.83 - - - 30,000
May 21, 2001 - stock issued for services at fair
value - Cairns $ 1.22 - - - 32,500
June 5, 2001 - stock issued for services at fair
value - Young $ 0.83 - - - 5,000
June 5, 2001 - stock issued for services at fair
value - Silvasy $ 1.10 - - - 5,000
June 12, 2001 - stock issued for services at fair
value - Kolb $ 4.11 - - - 60,000
June 12, 2001 - stock issued for services at fair
value - Dean-Dastvan $ 0.60 - - - 20,000
June 12, 2001 - adjust merger shares - - - 2,508
June 25, 2001 - stock issued for services at fair
value - Dove $ 0.86 - - - 30,000
July 5, 2001 - stock issued for services at fair
value - Young $ 1.05 - - - 20,000
July 5, 2001 - stock issued for services at fair
value - Silvasy $ 1.17 - - - 30,000
July 5, 2001 - stock issued for services at fair
value - McGrath $ 0.69 - - - 10,000
July 12, 2001 - stock issued for services at fair
value - Dean-Dastvan $ 0.81 - - - 20,000
July 12, 2001 - stock issued for services at fair
value - Annis $ 2.54 - - - 10,000
July 25, 2001 - stock issued for services at fair
value - Dove $ 0.92 - - - 30,000
July 25, 2001 - stock issued for services at fair
value - Kolb $ 1.31 - - - 100,000
August 13, 2001 - stock issued for services at fair
value - Dodrill $ 0.66 - - - 10,515
August 13, 2001 - stock issued for services at fair
value - Silvasy $ 0.28 - - - 10,000
August 13, 2001 - stock issued for services at fair
value - Young $ 0.36 - - - 10,000
August 13, 2001 - stock issued for services at fair
value - McGrath $ 0.29 - - - 15,000
August 20, 2001 - stock issued for services at fair
value - Net Connection Corp. $ 0.49 - - - 150,000
August 23, 2001 - stock issued for services at fair
value - Dodrill $ 0.49 - - - 40,000
August 23, 2001 - stock issued for services at fair
value - Hester $ 0.38 - - - 40,000
August 23, 2001 - stock issued for services at fair
value - DeVal $ 0.39 - - - 40,000
August 23, 2001 - stock issued for services at fair
value - Noser $ 0.39 - - - 40,000
August 23, 2001 - stock issued for services at fair
value - Aro $ 0.39 - - - 40,000
August 23, 2001 - stock issued for services at fair
value - Holzworth $ 0.40 - - - 40,000
August 23, 2001 - stock issued for services at fair
value - Silvasy $ 0.33 - - - 5,000
August 23, 2001 - stock issued for services at fair
value - Young $ 0.35 - - - 5,000
August 23, 2001 - stock issued for services at fair
value - McGrath $ 0.32 - - - 10,000
October 1, 2001 - stock issued for services at fair
value - DeVal $ 0.16 - - - 30,000
October 1, 2001 - stock issued for services at fair
value - Holzworth $ 0.25 - - - 30,000
October 1, 2001 - stock issued for services at fair
value - Hester $ 0.37 - - - 30,000
October 1, 2001 - stock issued for services at fair
value - Noser $ 0.27 - - - 30,000
October 1, 2001 - stock issued for services at fair
value - Silvasy $ 0.28 - - - 5,000
October 1, 2001 - stock issued for services at fair
value - Young $ 0.30 - - - 5,000
October 1, 2001 - stock issued for services at fair
value - Dean-Dastvan $ 0.13 - - - 30,000
October 1, 2001 - stock issued for services at fair
value - Dodrill $ 0.26 - - - 40,000
October 1, 2001 - stock issued for services at fair
value - Kolb $ 0.40 - - - 30,000
October 1, 2001 - stock options granted at fair value $ 0.07 - - - -
October 15, 2001 - stock issued for services at fair
value - Hester $ 0.26 - - - 250,000
October 15, 2001 - stock issued for services at fair
value - Dean-Dastvan $ 0.13 - - - 30,000
October 15, 2001 - stock issued for services at fair
value - DeVal $ 0.09 - - - 27,000
October 15, 2001 - stock issued for services at fair
value - Noser $ 0.16 - - - 27,000
October 15, 2001 - stock issued for services at fair
value - Holzworth $ 0.15 - - - 27,000
October 15, 2001 - stock issued for services at fair
value - Dodrill $ 0.34 - - - 50,000
November 5, 2001 - stock issued for services at fair
value - Dove $ 0.12 - - - 55,000
November 5, 2001 - stock issued for services at fair
value - Adams $ 0.25 - - - 12,000
November 5, 2001 - stock issued for services at fair
value - Calver $ 0.25 - - - 8,000
November 7, 2001 - stock issued for services at fair
value - Hester $ 0.16 - - - 250,000
November 7, 2001 - stock issued for services at fair
value - Kolb $ 0.14 - - - 30,000
December 6, 2001 - stock issued for services at fair
value - Dodrill, Hester, Kolb, Dove) $ 0.12 - - - 200,000
December 6, 2001 - stock issued for services at fair
value - Hester $ 0.12 - - - 500,000
December 6, 2001 - stock issued for services at fair
value - Kolb $ 0.09 - - - 40,000
December 6, 2001 - stock issued for services at fair
value - Dove $ 0.16 - - - 30,000
December 21, 2001 - stock issued for deferred financing
at fair value $ - - - - 1,500,000
December 21, 2001 - stock issued for services at fair
value - Hester $ 0.11 - - - 500,000
December 31, 2001 - stock options expired (Rivero,
Jacobs, Royal, Shewmaker) - - - -
Net loss (comprehensive net loss) - - - -
---------- ---------- ---------- -------------
BALANCE, DECEMBER 31, 2001 - $ - $ - $ 40,639,821
COMMON COMMON
ADDITIONAL STOCK COMMON STOCK OPTIONS
COMMON PAID-IN SUBSCRIPTIONS STOCK GRANTED AND
STOCK CAPITAL RECEIVABLE WARRANTS NOT EXERCISED
----------------------------------------------------------------------
January 2, 2001 - stock issued for services at fair
value - Net Connection Corp. 3,400 963,016 - - -
January 29, 2001 - stock issued for services at fair
value - Richfield 300 89700 - - -
January 29, 2001 - stock issued for services at fair
value - Kolb 2,000 563,164 - - -
January 29, 2001 - stock issued for services at fair
value - Silvasy 50 12,760 - - -
January 29, 2001 - stock issued for services at fair
value - Young 25 6,380 - - -
January 29, 2001 - stock issued for services at fair
value - Adams 50 12,760 - - -
January 29, 2001 - stock issued for services at fair
value - Transmedia 90 26,203 - - -
January 29, 2001 - stock options exercised and issued
for cash - 3rd round investors 280 2,520 - - -
January 29, 2001 - stock issued for cash 308 92,092 - - -
January 29, 2001 - conversion of debentures 80 19,920 - - -
March 29, 2001 - stock options exercised and issued
for cash - 3rd round investors 346 3,115 2,198 - -
March 31, 2001 - payment of subscription receivable for
services at fair value - Benson - - 347,014 - -
March 31, 2001 - payment of subscription receivable for
services at fair value - Phillips - - 119,493 - -
March 31, 2001 - payment of subscription receivable for
services at fair value - Cairns - - 187,490 - -
March 31, 2001 - adjust stock issued for cash - - - - -
April 4, 2001 - stock issued for services at fair
value - Kolb 500 107,618 - - -
April 4, 2001 - stock issued for services at fair
value - Annis 50 5,458 - - -
May 4, 2001 - stock issued for services at fair
value - Dove 300 45,774 - - -
May 21, 2001 - stock issued for services at fair
value - Dove 300 24,618 - - -
May 21, 2001 - stock issued for services at fair
value - Cairns 325 39,456 - - -
June 5, 2001 - stock issued for services at fair
value - Young 50 4,110 - - -
June 5, 2001 - stock issued for services at fair
value - Silvasy 50 5,460 - - -
June 12, 2001 - stock issued for services at fair
value - Kolb 600 41,328 - - -
June 12, 2001 - stock issued for services at fair
value - Dean-Dastvan 200 11,889 - - -
June 12, 2001 - adjust merger shares 25 (25) - - -
June 25, 2001 - stock issued for services at fair
value - Dove 300 32,162 - - -
July 5, 2001 - stock issued for services at fair
value - Young 200 20,899 - - -
July 5, 2001 - stock issued for services at fair
value - Silvasy 300 34,901 - - -
July 5, 2001 - stock issued for services at fair
value - McGrath 100 6,780 - - -
July 12, 2001 - stock issued for services at fair
value - Dean-Dastvan 200 16,032 - - -
July 12, 2001 - stock issued for services at fair
value - Annis 100 25,267 - - -
July 25, 2001 - stock issued for services at fair
value - Dove 300 20,569 - - -
July 25, 2001 - stock issued for services at fair
value - Kolb 1,000 80,635 - - -
August 13, 2001 - stock issued for services at fair
value - Dodrill 105 6,866 - - -
August 13, 2001 - stock issued for services at fair
value - Silvasy 100 2,660 - - -
August 13, 2001 - stock issued for services at fair
value - Young 100 3,480 - - -
August 13, 2001 - stock issued for services at fair
value - McGrath 150 4,165 - - -
August 20, 2001 - stock issued for services at fair
value - Net Connection Corp. 1,500 72,450 - - -
August 23, 2001 - stock issued for services at fair
value - Dodrill 400 19,280 - - -
August 23, 2001 - stock issued for services at fair
value - Hester 400 14,760 - - -
August 23, 2001 - stock issued for services at fair
value - DeVal 400 15,355 - - -
August 23, 2001 - stock issued for services at fair
value - Noser 400 15,371 - - -
August 23, 2001 - stock issued for services at fair
value - Aro 400 15,374 - - -
August 23, 2001 - stock issued for services at fair
value - Holzworth 400 15,412 - - -
August 23, 2001 - stock issued for services at fair
value - Silvasy 50 1,585 - - -
August 23, 2001 - stock issued for services at fair
value - Young 50 1,690 - - -
August 23, 2001 - stock issued for services at fair
value - McGrath 100 3,060 - - -
October 1, 2001 - stock issued for services at fair
value - DeVal 300 4,633 - - -
October 1, 2001 - stock issued for services at fair
value - Holzworth 300 7,245 - - -
October 1, 2001 - stock issued for services at fair
value - Hester 300 10,771 - - -
October 1, 2001 - stock issued for services at fair
value - Noser 300 7,937 - - -
October 1, 2001 - stock issued for services at fair
value - Silvasy 50 1,330 - - -
October 1, 2001 - stock issued for services at fair
value - Young 50 1,440 - - -
October 1, 2001 - stock issued for services at fair
value - Dean-Dastvan 300 3,480 - - -
October 1, 2001 - stock issued for services at fair
value - Dodrill 400 10,160 - - -
October 1, 2001 - stock issued for services at fair
value - Kolb 300 11,576 - - -
October 1, 2001 - stock options granted at fair value - - - - 19,530
October 15, 2001 - stock issued for services at fair
value - Hester 2,500 62,007 - - -
October 15, 2001 - stock issued for services at fair
value - Dean-Dastvan 300 3,480 - - -
October 15, 2001 - stock issued for services at fair
value - DeVal 270 2,106 - - -
October 15, 2001 - stock issued for services at fair
value - Noser 270 4,004 - - -
October 15, 2001 - stock issued for services at fair
value - Holzworth 270 3,803 - - -
October 15, 2001 - stock issued for services at fair
value - Dodrill 500 16,525 - - -
November 5, 2001 - stock issued for services at fair
value - Dove 550 6,190 - - -
November 5, 2001 - stock issued for services at fair
value - Adams 120 2,880 - - -
November 5, 2001 - stock issued for services at fair
value - Calver 80 1,920 - - -
November 7, 2001 - stock issued for services at fair
value - Hester 2,500 37,248 - - -
November 7, 2001 - stock issued for services at fair
value - Kolb 300 3,912 - - -
December 6, 2001 - stock issued for services at fair
value - Dodrill, Hester, Kolb, Dove) 2,000 22,301 - - -
December 6, 2001 - stock issued for services at fair -
value - Hester 5,000 55,655 - - -
December 6, 2001 - stock issued for services at fair -
value - Kolb 400 3,069 - - -
December 6, 2001 - stock issued for services at fair -
value - Dove 300 4,500 - - -
December 21, 2001 - stock issued for deferred financing
at fair value 15,000 125,250 - - -
December 21, 2001 - stock issued for services at fair
value - Hester 5,000 50,655 - - -
December 31, 2001 - stock options expired (Rivero,
Jacobs, Royal, Shewmaker) - 1,981 - - (1,981)
Net loss (comprehensive net loss) - - - - -
-------------- ----------- --------- --------- ---------
BALANCE, DECEMBER 31, 2001 $ 406,398 $ 9,185,817 $ (56) $ - $ 169,890
DEFICIT ACCUM-
DEFERRED ULATED DURING
DEFERRED TREASURY Financing DEVELOPMENT
Compensation Stock Costs Stage Total
---------------------------------------------------------------------------
January 2, 2001 - stock issued for services at fair
value - Net Connection Corp. - - - - 966,416
January 29, 2001 - stock issued for services at fair
value - Richfield - - - - 90,000
January 29, 2001 - stock issued for services at fair
value - Kolb (253,864) - - - 311,300
January 29, 2001 - stock issued for services at fair
value - Silvasy - - - - 12,810
January 29, 2001 - stock issued for services at fair
value - Young - - - - 6,405
January 29, 2001 - stock issued for services at fair
value - Adams - - - - 12,810
January 29, 2001 - stock issued for services at fair
value - Transmedia - - - - 26,293
January 29, 2001 - stock options exercised and issued
for cash - 3rd round investors - - - - 2,800
January 29, 2001 - stock issued for cash - - - - 92,400
January 29, 2001 - conversion of debentures - - - - 20,000
March 29, 2001 - stock options exercised and issued
for cash - 3rd round investors - - - - 5,659
March 31, 2001 - payment of subscription receivable
for services at fair value - Benson - - - - 347,014
March 31, 2001 - payment of subscription receivable
for services at fair value - Phillips - - - - 119,493
March 31, 2001 - payment of subscription receivable
for services at fair value - Cairns - - - - 187,490
March 31, 2001 - adjust stock issued for cash - - - - -
April 4, 2001 - stock issued for services at fair
value - Kolb - - - - 108,118
April 4, 2001 - stock issued for services at fair
value - Annis - - - - 5,508
May 4, 2001 - stock issued for services at fair
value - Dove - - - - 46,074
May 21, 2001 - stock issued for services at fair
value - Dove - - - - 24,918
May 21, 2001 - stock issued for services at fair
value - Cairns - - - - 39,781
June 5, 2001 - stock issued for services at fair
value - Young - - - - 4,160
June 5, 2001 - stock issued for services at fair
value - Silvasy - - - - 5,510
June 12, 2001 - stock issued for services at fair
value - Kolb 204,860 - - - 246,788
June 12, 2001 - stock issued for services at fair
value - Dean-Dastvan - - - - 12,089
June 12, 2001 - adjust merger shares - - - - -
June 25, 2001 - stock issued for services at fair
value - Dove (6,653) - - - 25,809
July 5, 2001 - stock issued for services at fair
value - Young - - - - 21,099
July 5, 2001 - stock issued for services at fair
value - Silvasy - - - - 35,201
July 5, 2001 - stock issued for services at fair
value - McGrath - - - - 6,880
July 12, 2001 - stock issued for services at fair
value - Dean-Dastvan - - - - 16,232
July 12, 2001 - stock issued for services at fair
value - Annis - - - - 25,367
July 25, 2001 - stock issued for services at fair
value - Dove 6,653 - - - 27,522
July 25, 2001 - stock issued for services at fair
value - Kolb 49,004 - - - 130,639
August 13, 2001 - stock issued for services at fair
value - Dodrill - - - - 6,971
August 13, 2001 - stock issued for services at fair
value - Silvasy - - - - 2,760
August 13, 2001 - stock issued for services at fair
value - Young - - - - 3,580
August 13, 2001 - stock issued for services at fair
value - McGrath - - - - 4,315
August 20, 2001 - stock issued for services at fair
value - Net Connection Corp. - - - - 73,950
August 23, 2001 - stock issued for services at fair
value - Dodrill - - - - 19,680
August 23, 2001 - stock issued for services at fair
value - Hester - - - - 15,160
August 23, 2001 - stock issued for services at fair
value - DeVal - - - - 15,755
August 23, 2001 - stock issued for services at fair
value - Noser - - - - 15,771
August 23, 2001 - stock issued for services at fair
value - Aro - - - - 15,774
August 23, 2001 - stock issued for services at fair
value - Holzworth - - - - 15,812
August 23, 2001 - stock issued for services at fair
value - Silvasy - - - - 1,635
August 23, 2001 - stock issued for services at fair
value - Young - - - - 1,740
August 23, 2001 - stock issued for services at fair
value - McGrath - - - - 3,160
October 1, 2001 - stock issued for services at fair
value - DeVal - - - - 4,933
October 1, 2001 - stock issued for services at fair
value - Holzworth - - - - 7,545
October 1, 2001 - stock issued for services at fair
value - Hester - - - - 11,071
October 1, 2001 - stock issued for services at fair
value - Noser - - - - 8,237
October 1, 2001 - stock issued for services at fair
value - Silvasy - - - - 1,380
October 1, 2001 - stock issued for services at fair
value - Young - - - - 1,490
October 1, 2001 - stock issued for services at fair
value - Dean-Dastvan - - - - 3,780
October 1, 2001 - stock issued for services at fair
value - Dodrill - - - - 10,560
October 1, 2001 - stock issued for services at fair
value - Kolb - - - - 11,876
October 1, 2001 - stock options granted at fair value - - - - 19,530
October 15, 2001 - stock issued for services at fair
value - Hester - - - - 64,507
October 15, 2001 - stock issued for services at fair
value - Dean-Dastvan - - - - 3,780
October 15, 2001 - stock issued for services at fair
value - DeVal - - - - 2,376
October 15, 2001 - stock issued for services at fair
value - Noser - - - - 4,274
October 15, 2001 - stock issued for services at fair
value - Holzworth - - - - 4,073
October 15, 2001 - stock issued for services at fair
value - Dodrill - - - - 17,025
November 5, 2001 - stock issued for services at fair
value - Dove - - - - 6,740
November 5, 2001 - stock issued for services at fair
value - Adams - - - - 3,000
November 5, 2001 - stock issued for services at fair
value - Calver - - - - 2,000
November 7, 2001 - stock issued for services at fair
value - Hester - - - - 39,748
November 7, 2001 - stock issued for services at fair
value - Kolb - - - - 4,212
December 6, 2001 - stock issued for services at fair
value - Dodrill, Hester, Kolb, Dove) - - - - 24,301
December 6, 2001 - stock issued for services at fair
value - Hester - - - - 60,655
December 6, 2001 - stock issued for services at fair
value - Kolb - - - - 3,469
December 6, 2001 - stock issued for services at fair
value - Dove - - - - 4,800
December 21, 2001 - stock issued for deferred
financing at fair value - - (140,250) - -
December 21, 2001 - stock issued for services at fair
value - Hester - - - - 55,655
December 31, 2001 - stock options expired (Rivero,
Jacobs, Royal, Shewmaker) - - - - -
Net loss (comprehensive net loss) - - - (2,736,877) (2,736,877)
----------- ---------- ---------- ------------ --------------
BALANCE, DECEMBER 31, 2001 $ - $ - $ (140,250) $(10,567,355) $ (945,556)
F-6
PREFERRED COMMON
STOCK SERIES A SERIES B STOCK
PRICE PER SHARES PREFERRED PREFERRED SHARES
SHARE OUTSTANDING STOCK STOCK OUTSTANDING
----------------------------------------------------------------------
January 2, 2002 - financing fees recognized - - - -
January 7, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. $ 0.08 - - - 500,000
January 9, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. $ 0.07 - - - 430,000
February 1, 2002 - stock issued for services at fair
value -Dodrill $ 0.05 - - - 100,000
February 1, 2002 - stock issued for services at fair
value - Dove $ 0.03 - - - 100,000
February 1, 2002 - stock issued for services at fair
value - Benson $ 0.03 - - - 1,000,000
February 1, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. $ 0.02 - - - 500,000
February 8, 2002 - stock issued for services at fair
value - Kristoff $ 0.03 - - - 100,000
February 14, 2002 - stock issued for cash $ 0.04 - - - 5,000,000
February 20, 2002 - stock issued for services at fair
value - Dodrill $ 0.06 - - - 100,000
March 6, 2002 - stock issued for services at fair
value - Dean-Dastvan $ 0.02 - - - 100,000
April 23, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. $ 0.02 - - - 1,000,000
May 1, 2002 - stock issued for services at fair
value - Dean-Dastvan $ 0.02 - - - 1,000,000
May 1, 2002 - stock issued for services at fair
value - Dodrill $ 0.01 - - - 400,000
May 1, 2002 - stock issued for services at fair
value - Kristoff $ 0.02 - - - 300,000
May 6, 2002 - stock issued for services at fair
value - Orr $ 0.02 - - - 500,000
May 7, 2002 - stock issued for service at fair
value - Collins $ 0.01 - - - 200,000
May 7, 2002 - stock issued for service at fair
value - DeVal $ 0.01 - - - 200,000
May 7, 2002 - stock issued for service at fair
value - Holzworth $ 0.03 - - - 200,000
May 20, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. $ 0.03 - - - 15,000,000
May 21, 2002 - stock issued for services at fair
value - Kristoff $ 0.01 - - - 500,000
May 21, 2002 - stock issued for services at fair
value - Kaiser $ 0.02 - - - 200,000
May 28, 2002 - stock options granted at fair value $ 0.04 - - - -
June 6, 2002 - stock issued for services at fair
value - Ashley Associates $ 0.03 - - - 2,500,000
June 22, 2002 - stock issued for cash $ 0.01 4,000,000 40,000 - -
July 5, 2002 - stock issued for services at fair
value - Galpern $ 0.02 - - - 1,500,000
July 5, 2002 - stock issued for services at fair
value - Sellars $ 0.02 - - - 350,000
July 5, 2002 - stock issued for services at fair
value - Cella $ 0.02 - - - 350,000
July 31, 2002 - stock issued for services at fair
value - Seymour $ 0.02 - - - 300,000
August 18, 2002 - adjust issuances to investor to satisfy
litigation - La Jolla Cove Investors - - - -
August 19, 2002 - stock issued to satisfy litigation with
investor at fair value - La Jolla Cove Investors $ 0.01 - - - 5,000,000
August 19, 2002 - stock issued to satisfy note payable
litigation at fair value - North Atlantic Partners $ 0.03 - - - 3,272,727
August 19, 2002 - stock issued for services at fair
value - Dean-Dastvan $ 0.01 - - - 1,000,000
August 19, 2002 - stock issued for services at fair
value - Dodrill $ 0.01 - - - 1,000,000
August 19, 2002 - issued stock for cash $ 0.15 100,000 15,000 -
August 19, 2002 - conversion of preferred shares $ - (2,050,000) (20,000) (7,500) 5,500,000
August 21, 2002 - stock warrants granted to
investor (La Jolla Cove Investors) $ 0.01 - - - -
August 22, 2002 - stock options expired - - - -
September 12, 2002 - stock issued for services at fair
value - BJG Holdings $ 0.03 - - - 600,000
October 9, 2002 - stock issued for services at fair
value - Adam $ - - - - 400,000
October 9, 2002 - stock issued for services at fair
value - Mottayaw $ - - - - 400,000
October 9, 2002 - stock issued for services at fair
value - Ference $ - - - - 1,600,000
October 9, 2002 - stock issued for services at fair
value - Erickson $ - - - - 300,000
October 9, 2002 - stock issued for services at fair
value - Noser $ - - - - 300,000
October 9, 2002 - stock issued for services at fair
value - Hester $ - - - - 600,000
October 16, 2002 - stock issued for cash $ 0.01 - - - 1,339,286
October 18, 2002 - stock issued for cash $ 0.02 - - - 921,659
October 18, 2002 - adjust stock warrant grant to
investor (La Jolla Cove Investors) - - - -
October 23, 2002 - stock issued for service at fair
value - Kaiser $ - - - - 650,000
October 23, 2002 - stock warrants exercised and issued $ 0.00 - - - 250,000
October 23, 2002 - stock issued for cash $ 0.02 - - - 921,659
October 25, 2002 - stock issued for services at fair
value - Benson $ 0.01 - - - 6,000,000
October 30, 2002 - stock warrants exercised and issued $ 0.00 - - - 1,500,000
November 5, 2002 - stock issued for cash $ 0.01 - - - 2,000,000
November 6, 2002 - stock issued for cash $ 0.01 - - - 904,977
November 6, 2002 - stock warrants exercised and issued $ 0.00 - - - 500,000
November 8, 2002 - stock issued for cash $ - - - - 132,836
November 12, 2002 - stock options granted at fair value - - - -
November 18, 2002 - stock warrants exercised and issued $ 0.00 - - - 1,568,182
November 19, 2002 - stock warrants exercised and issued $ 0.00 - - - 500,000
November 21, 2002 - stock warrants exercised and issued $ 0.00 - - - 2,000,000
November 25, 2002 - stock issued for services at fair
value - PMR Group $ 0.01 - - - 7,000,000
December 4, 2002 - stock warrants granted to
investor (La Jolla Cove Investors) - - - -
December 9, 2002 - stock issued for cash $ 0.01 - - - 2,000,000
December 11, 2002 - stock warrants exercised and issued $ 0.00 - - - 2,000,000
December 19, 2002 - stock warrants exercised and issued $ 0.00 - - - 1,680,843
December 31, 2002 - adjust stock warrants exercised - - - -
December 31, 2002 - write-off deferred financing costs - - - -
December 31, 2002 - stock options expired - - - -
Net loss (comprehensive net loss) - - - -
---------- ---------- ---------- -------------
BALANCE, DECEMBER 31, 2002 2,050,000 $ 20,000 $ 7,500 124,911,990
---------- ---------- ---------- -------------
COMMON COMMON
ADDITIONAL STOCK COMMON STOCK OPTIONS
COMMON PAID-IN SUBSCRIPTIONS STOCK GRANTED AND
STOCK CAPITAL RECEIVABLE WARRANTS NOT EXERCISED
----------------------------------------------------------------------
January 2, 2002 - financing fees recognized - - - - -
January 7, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. 5,000 33,648 - - -
January 9, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. 4,300 26,745 - - -
February 1, 2002 - stock issued for services at fair
value -Dodrill 1,000 4,100 - - -
February 1, 2002 - stock issued for services at fair
value - Dove 1,000 2,000 - - -
February 1, 2002 - stock issued for services at fair
value - Benson 10,000 20,000 - - -
February 1, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. 5,000 3,964 - - -
February 8, 2002 - stock issued for services at fair
value - Kristoff 1,000 2,000 - - -
February 14, 2002 - stock issued for cash 50,000 142,500 - - -
February 20, 2002 - stock issued for services at fair
value - Dodrill 1,000 5,000 - - -
March 6, 2002 - stock issued for services at fair
value - Dean-Dastvan 1,000 1,069 - - -
April 23, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. 10,000 8,792 - - -
May 1, 2002 - stock issued for services at fair
value - Dean-Dastvan 10,000 6,842 - - -
May 1, 2002 - stock issued for services at fair
value - Dodrill 4,000 (1,000) - - -
May 1, 2002 - stock issued for services at fair
value - Kristoff 3,000 3,000 - - -
May 6, 2002 - stock issued for services at fair
value - Orr 5,000 6,250 - - -
May 7, 2002 - stock issued for service at fair
value - Collins 2,000 206 - - -
May 7, 2002 - stock issued for service at fair
value - DeVal 2,000 (240) - - -
May 7, 2002 - stock issued for service at fair
value - Holzworth 2,000 3,011 - - -
May 20, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric Company, Inc. 150,000 255,000 - - -
May 21, 2002 - stock issued for services at fair
value - Kristoff 5,000 - - - -
May 21, 2002 - stock issued for services at fair
value - Kaiser 2,000 1,000 - - -
May 28, 2002 - stock options granted at fair value - - - - 1,276
June 6, 2002 - stock issued for services at fair
value - Ashley Associates 25,000 50,000 - - -
June 22, 2002 - stock issued for cash - - - - -
July 5, 2002 - stock issued for services at fair
value - Galpern 15,000 15,000 - - -
July 5, 2002 - stock issued for services at fair
value - Sellars 3,500 3,500 - - -
July 5, 2002 - stock issued for services at fair
value - Cella 3,500 3,500 - - -
July 31, 2002 - stock issued for services at fair
value - Seymour 3,000 3,000 - - -
August 18, 2002 - adjust issuances to investor to satisfy
litigation - La Jolla Cove Investors - (142,388) - - -
August 19, 2002 - stock issued to satisfy litigation with
investor at fair value - La Jolla Cove Investors 50,000 (4,000) - - -
August 19, 2002 - stock issued to satisfy note payable
litigation at fair value - North Atlantic Partners 32,727 52,469 - - -
August 19, 2002 - stock issued for services at fair
value - Dean-Dastvan 10,000 - - - -
August 19, 2002 - stock issued for services at fair -
value - Dodrill 10,000 - - - -
August 19, 2002 - issued stock for cash - - - - -
August 19, 2002 - conversion of preferred shares 55,000 (27,500) - - -
August 21, 2002 - stock warrants granted to
investor (La Jolla Cove Investors) - - - 50,000 -
August 22, 2002 - stock options expired - 8,948 - - (8,948)
September 12, 2002 - stock issued for services at fair
value - BJG Holdings 6,000 12,000 - - -
October 9, 2002 - stock issued for services at fair
value - Adam 4,000 (4,000) - - -
October 9, 2002 - stock issued for services at fair
value - Mottayaw 4,000 (4,000) - - -
October 9, 2002 - stock issued for services at fair
value - Ference 16,000 (16,000) - - -
October 9, 2002 - stock issued for services at fair
value - Erickson 3,000 (3,000) - - -
October 9, 2002 - stock issued for services at fair
value - Noser 3,000 (3,000) - - -
October 9, 2002 - stock issued for services at fair
value - Hester 6,000 (6,000) - - -
October 16, 2002 - stock issued for cash 13,392 1,606 - - -
October 18, 2002 - stock issued for cash 9,217 10,029 - - -
October 18, 2002 - adjust stock warrant grant to
investor (La Jolla Cove Investors) - - - 25,000 -
October 23, 2002 - stock issued for service at fair
value - Kaiser 6,500 (6,500) - - -
October 23, 2002 - stock warrants exercised and issued 2,500 (466) - (1,876) -
October 23, 2002 - stock issued for cash 9,217 10,783 - - -
October 25, 2002 - stock issued for services at fair
value - Benson 60,000 21,000 - - -
October 30, 2002 - stock warrants exercised and issued 15,000 (2,794) - (11,250) -
November 5, 2002 - stock issued for cash 20,000 (5,000) - - -
November 6, 2002 - stock issued for cash 9,050 950 - - -
November 6, 2002 - stock warrants exercised and issued 5,000 (931) - (3,750) -
November 8, 2002 - stock issued for cash 1,329 (1,329) - - -
November 12, 2002 - stock options granted at fair value - - - - 83,100
November 18, 2002 - stock warrants exercised and issued 15,682 (2,921) - (11,761) -
November 19, 2002 - stock warrants exercised and issued 5,000 (931) - (3,750) -
November 21, 2002 - stock warrants exercised and issued 20,000 (3,725) - (15,000) -
November 25, 2002 - stock issued for services at fair
value - PMR Group 70,000 56,000 - - -
December 4, 2002 - stock warrants granted to
investor (La Jolla Cove Investors) - - - 25,000 -
December 9, 2002 - stock issued for cash 20,000 (5,000) - - -
December 11, 2002 - stock warrants exercised and issued 20,000 (3,725) - (15,000) -
December 19, 2002 - stock warrants exercised and issued 16,808 (3,131) - (12,606) -
December 31, 2002 - adjust stock warrants exercised - - - (7) -
December 31, 2002 - write-off deferred financing costs - - - - -
December 31, 2002 - stock options expired - 141,412 - - (141,412)
Net loss (comprehensive net loss) - - - - -
-------------- ----------- --------- --------- ---------
BALANCE, DECEMBER 31, 2002 $ 1,249,120 $ 9,853,560 $ (56) $ 25,000 $ 103,906
-------------- ----------- --------- --------- ---------
DEFICIT ACCUM-
DEFERRED ULATED DURING
DEFERRED TREASURY Financing DEVELOPMENT
Compensation Stock Costs Stage Total
---------------------------------------------------------------------------
January 2, 2002 - financing fees recognized - - 93,500 - 93,500
January 7, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric
Company, Inc. - - - - 38,648
January 9, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric
Company, Inc. - - - - 31,045
February 1, 2002 - stock issued for services at fair
value -Dodrill - - - - 5,100
February 1, 2002 - stock issued for services at fair
value - Dove - - - - 3,000
February 1, 2002 - stock issued for services at fair
value - Benson - - - - 30,000
February 1, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric
Company, Inc. - - - - 8,964
February 8, 2002 - stock issued for services at fair
value - Kristoff - - - - 3,000
February 14, 2002 - stock issued for cash - - - - 192,500
February 20, 2002 - stock issued for services at fair
value - Dodrill - - - - 6,000
March 6, 2002 - stock issued for services at fair
value - Dean-Dastvan - - - - 2,069
April 23, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric
Company, Inc. - - - - 18,792
May 1, 2002 - stock issued for services at fair
value - Dean-Dastvan - - - - 16,842
May 1, 2002 - stock issued for services at fair
value - Dodrill - - - - 3,000
May 1, 2002 - stock issued for services at fair
value - Kristoff - - - - 6,000
May 6, 2002 - stock issued for services at fair
value - Orr - - - - 11,250
May 7, 2002 - stock issued for service at fair
value - Collins - - - - 2,206
May 7, 2002 - stock issued for service at fair
value - DeVal - - - - 1,760
May 7, 2002 - stock issued for service at fair
value - Holzworth - - - - 5,011
May 20, 2002 - stock issued towards purchase of
subsidiary at fair value - North Electric
Company, Inc. - - - - 405,000
May 21, 2002 - stock issued for services at fair
value - Kristoff - - - - 5,000
May 21, 2002 - stock issued for services at fair
value - Kaiser - - - - 3,000
May 28, 2002 - stock options granted at fair value - - - - 1,276
June 6, 2002 - stock issued for services at fair
value - Ashley Associates - - - - 75,000
June 22, 2002 - stock issued for cash - - - - 40,000
July 5, 2002 - stock issued for services at fair
value - Galpern - - - - 30,000
July 5, 2002 - stock issued for services at fair
value - Sellars - - - - 7,000
July 5, 2002 - stock issued for services at fair
value - Cella - - - - 7,000
July 31, 2002 - stock issued for services at fair
value - Seymour - - - - 6,000
August 18, 2002 - adjust issuances to investor to
satisfy litigation - La Jolla Cove Investors - - - - (142,388)
August 19, 2002 - stock issued to satisfy litigation
with investor at fair value - La Jolla
Cove Investors - - - - 46,000
August 19, 2002 - stock issued to satisfy note payable
litigation at fair value - North Atlantic
Partners - - - - 85,196
August 19, 2002 - stock issued for services at fair
value - Dean-Dastvan - - - - 10,000
August 19, 2002 - stock issued for services at fair
value - Dodrill - - - - 10,000
August 19, 2002 - issued stock for cash - - - - 15,000
August 19, 2002 - conversion of preferred shares - - - - -
August 21, 2002 - stock warrants granted to
investor (La Jolla Cove Investors) - - - - 50,000
August 22, 2002 - stock options expired - - - - -
September 12, 2002 - stock issued for services at fair
value - BJG Holdings - - - - 18,000
October 9, 2002 - stock issued for services at fair
value - Adam - - - - -
October 9, 2002 - stock issued for services at fair
value - Mottayaw - - - - -
October 9, 2002 - stock issued for services at fair
value - Ference - - - - -
October 9, 2002 - stock issued for services at fair
value - Erickson - - - - -
October 9, 2002 - stock issued for services at fair
value - Noser - - - - -
October 9, 2002 - stock issued for services at fair
value - Hester - - - - -
October 16, 2002 - stock issued for cash - - - - 14,998
October 18, 2002 - stock issued for cash - - - - 19,246
October 18, 2002 - adjust stock warrant grant to
investor (La Jolla Cove Investors) - - - - 25,000
October 23, 2002 - stock issued for service at fair
value - Kaiser - - - - -
October 23, 2002 - stock warrants exercised and issued - - - - 158
October 23, 2002 - stock issued for cash - - - - 20,000
October 25, 2002 - stock issued for services at fair
value - Benson - - - - 81,000
October 30, 2002 - stock warrants exercised and issued - - - - 956
November 5, 2002 - stock issued for cash - - - - 15,000
November 6, 2002 - stock issued for cash - - - - 10,000
November 6, 2002 - stock warrants exercised and issued - - - - 319
November 8, 2002 - stock issued for cash - - - - -
November 12, 2002 - stock options granted at fair value - - - - 83,100
November 18, 2002 - stock warrants exercised
and issued - - - - 1,000
November 19, 2002 - stock warrants exercised
and issued - - - - 319
November 21, 2002 - stock warrants exercised
and issued - - - - 1,275
November 25, 2002 - stock issued for services at fair
value - PMR Group (47,400) - - - 78,600
December 4, 2002 - stock warrants granted to
investor (La Jolla Cove Investors) - - - - 25,000
December 9, 2002 - stock issued for cash - - - - 15,000
December 11, 2002 - stock warrants exercised
and issued - - - - 1,275
December 19, 2002 - stock warrants exercised
and issued - - - - 1,071
December 31, 2002 - adjust stock warrants exercised - - - - (7)
December 31, 2002 - write-off deferred financing costs - - 46,750 - 46,750
December 31, 2002 - stock options expired - - - - -
Net loss (comprehensive net loss) - - - (2,876,910) (2,876,910)
------------------------ ---------- ------------ --------------
BALANCE, DECEMBER 31, 2002 $ (47,400) $ - $ - $(13,444,265) $ (2,232,635)
------------------------ ---------- ------------ --------------
F-7
PREFERRED COMMON
STOCK SERIES A SERIES B STOCK
PRICE PER SHARES PREFERRED PREFERRED SHARES
SHARE OUTSTANDING STOCK STOCK OUTSTANDING
----------------------------------------------------------------------
January 1, 2003 - stock options granted at fair value - - - -
January 6, 2003 - stock issued for services at fair
value - Benson $ 0.04 - - - 4,000,000
January 1, 2003 - stock issued for cash $0.01 - - - 1,000,000
January 7, 2003 - stock issued in lieu of accounts payable at fair
value - La Jolla Cove Investore, Inc. $ 0.01 - - - 5,000,000
January 14, 2003 - stock issued in lieu of accounts payable at fair
value - La Jolla Cove Investore, Inc. $ 0.01 - - - 5,000,000
January 31, 2003 - stock issued for services at fair
value - Dodrill $ 0.02 - - - 3,000,000
January 31, 2003 - stock issued for services at fair
value - Dove $ 0.02 - - - 3,000,000
January 31, 2003 - stock options exercised and issued $ 0.04 - - - 3,000,000
February 3, 2003 - stock issued for services at fair
value - Dickman $ 0.02 - - - 100,000
February 3, 2003 - stock issued for services at fair
value - Adam $ 0.02 - - - 200,000
February 3, 2003 - stock issued for services at fair
value - Mottayaw $ 0.02 - - - 200,000
February 3, 2003 - stock issued for cash $ 0.01 - - - 1,688,000
February 4, 2003 - stock options exercised and issued $ 0.01 - - - 928,571
February 4, 2003 - stock issued for cash $ 0.01 - - - 928,571
February 5, 2003 - Stock issued for services at fair
value - VanSchaik $ 0.02 - - - 200,000
February 5, 2003 - Stock issued for cash $ 0.01 - - - 1,428,571
February 7, 2003 - stock issued for services at fair
value - Brantley $ 0.02 - - - 3,000,000
February 10, 2003 - stock issued for services at fair
value - Collins $ 0.02 - - - 775,000
February 10, 2003 - stock issued for services at fair
value - McVey $ 0.02 - - - 200,000
February 12, 2003 - stock issued for services at fair
value - Yes, International $ 0.02 - - - 200,000
February 14, 2003 - stock issued for services at fair
value - Silvasy $ 0.07 - - - 330,000
February 21, 2003 - stock issued for cash 750,000
February 26, 2003 - stock issued for services at fair
value - Bevins $ 0.02 - - - 10,000,000
March 7, 2003 - stock options granted at fair value - - - -
March 12, 2003 - Stock issued in partial satisfaction of
note payable at fair value - Coldwater Capital $ 0.02 - - - 3,272,727
March 12, 2003 - stock issued for cash $ 0.01 - - - 423,077
March 31, 2003 - deferred stock compensation earned - - - -
April 1, 2003 - consilidates subsidiary sale of additional shares - - - -
April 22, 2003 - stock options granted for services at fair
value - QAT - - - -
April 22. 2003 - stock options granted for services at fair
value - Gordon - - - -
May 7, 2003 - stock issued for cash $ - - - - 750,000
May 20, 2003 - conversion of debentures $ 0.17 - - - 28,837
May 30, 2003 - stock options exercised $ 0.01 - - - 750,000
June 5, 2003 - stock warrants exercised $ - - - - 5,000,000
June 6, 2003 -10% stock dividend issued - - - 13,999,900
June 9, 2003 - stock warrants granted for services at fair
value - Brantley - - - -
June 11, 2003 - stock issued for cash $ 0.10 - - - 3,083,333
June 11, 2003 - stock options exercised $ 0.03 - - - 1,266,667
June 11, 2003 - stock options exercised $ 0.05 - - - 105,000
June 11. 2003 - stock options exercised $ 0.05 - - - 30,000
June 11. 2003 - stock options exercised $ 0.05 - - - 80,000
June 11. 2003 - stock options exercised $ 0.07 - - - 500,000
June 11. 2003 - stock options exercised $ 0.05 - - - 105,000
June 11, 2003 - stock options exercised $ 0.05 - - - 180,000
June 11, 2003 - stock options exercised $ 0.05 - - - 150,000
June 11. 2003 - stock issued for cash $ 0.01 - - - 800,000
June 11, 2003 - stock issued for services at fair
value - Noser $ 0.17 - - - 300,000
June 13, 2003 - purchase treasury stock - - - -
June 20, 2003 - stock issued for services at fair
value - Yes, International $ 0.11 - - - 2,500,000
June 30, 2003 - adjust stock issued for cash - - - -
July 9, 2003 - stock options exercised and stock
issued for services - - - 2,900,000
July 16, 2003 - stock options exercised in lieu of cash for at - - -
fair value - Solnet Technologies $ 0.05 - - - 450,000
July 16, 2003 - stock options exercised $ 0.05 - - - 105,000
July 16, 2003 - stock options exercised $ 0.05 - - - 105,000
July 16, 2003 - stock options exercised $ 0.05 - - - 200,000
July 16, 2003 - stock options exercised in lieu of cash for at
fair value - Erickson $ 0.05 - - - 325,000
July 16, 2003 - stock issued for services at fair
value - Mottayaw $ 0.12 - - - 400,000
July 16, 2003 - stock issued for services at fair
value - Adam $ 0.12 - - - 400,000
July 16, 2003 - stock issued for services at fair
value - Erickson $ 0.20 - - - 300,000
July 23, 2003 - stock issued for cash $ 0.11 - - - 750,000
July 23, 2003 - stock issued for cash $ 0.09 - - - 1,000,000
July 23, 2003 - stock issued for cash $ 0.06 - - - 4,166,000
September 30, 2003 - adjust stock issued for cash - - - -
September 30, 2003 - stock options issued for services at fair
value - Stroup - - - -
October 3, 2003 - adjust stock issued for cash - - - -
November 30, 2003 - stock options granted for services at fair
value - Ference - - - -
December 1, 2003 - stock options granted for services at fair
value - Stroup - - - -
December 16, 2003 - stock issued for cash $ 0.17 - - - 100,000
December 16, 2003 - stock issued for cash $ 0.17 - - - 90,000
December 16, 2003 - stock and stock options issued for cash $ 0.11 - - - 11,823,528
December 31, 2003 - treasury stock activities - - - (250,000)
December 31, 2003 - adjust stock issued for cash - - - -
Net Loss (Comprehensive Net Loss) - - - -
---------------------------------------------------------------------
BALANCE DECEMBER 31, 2003 2,050,000 $ 20,000 $ 7,500 226,029,772
=====================================================================
COMMON COMMON
ADDITIONAL STOCK COMMON STOCK OPTIONS
COMMON PAID-IN SUBSCRIPTIONS STOCK GRANTED AND
STOCK CAPITAL RECEIVABLE WARRANTS NOT EXERCISED
----------------------------------------------------------------------
January 1, 2003 - stock options granted at fair value - - - - 6,150
January 6, 2003 - stock issued for services at fair
value - Benson 40,000 120,000 - - -
January 1, 2003 - stock issued for cash 10,000 (1,705) - - -
January 7, 2003 - stock issued in lieu of accounts payable
at fair value - La Jolla Cove Investore, Inc. 50,000 - - - -
January 14, 2003 - stock issued in lieu of accounts payable
at fair value - La Jolla Cove Investore, Inc. 50,000 - - - -
January 31, 2003 - stock issued for services at fair
value - Dodrill 30,000 15,000 - - -
January 31, 2003 - stock issued for services at fair
value - Dove 30,000 42,296 - - -
January 31, 2003 - stock options exercised and issued 30,000 91,100 - - (83,100)
February 3, 2003 - stock issued for services at fair
value - Dickman 1,000 1,000 - - -
February 3, 2003 - stock issued for services at fair
value - Adam 2,000 2,000 - - -
February 3, 2003 - stock issued for services at fair
value - Mottayaw 2,000 2,000 - - -
February 3, 2003 - stock issued for cash 16,880 (2,878) - - -
February 4, 2003 - stock options exercised and issued 9,286 914 - - -
February 4, 2003 - stock issued for cash 9,286 (1,583) - - -
February 5, 2003 - Stock issued for services at fair
value - VanSchaik 2,000 2,000 - - -
February 5, 2003 - Stock issued for cash 14,286 2,214 - - -
February 7, 2003 - stock issued for services at fair
value - Brantley 30,000 30,000 - - -
February 10, 2003 - stock issued for services at fair
value - Collins 7,750 8,455 - - -
February 10, 2003 - stock issued for services at fair
value - McVey 2,000 2,000 - - -
February 12, 2003 - stock issued for services at fair
value - Yes, International 2,000 2,000 - - -
February 14, 2003 - stock issued for services at fair
value - Silvasy 3,300 20,700 - - -
February 21, 2003 - stock issued for cash 7,500 2,500 - - -
February 26, 2003 - stock issued for services at fair
value - Bevins 100,000 100,000 - - -
March 7, 2003 - stock options granted at fair value - - - - 1,393
March 12, 2003 - Stock issued in partial satisfaction of
note payable at fair value - Coldwater Capital 32,727 29,992 - - -
March 12, 2003 - stock issued for cash 4,230 1,270 - - -
March 31, 2003 - deferred stock compensation earned - - - - -
April 1, 2003 - consilidates subsidiary
sale of additional shares - (60,943) - - -
April 22, 2003 - stock options granted for
services at fair value - QAT - - - - 268,240
April 22. 2003 - stock options granted for
services at fair value - Gordon - - - - 86,100
May 7, 2003 - stock issued for cash 7,500 (4,170) - - -
May 20, 2003 - conversion of debentures 288 4,712 - - -
May 30, 2003 - stock options exercised 7,500 7,650 - - (6,150)
June 5, 2003 - stock warrants exercised 50,000 (25,000) - (25,000) -
June 6, 2003 -10% stock dividend issued 140,000 (140,000) - - -
June 9, 2003 - stock warrants granted for
services at fair value - Brantley - - - - 84,500
June 11, 2003 - stock issued for cash 30,833 262,084 - - -
June 11, 2003 - stock options exercised 12,667 26,726 - - (1,393)
June 11, 2003 - stock options exercised 1,050 4,200 - - -
June 11. 2003 - stock options exercised 300 2,476 - - (1,276)
June 11. 2003 - stock options exercised 800 3,200 - - -
June 11. 2003 - stock options exercised 5,000 116,100 - - (86,100)
June 11. 2003 - stock options exercised 1,050 4,200 - - -
June 11, 2003 - stock options exercised 1,800 7,200 - - -
June 11, 2003 - stock options exercised 1,500 6,000 - - -
June 11. 2003 - stock issued for cash 8,000 - - - -
June 11, 2003 - stock issued for services at fair
value - Noser 3,000 48,000 - - -
June 13, 2003 - purchase treasury stock - - - -
June 20, 2003 - stock issued for services at fair
value - Yes, International 25,000 240,000 - - -
June 30, 2003 - adjust stock issued for cash - (64,096) - - -
July 9, 2003 - stock options exercised and
stock issued for services 29,000 315,910 - - (268,240)
July 16, 2003 - stock options exercised in lieu of
cash for at fair value - Solnet Technologies 4,500 18,000 - - -
July 16, 2003 - stock options exercised 1,050 4,200 - - -
July 16, 2003 - stock options exercised 1,050 4,200 - - -
July 16, 2003 - stock options exercised 2,000 8,000 - - -
July 16, 2003 - stock options exercised in lieu of cash
for at fair value - Erickson 3,250 13,000 - - -
July 16, 2003 - stock issued for services at fair
value - Mottayaw 4,000 44,000 - - -
July 16, 2003 - stock issued for services at fair
value - Adam 4,000 44,000 - - -
July 16, 2003 - stock issued for services at fair
value - Erickson 3,000 57,000 - - -
July 23, 2003 - stock issued for cash 7,500 78,000 - - -
July 23, 2003 - stock issued for cash 10,000 78,000 - - -
July 23, 2003 - stock issued for cash 41,660 208,340 (80,000)
September 30, 2003 - adjust stock issued for cash - 59,201 - - -
September 30, 2003 - stock options issued for services
at fair value - Stroup - - - - 2,425
October 3, 2003 - adjust stock issued for cash - 200,000 - - -
November 30, 2003 - stock options granted for services
at fair value - Ference - - - - 139,522
December 1, 2003 - stock options granted for services
at fair value - Stroup - - - - 22,425
December 16, 2003 - stock issued for cash 1,000 16,000 - - -
December 16, 2003 - stock issued for cash 900 14,400 - - -
December 16, 2003 - stock and
stock options issued for cash 118,235 792,465 (40,000) - 89,300
December 31, 2003 - treasury stock activities (2,500) (47,500) - - -
December 31, 2003 - adjust stock issued for cash - 42,054 - - -
Net Loss (Comprehensive Net Loss) - - - - -
--------------------------------------------------------------------------
BALANCE DECEMBER 31, 2003 $ 2,260,298 $ 12,710,444 $(120,056) $ - $ 357,702
==========================================================================
DEFICIT ACCUM-
DEFERRED ULATED DURING
DEFERRED TREASURY Financing DEVELOPMENT
Compensation Stock Costs Stage Total
---------------------------------------------------------------------------
January 1, 2003 - stock options granted at fair value - 6,150
January 6, 2003 - stock issued for services at fair
value - Benson - - - - 160,000
January 1, 2003 - stock issued for cash - - - - 8,295
January 7, 2003 - stock issued in lieu of accounts
payable at fair value - La Jolla Cove
Investore, Inc. - - - - 50,000
January 14, 2003 - stock issued in lieu of accounts
payable at fair value - La Jolla Cove
Investore, Inc. - - - - 50,000
January 31, 2003 - stock issued for services at fair
value - Dodrill - - - - 45,000
January 31, 2003 - stock issued for services at fair
value - Dove - - - - 72,296
January 31, 2003 - stock options exercised and issued - - - - 38,000
February 3, 2003 - stock issued for services at fair
value - Dickman - - - - 2,000
February 3, 2003 - stock issued for services at fair
value - Adam - - - - 4,000
February 3, 2003 - stock issued for services at fair
value - Mottayaw - - - - 4,000
February 3, 2003 - stock issued for cash - - - - 14,002
February 4, 2003 - stock options exercised and issued - - - - 10,200
February 4, 2003 - stock issued for cash - - - - 7,703
February 5, 2003 - Stock issued for services at fair
value - VanSchaik - - - - 4,000
February 5, 2003 - Stock issued for cash - - - - 16,500
February 7, 2003 - stock issued for services at fair
value - Brantley - - - - 60,000
February 10, 2003 - stock issued for services at fair
value - Collins - - - - 16,205
February 10, 2003 - stock issued for services at fair
value - McVey - - - - 4,000
February 12, 2003 - stock issued for services at fair
value - Yes, International - - - - 4,000
February 14, 2003 - stock issued for services at fair
value - Silvasy - - - - 24,000
February 21, 2003 - stock issued for cash - - - - 10,000
February 26, 2003 - stock issued for services at fair
value - Bevins - - - - 200,000
March 7, 2003 - stock options granted at fair value - - - - 1,393
March 12, 2003 - Stock issued in partial satisfaction
of note payable at fair value - Coldwater Capital - - - - 62,719
March 12, 2003 - stock issued for cash - - - - 5,500
March 31, 2003 - deferred stock compensation earned 47,400 - - - 47,400
April 1, 2003 - consilidates subsidiary sale
of additional shares - - - - (60,943)
April 22, 2003 - stock options granted for services
at fair value - QAT - - - - 268,240
April 22. 2003 - stock options granted for services
at fair value - Gordon - - - - 86,100
May 7, 2003 - stock issued for cash - - - - 3,330
May 20, 2003 - conversion of debentures - - - - 5,000
May 30, 2003 - stock options exercised - - - - 9,000
June 5, 2003 - stock warrants exercised - - - - -
June 6, 2003 -10% stock dividend issued - - - - -
June 9, 2003 - stock warrants granted for services
at fair value - Brantley - - - - 84,500
June 11, 2003 - stock issued for cash (42,917) - - - 250,000
June 11, 2003 - stock options exercised - - - - 38,000
June 11, 2003 - stock options exercised - - - - 5,250
June 11. 2003 - stock options exercised - - - - 1,500
June 11. 2003 - stock options exercised - - - - 4,000
June 11. 2003 - stock options exercised - - - - 35,000
June 11. 2003 - stock options exercised - - - - 5,250
June 11, 2003 - stock options exercised - - - - 9,000
June 11, 2003 - stock options exercised - - - - 7,500
June 11. 2003 - stock issued for cash - - - - 8,000
June 11, 2003 - stock issued for services at fair
value - Noser - - - - 51,000
June 13, 2003 - purchase treasury stock (50,000) (50,000)
June 20, 2003 - stock issued for services at fair
value - Yes, International - - - - 265,000
June 30, 2003 - adjust stock issued for cash (64,096)
July 9, 2003 - stock options exercised and stock
issued for services - - - - 76,670
July 16, 2003 - stock options exercised in lieu of
cash for at fair value - Solnet Technologies - - - - 22,500
July 16, 2003 - stock options exercised - - - - 5,250
July 16, 2003 - stock options exercised - - - - 5,250
July 16, 2003 - stock options exercised - - - - 10,000
July 16, 2003 - stock options exercised in lieu of
cash for at fair value - Erickson - - - - 16,250
July 16, 2003 - stock issued for services at fair
value - Mottayaw - - - - 48,000
July 16, 2003 - stock issued for services at fair
value - Adam - - - - 48,000
July 16, 2003 - stock issued for services at fair
value - Erickson - - - - 60,000
July 23, 2003 - stock issued for cash - - - - 85,500
July 23, 2003 - stock issued for cash - - - - 88,000
July 23, 2003 - stock issued for cash 170,000
September 30, 2003 - adjust stock issued for cash - - - - 59,201
September 30, 2003 - stock options issued for services
at fair value - Stroup - - - - 2,425
October 3, 2003 - adjust stock issued for cash - - 200,000
November 30, 2003 - stock options granted for services
at fair value - Ference - - - - 139,522
December 1, 2003 - stock options granted for services
at fair value - Stroup - - - - 22,425
December 16, 2003 - stock issued for cash - - - - 17,000
December 16, 2003 - stock issued for cash - - - - 15,300
December 16, 2003 - stock and stock options issued
for cash - - - - 960,000
December 31, 2003 - treasury stock activities - (25,392) - - (75,392)
December 31, 2003 - adjust stock issued for cash - - - - 42,054
Net Loss (Comprehensive Net Loss) - - - (3,675,277) (3,675,277)
---------------------------------------------------------------------------
BALANCE DECEMBER 31, 2003 $ (42,917) $ (75,392) $ - $(17,119,542) $ (2,001,963)
===========================================================================
F-8
DATAMEG CORP.AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMMULATIVE
FOR THE FOR THE FROM INCEPTION
YEAR ENDED YEAR ENDED (JANUARY 13, 1999) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2003 2003
(UNAUDITED)
-------------- -------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,876,910) $ (3,675,277) $ (17,119,542)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 12,120 9,112 75,610
Stock issued for purchase of in-process R&D 870,600 - 870,600
Stock issued, or to be issued, in lieu of
cash for professional services 314,838 904,401 7,185,799
Stock issued to officers for reimbursement
of corporate expenses or compensation 129,792 160,000 1,762,781
Stock options issued in lieu of cash for
professional services 84,376 526,256 780,522
Stock warrants issued in lieu of cash for
professional services - 84,500 84,500
Property and equipment given in lieu of cash
for professional services - - 15,475
Realized gains on sales of investments - - (8,530)
Loss on acquisition fee - 50,000 123,950
Loss on disposal of property and equipment - 401 1,459
Loss on impairment of patent 127,274 - 127,274
Loss on litigation - 105,840 105,840
Minority interest (13,012) (141,419) (154,431)
Stock issued in lieu of financing costs 140,250 - 140,250
Changes in assets and liabilities
affecting operations:
Prepaid expenses - (4,767) (4,767)
Deposits 19,986 - 19,986
Promissory notes 133,361 127,146 828,889
Accounts payable and accrued expenses 383,340 17,189 878,635
Accrued compensation 149,431 227,654 377,085
Due to stockholders and officers 12,486 (19,000) 15,102
Liability for stock to be isssued 24,000 16,813 40,813
Short-term note payable 10,909 - 10,909
-------------- -------------- ---------------------
Net cash used in operating activities (477,159) (1,611,151) (3,841,791)
-------------- -------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - (32,510) (71,964)
Payments for intangible assets - - (127,274)
Payments for security deposits - (69,445) (81,931)
Investment in subsidiary (149,312) - (149,312)
Purchases of investments - - (20,000)
Sales of investments - - 28,530
-------------- -------------- ---------------------
Net cash used in investing activities (149,312) (101,955) (421,951)
-------------- -------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan from shareholder - - 26,000
Repayment of loan from shareholder - - (26,000)
Proceeds from short-term loan 120,000 - 120,000
Repayment of capital lease obligations (300) - (32,002)
Net proceeds from issuance of stock 439,158 1,956,000 4,217,967
Net proceeds from stock to be issued 45,000 161,000 206,000
Proceeds from investments in subsidiary - 25,000 25,000
Proceeds from issuance of warrants 25,000 - 25,000
Repayment of promissory note - (500) (500)
Payment for treasury stock - (125,392) (125,392)
Proceeds from issuance of debentures - - 139,990
-------------- -------------- ---------------------
Net cash provided by financing activities 628,858 2,016,108 4,576,063
-------------- -------------- ---------------------
NET CHANGE IN CASH 2,387 303,002 312,321
CASH, BEGINNING OF PERIOD 6,932 9,319 -
-------------- -------------- ---------------------
CASH, END OF PERIOD $ 9,319 $ 312,321 $ 312,321
============== ============== =====================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Financing of property and equipment
with capital lease $ - $ - $ 42,540
============== ============== =====================
Issuance of stock in exchange for notes
receivable $ - $ - $ 656,251
============== ============== =====================
Issuance of stock in exchange for notes payable $ 85,196 $ 79,219 $ 279,405
============== ============== =====================
Stock issued as a reduction of the liability for
stock to be issued $ - $ 467,138 $ 1,675,234
============== ============== =====================
Stock issued in lieu of deferred financing costs $ - $ - $ 140,250
============== ============== =====================
Stock issued in lieu of deferred compensation $ 47,400 $ - $ 47,400
============== ============== =====================
Stock issued in purchase of subsidiary $ 483,658 $ - $ 483,658
============== ============== =====================
SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION:
Interest paid $ - $ - $ 6,612
============== ============== =====================
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION AND ORGANIZATION
DataMEG Corp. is a technology holding company focused through the Company's
subsidiaries on developing new technologies, software applications, and products
primarily serving the telecommunications sector.
DataMEG Corp. is a New York corporation and was incorporated in October, 1982 as
The Viola Group, Inc. In August 2000 the Company exchanged 90% of our common
stock for 100% of the stock of DataMEG Corp., a Virginia corporation that was
incorporated in January 1999. The Company subsequently changed its name to
DataMEG Corp. and is the successor in business operations of the Virginia
DataMEG.
DataMEG Corp. has two subsidiaries: CASCommunications, Inc., a Florida
corporation, of which the Company owns 40%, and North Electric Company, Inc., a
North Carolina corporation, which the Company wholly owns. DataMEG Corp. and its
subsidiaries individually and collectively are a development stage enterprise.
CASCommunications focuses on developing devices related to high-speed broadband
access. CASCommunications' initial focus is in developing a device that will
accelerate the speed of information over the part of the cable fiber between the
neighborhood network hub to the home of each end user, this part is often called
the last mile. CASCommunications' device is based on a communication technology
called MPTC - Multi Phase Poly Tone Communication. MPTC delivers new advantages
to the cable operator compared to existing last mile high-speed communication
technologies.
North Electric focuses on becoming a provider of network assurance products and
services. North Electric network assurance products are designed to enable
communications network operators and service providers to quickly and
automatically determine if their network is meeting its quality and service
expectations, while lowering network operating costs. North Electric is
developing software that will provide products that cover the existing
traditional telephone networks, networks that use the same communication
technology as the Internet, and converged networks comprised of both of these
network types. Communications networks that deploy advanced technologies will
receive additional fault isolation and related benefits.
These consolidated financial statements reflect those of DataMEG Corp.,
CASCommunications, Inc. and North Electric Company, Inc. In accordance with the
Financial Accounting Standards Board ("FASB") interpretation ("FIN") 46
"Consolidation of Variable Interest Entities an interpretation of ARB No. 51",
the Company continues to consolidate CASCommunications, Inc. as it expects to
continue to absorb a majority of CASCommunication Inc.'s losses. Collectively,
DataMEG Corp., CASCommunications, Inc. and North Electric Company, Inc. are
referred to as the "Company".
CASCommunications had no recorded assets as of December 31, 2003 and had a loss
before minority interest of $448,557 for the year ended December 31, 2003. No
consolidated assets are collateral for liabilities of CASCommunications. DataMEG
has provided $270,000 of the total capital of $388,000
F-10
provided to CASCommunications as of December 31, 2003.
The Company operates under the name of DataMEG Corp. and trades under the symbol
DTMG on the OTC-BB.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The accompanying consolidated financial statements
present the consolidation of the financial statements of DataMEG Corp., its
partially owned subsidiary, CASCommunications, Inc. and its wholly owned
subsidiary, North Electric Company, Inc. Material inter-company transactions and
balances have been eliminated in the consolidation.
Business Combinations - In June 2001, the FASB issued SFAS No. 141, "Business
Combinations." It supersedes preexisting accounting and reporting standards for
business combinations. It requires that all business combinations defined within
the scope of the Statement be accounted for using only the purchase method as
opposed to the pooling-of-interest method, a previously approved alternative for
accounting and reporting business combinations. The provisions of this Statement
apply to all business combinations initiated after June 30, 2001 or for which
the acquisition is July 1, 2001 or later. Management has adopted this standard
and applied it to the North Electric Company, Inc. merger.
Consolidation of Variable Interest Entities - In January 2003 and revised
December 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." This interpretation of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", requires consolidation by business
enterprises of variable interest entities, as defined, when certain conditions
are met. Pursuant to FIN No. 46, the Company continues to consolidate
CASCommunications, Inc.
Basis of accounting - The accounts of the Company are maintained on the accrual
basis of accounting whereby revenue is recognized when earned, and costs and
expenses are recognized when incurred.
Use of estimates - Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from those
estimates.
Property and equipment - Property and equipment are stated at cost. Depreciation
and amortization is determined using the straight-line method over estimated
useful lives ranging from three to seven years.
Intangible assets - Intangible assets as of December 31, 2002 and 2003 consisted
of goodwill related to the North Electric Company, Inc. merger in April 2002.
Effective January 2002, the company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," (SFAS 142). SFAS 142
addresses accounting and reporting for acquired goodwill. It eliminates the
previous requirement to amortize goodwill and establishes new requirements with
respect to evaluating goodwill and impairment. The annual goodwill impairment
assessment involves estimating the fair value of a reporting unit and comparing
it with its carrying amount. If the carrying amount of the reporting unit
exceeds its fair value, additional steps are followed to recognize a potential
impairment loss. With the assistance of a third-party valuation expert, the
company ascertained the fair value of one of its reporting units, North Electric
Company, Inc. as part of adopting SFAS 142 and determined that there was no
impairment of goodwill pursuant to the new standard as of December 31, 2002 and
2003. The fair value of the reporting unit was determined primarily through an
income based valuation approach. Valuation methods based on the income approach
utilize the expected economic earnings capacity of the reporting unit to
estimate value. The expected future cash flows for the reporting unit were
discounted at an appropriate risk adjusted discount rate. A market based
valuation approach based on the Company's quoted stock price was also considered
but not heavily relied on because the Company's stock is thinly traded at small
dollar volumes. Additionally, there were no publicly traded guideline companies
similar to the reporting unit for
F-11
comparison.
Fair value of financial instruments - The carrying value of cash, notes
receivable, accounts payable and accrued expenses and notes payable approximate
fair value because of the relatively short maturity of these instruments.
Capital Structure - SFAS No. 129, "Disclosure of Information about Capital
Structure," requires a summary presentation of the pertinent rights and
privileges of the various securities outstanding. The Company's outstanding
stock is comprised of 226,029,772 shares of voting common stock, 2,000,000
shares of non-voting Class A convertible preferred stock and 50,000 shares of
non-voting Class B convertible preferred stock. One investor holds the
outstanding preferred shares. The Class A preferred stock shall be convertible
into shares of common stock of the Company at a rate of two shares of common
stock for each share of preferred stock with 2,000,000 of the shares being
convertible upon meeting certain agreed-upon product development benchmarks. The
Class B preferred stock shall be convertible into shares of common stock of the
Company at a rate of twenty shares of common stock for each share of preferred
stock with 75,000 shares being convertible upon meeting certain agreed-upon
product development benchmarks. The benchmarks related to the conversion rate of
both classes of preferred stock have been met as of June 2002. In December 2002,
the Company filed a certificate of amendment with the State of New York to
increase the number of authorized shares from 130,000,000 to 185,000,000, of
which 175,000,000 were to be common stock and 10,000,000 were to be preferred
stock. In April 2003, the Company amended its certificate of incorporation with
the state of New York to increase the number of authorized shares of stock to
350,000,000, of which 10,000,000 are to be of preferred shares and 340,000,000
shares are to be of common stock. As of December 31, 2003, the Company owns
760,000 shares of its treasury stock that it purchased at a total cost of
$75,392 in November and December 2003. In January 2003, the Company announced a
ten percent stock dividend that was payable to shareholders of record as of
Wednesday, January 8, 2003 and was paid in June 2003. The number of shares
issued and outstanding on January 8, 2003 was approximately 139,999,000
resulting in a stock dividend issuance of 13,999,900 shares in June 2003. As a
result of the stock dividend, common stock increased and paid in capital
decreased in the amount of $139,999 and there was no impact on the statement of
operations. However, all earnings per share calculations were retroactively
restated to include the stock dividend.
Advertising - Advertising costs are charged to operations as incurred. For the
years ended December 31, 2002 and 2003, there were no advertising costs charged
to operations.
Research and development - The Company expenses research and development costs
as incurred.
Software development costs - Statement of Financial Accounting Standard ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility and readiness
of general release. As of December 31, 2003, there have been no costs incurred
by the Company between the completion of technological feasibility and general
release and therefore no such expenses have been capitalized in the accompanying
consolidated financial statements.
Income Taxes - The Company, a C-corporation, accounts for income taxes under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The principal differences are net operating losses, start-up
costs and the use of accelerated depreciation methods to calculate depreciation
expense for income tax purposes.
Stock-based compensation - The Company follows guidance provided in SFAS No.
123, "Accounting for Stock-Based Compensation", which encourages companies to
recognize expense for stock-based awards based on their estimated fair value on
the grant date. SFAS No. 123 permits companies to account for
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stock-based compensation based on provisions prescribed in SFAS No. 123 or based
on the authoritative guidance in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company elected in the past to
account for its stock based compensation in accordance with APB 25, which uses
the intrinsic value method. The Company has accounted for all other issuances of
equity instruments in accordance with SFAS No. 123. In January, 2002 the Company
adopted SFAS No. 123, for all stock options including those issued to employees.
This adoption resulted in a change in accounting principles which was reported
using the prospective method as provided in SFAS No. 148.
Comprehensive Income - SFAS No. 130, "Reporting Comprehensive Income,"
establishes standards for reporting comprehensive income and its components.
Comprehensive income is defined as the change in equity during a period from
transactions and other events from non-owner sources. Entities that do not have
items of other comprehensive income in any period presented are not required to
report comprehensive income. Accordingly the Company has not made any such
disclosure in the statements presented herein.
Net loss per common share - The Company reports basic and diluted earnings per
share ("EPS") according to the provisions of SFAS No. 128, "Earnings Per Share."
SFAS No. 128 requires the presentation of basic EPS and, for companies with
complex capital structures, diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
EPS is computed by dividing net income (loss) available to common stockholders,
adjusted by any convertible preferred dividends; the after-tax amount of
interest recognized in the period associated with any convertible debt; and any
other changes in income or loss that would result from the assumed conversion of
those potential common shares, by the weighted number of common shares and
common share equivalents (unless their effect is anti-dilutive) outstanding.
Segment Information - SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information." requires public enterprises to report certain
information about operating segments, including products and services,
geographic areas of operations, and major customers. The Company has determined
that it does not have any separately reportable business segments for the years
ended December 31, 2002 and 2003.
RECENT ACCOUNTING PRONOUNCEMENTS
Stock-Based Compensation Transitions - In December 2002, the FASB issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure -
an amendment of FASB Statement No. 123". This statement provides alternative
methods for a voluntary change to the fair value based method of accounting for
stock-based employee compensation and changes the related disclosure
requirements. Management's adoption of this standard did not have a material
effect on the Company's financial position or results of operations for the
years ended December 31, 2002 and 2003.
Derivative Instruments and Hedging Activities - In April 2003, the FASB issued
SFAS No. 149, "Amendment of Statement 133 Derivative Instruments and Hedging
Activities." This statement amends and clarifies the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. The statement requires
that contracts with comparable characteristics be accounted for similarly and
clarifies when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, except in certain
circumstances, and for hedging relationships designated after June 30, 2003.
Management's adoption of this standard did not have a material effect on the
Company's financial position or results of operations for the year ended
December 31, 2003.
Certain Financial Instruments with Characteristics of both Liabilities and
Equity - In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
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certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of the
instruments were previously classified as equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. It is to be reported by stating the cumulative effect of a change in
accounting principle for financial instruments created before the issuance date
of the Statements and still existing at the beginning of the interim period of
adoption. Management's adoption of this standard did not have a material effect
on the Company's financial position or results of operations for the year ended
December 31, 2003.
C. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31:
Depreciation expense totaled $12,120 and $9,112 for the years ended December 31,
2002 and 2003, respectively.
D. MERGER WITH NORTH ELECTRIC COMPANY, INC.
In April 2002, we closed the merger with North Electric Company, Inc., a
development stage company that has not yet produced any revenues or sales. As a
result of this transaction, North Electric Company, Inc. became our wholly owned
subsidiary. The purchase consideration included the payment of $150,000 in cash,
the issuance of 1,430,000 shares of our unrestricted common stock, with a fair
value of approximately $78,000 and the issuance of 15,000,000 shares of DataMEG
restricted common stock. The 1,430,000 shares were issued to North Electric
Company, Inc. prior to the merger, to support North Electric Company Inc.'s
operations. The restricted stock issued at the time of the merger was valued
based on the fair value on the date of issuance less a 10% discount for lack of
marketability for an indicated value of $405,000. The purchase price allocation
was based upon an independently performed valuation. The acquisition has been
accounted for under the purchase method. The total purchase price of
approximately $1,090,000 includes cash of $150,000, common stock valued at
approximately $483,000 ($405,000 plus $78,000) and assumed liabilities of
approximately $457,000. Of the purchase price, approximately $13,000 was
allocated to the fair value of property and equipment and miscellaneous current
assets, approximately $207,000 was allocated to goodwill and approximately
$870,000 was allocated to in-process research and development. The in-process
research and development was charged to research and development expenses as of
the date of the merger. The value allocated to in-process research and
development was based upon an analysis of discounted estimated future cash flows
over a five year period. Discounted cash flows are based on North Electric
management's assumptions as follows:
Revenue - based on estimated unit sales to identified customer prospects and
management's growth
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expectations;
Cost of Sales -based on current and projected costs of technology licenses and
material as apply to cost of sales;
Marketing/Sales Support -based on estimated costs of planned marketing
initiatives and future projections based on a percent of sales;
Research and Development - based on estimated costs to complete applications in
process;
Administrative Expenses - based on current cost structure and future costs
estimated as a percent of sales;
Net Working Capital Charges and Capital Charges - based on a projected return on
assets;
Net Working Capital - based on estimated costs as a percent of sales;
Annual Capital Expenditures - based on estimated annual expenditures on hardware
and other equipment;
Assembled Workforce & and required return - based on estimated return on assets,
projected costs for salaries, benefits, recruiting, training and related
estimated tax benefits;
IPR&D - Required Return - based on estimated return on assets as follows:
Risk-Free Rate - measured by the average long-term yield on Treasury Bonds
with 20 years left to mature for April 2002;
Equity Risk Premium - based on historical rates of return for large
publicly traded equity securities;
Small Stock Premium - Beta-Adjusted size premium based on the historical
return of small capitalization stocks in excess of large capitalization stocks;
Industry Risk Premium - Historical industry risk premium for measuring,
analyzing, and controlling equipment companies;
Project Risk Premium - based on an independent assessment of the risk of
completion of the applications and market acceptance risk;
Required Return on Intangible Assets - based on an analysis of risk factors
relative to each asset and compare to required rates of return for small
capitalization companies;
Required Return on Current/Tangible Assets - based on required rate of return
for financing current and fixed assets;
Survivorship of Technology - The technology is estimated to have a 5 year life;
Tax Rate - based on estimated Federal and state corporate tax rates.
As of the date of acquisition on April 23, 2002, North Electric Company, Inc.
had two network assurance applications under development. The first application
provides network level monitoring and testing for MPLS-based IP optical
transport networks ("MPLS application") and the second application is designed
to provide network assurance services to converged broadband IP networks
("Broadband IP application"). Based on an independent analysis and discussions
with North Electric's management, both applications had not demonstrated
technological or commercial feasibility. Additionally, there is no alternative
use for the technology. As of the date of acquisition, the MPLS application was
approximately 70% complete. Total
F-15
projected costs to complete from the date of the merger are approximately
$396,000. The application was expected to be completed in October 2002. The
Broadband IP application was approximately 30% complete. Total projected costs
to complete from the date of the merger were approximately $450,000 and the
expected date of completion was March 2003. These development efforts fall
within the definition of in-process research and development contained in
Statement of Financial Accounting Standards ("SFAS") No. 2.
As technological feasibility of the in-process research and development has not
been established and the technology has no alternative future use we believe
that the replacement cost for the in-process research and development would not
be substantially less than the $870,000. None of the goodwill will be recorded
for income tax purposes.
E. CONVERTIBLE SUBORDINATED DEBENTURES
In July 2000, the Company issued convertible subordinated debentures totaling
approximately $140,000. The terms of the debentures require interest payable at
twelve percent per annum payable quarterly with a maturity date of one year from
the date of advance unless mutually extended. The debentures are subordinate and
junior to existing liabilities of the Company and any subsequent borrowings from
banks or insurance companies. The debentures were able to be converted to common
stock at a price of $2.50 per share at any time prior to maturity. During 2000
and 2003, approximately $120,000 of the convertible subordinated debentures were
converted resulting in the issuance of 71,033 shares of restricted common stock
as of December 31, 2003. The remaining convertible subordinated debentures total
$25,000 and $20,000 at December 31, 2002 and 2003, respectively. Interest
accrued related to the unconverted subordinated debentures was $13,297 and
$15,963 at December 31, 2002 and 2003, respectively. The Company is in default
related to payments of interest and principal at December 31, 2003.
F. DUE TO STOCKHOLDERS AND OFFICERS
As of December 31, 2002 and 2003, the Company was indebted to officers and
stockholders in the amount of $63,680 and $44,680, respectively for expenses
incurred on behalf of the Company. This is exclusive of amounts included in
accrued compensation.
G. LIABILITY FOR STOCK TO BE ISSUED
In 2001, the Company entered into two transactions with investors whereby the
Company was required at December 31, 2001 to issue 8,085 shares of common stock.
The value of the shares of stock is based upon purchase price of shares
purchased or the market value of the shares at the date of commitment for a
total liability at December 31, 2002 and 2003 of approximately $800.
At December 31, 2002, the balance for liability to issue stock included $50,000
that represented deposits for the issuance of stock under certain stock purchase
agreements with Hickey Hill and Miami Associates. These amounts were
reclassified in 2003 to accounts payable and accrued expenses when it was
determined that the Company would not satisfy the liability with the issuance of
stock (See Note I).
At December 31, 2002, the balance for liability to issue stock included
approximately $142,000 that was related to a judgment due to an investor under
litigation related to a stock purchase agreement that was to be satisfied with
the issuance of ten million shares of the Company's stock. The stock was issued
in January 2003 and the liability was formally satisfied on September 30, 2003
(See Note N).
At December 31, 2002, the balance for liability to issue stock included $24,000
that was related to an agreement to issue 3,000 shares of the Company's stock in
lieu of cash for services rendered to the Company in 2002. The stock was valued
based upon the market value of the stock on the date of the
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commitment to issue the stock and was subsequently issued in 2003.
At December 31, 2002, the balance for liability to issue stock included $10,000
that represented deposits for the issuance of 2,250,000 shares of the Company's
stock to an investor. The stock was issued in May 2003 thus satisfying the
liability.
H. PROMISSORY NOTES
On October 29, 2001, the Company signed a confessed judgment promissory note
with a law firm acknowledging monies owed amounting to $568,382, which had been
previously accrued. The balance of the promissory note accrued interest at a
rate of 9% and matured on December 31, 2001. On January 7, 2002 the Company
received a notice of default relating to the Promissory Note and as of January
1, 2002 the outstanding balance was increased five percent (5%) and began to
accrue interest at an annual rate of 15%. The balance including accrued interest
and legal fees was approximately $702,000 and $806,000 as of December 31, 2002
and 2003, respectively.
In July 2003, the Company signed a promissory note with a professional for fees
and the interest on unpaid fees due that professional through June 30, 2003 in
the amount of $247,507. The note is guaranteed personally by the Company's
President. The promissory note accrues interest at a rate of 18% per annum and
was due and payable on August 15, 2003. No significant payments have been made
to date and the Company is in default with respect to this note and additional
interest of 2% per thirty calendar day period accrues as liquidated damages. The
balance including accrued interest was approximately $270,000 as of December 31,
2003.
I. OTHER LIABILITIES
On December 18, 2001 the Company entered into a short-term loan agreement with
an investor for $120,000. Principal and interest on the loan were due April 15,
2002. The loan was secured by approximately 3.4 million shares of the Company's
stock owned and pledged by the Company's President. On May 17, 2002, the
investor filed suit against the Company and the Company's President for the
principal, accrued interest, legal fees and related damages. A liability in the
amount of the principal, interest and legal fees was recorded in the balance
sheet of the Company. The Company issued the Company's President 3,272,727
shares of common stock in August 2002 to replace the pledged stock lost. The
reimbursed shares were treated as a cost of capital and approximately $52,000
was applied against the paid-in-capital account in the equity section of the
Company's balance sheet. This liability was reduced by the receipt of the
pledged shares and has a current balance of approximately $56,000 at December
31, 2002 and 2003 and is recorded in accounts payable and accrued expenses.
During 2002, the Company entered into several stock purchase agreements with
Hickey Hill Partners LLC and Miami Associates Investors, LLC ("Investors") to
purchase shares of the Company's common stock. The Company discounted the
purchase price based upon market conditions at the time of issuance of the stock
and the immediately following several days. The Company held advances in the
amount of $35,000 for which stock was not issued. The Company believed that the
investors defaulted on the stock purchase agreements and the investors believed
that the Company defaulted on the stock purchase agreements. Hickey Hill
Partners LLC filed a lawsuit against the Company and the Company's President in
the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County,
Florida. On April 3, 2003, the court issued a default judgment against the
Company and our President in the amount of $64,352 that bears interest at the
rate of 6% a year and prejudgment interest of $1,716. The Company has recorded a
liability for the judgment and additional accrued interest at December 31, 2003
in the amount of $68,945 that is included in accounts payable and accrued
expenses.
Miami Associates Investors, LLC also filed a lawsuit against the Company and the
Company's President in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida for damages in the amount of $54,850 together with the
awarding of treble damages, attorneys fees and interest. On April 24, 2003,
F-17
the court determined that the Company and our President defaulted. A final
judgment was ordered and finalized on December 3, 2003. The Company has recorded
a liability for the judgment and accrued interest at December 31, 2003 in the
amount of $118,350 that is recorded in accrued expenses.
For the year ended December 31, 2003 a loss on litigation related to these two
lawsuits was recorded in the amount of $105,840 in the consolidated statements
of operations.
J. INCOME TAXES
The benefit for income taxes for the years ended December 31 are as follows:
2002 2003
---- ----
Current $ - $ -
Deferred - -
------- --------
Total benefit for
income taxes $ - $ -
======= ========
A reconciliation of income tax at the statutory rate to the Company's effective
rate is as follows for 2002 and 2003:
2002 2003
---- ----
Computed at the expected statutory rate $ (970,000) $(1,329,000)
State income tax-net federal tax benefit (171,000) (235,000)
Add: Purchased in-process R&D 348,000 -
Other differences - 37,000
Less: valuation allowance change 793,000 1,527,000
----------- -----------
Total benefit for income taxes $ - $ -
=========== ===========
Deferred tax assets and liabilities at December 31, 2002 and 2003 were as
follows:
The net increase in the valuation allowance for the years ended December 31,
2002 and 2003 was $793,000 and $1,527,000, respectively. The Company has
available at December 31, 2003 approximately $1,490,000 for the parent,
$1,640,000 for North Electric Company, Inc. and $490,000 for
F-18
CASCommunications, Inc. of unused operating loss carry forwards that may be
applied against future taxable income that expire in 2019 through 2023. Since a
consolidated tax return is not filed, any net operating loss carryforwards can
only be used to offset future taxable income of the specific company. Due to
stock ownership changes, the ability to benefit from the net operating loss
carryforwards may be significantly restricted.
K. RESEARCH AND DEVELOPMENT COSTS
Total research and development cost were approximately $1,232,000 and $1,179,000
for the years ending December 31, 2002 and 2003, respectively. Research and
development expense for the year ending December 31, 2002 included approximately
$870,000 of in-process research and development expenses related to the North
Electric Company, Inc. merger.
L. RELATED PARTY TRANSACTIONS
As of December 31, 2002 and 2003 the Company had amounts payable to various
officers and stockholders (see Note F).
During 2002 and 2003, the Company's President assumed personal liability and
pledged personal assets as part of several financing agreements.
M. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash. The Company maintains its cash accounts
with several commercial banks. Cash balances are insured by the Federal Deposit
Insurance Corporation, up to $100,000 per financial institution. At December 31,
2002, the Company had no uninsured cash balances. At December 31, 2003, the
Company's uninsured cash balances were approximately $157,000.
N. COMMITMENTS AND CONTINGENCIES
Commitments:
In May 2003, the Company signed a term sheet to acquire the additional 60%
equity position in CASCommunications, Inc. The term sheet is non-binding and any
subsequent definitive agreement is dependent upon a successful completion of due
diligence by all parties. The terms of the purchase are based upon the valuation
of the developed technology and the contacts made to date to implement the
technology on a test basis. As of April 9, 2004, the developed technology has
not been valued and no definitive agreement has been signed.
In September 2003, the Company signed a short-term consulting agreement with a
consultant for specific management consulting services. As part of the
agreement, management is required to pay $20,000 per month for three months
unless the contract is extended or an employment offer is tendered and accepted.
In addition, the Company granted the consultant options for 1,500,000 shares of
the Company's common stock at a strike price of $0.14 per share, vesting monthly
in arrears at a rate of 250,000 shares per month. In the event that the
consultant becomes an employee, the Company will be required to grant additional
options for 1,000,000 shares of the Company's common stock with a strike price
of $0.14, vesting monthly in arrears over a twenty-four month period. In
December 2003, the consulting agreement was amended to extend the term of the
engagement an additional five months and granted the consultant stock options
for an additional 2,500,000 of the Company's common stock at a strike price of
$0.14 per share. The additional stock options vest monthly in arrears at a rate
of 250,000 shares per month. The vested stock options were valued under SFAS No.
123 using a Black-Scholes model and the Company recorded an expense in the
amount of $24,850 to consulting
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fees during the year ended December 31, 2003 related to the vested options. As
of December 31, 2003, none of the vested stock options has been exercised (See
Note R).
In November 2003, the Company entered into an informal agreement with an
ex-employee of North Electric Company to issue 1,750,000 shares of the Company's
common stock as part of a settlement agreement and release related to prior
claims against the company for unpaid and additional compensation earned under
certain verbal agreements. The commitment to issue stock was valued based upon
the average market value of the stock during the month of November 2003. As a
result the Company increased the existing liability to the employee and recorded
additional consulting expense of approximately $115,000 at that time for a
balance due the employee of $315,000 at December 31, 2003. The agreement was
formalized and signed on February 12, 2004.
On November 30, 2003, the Company entered into an informal agreement with the
president of North Electric Company related to past, present and future
compensation. Under the terms of the agreement the Company committed to issue
1,770,000 shares of the Company's common stock as satisfaction for amounts owed
to the president of North Electric Company in unpaid compensation through the
year ended December 31, 2003. The Company committed to issue the president of
North Electric Company stock options for 5,500,000 shares of the company's
common stock at a strike price of $0.15 per share. 1,500,000 vested on November
30, 2003 and the balance to vest over the following 36 months and will expire
three years after the date of vesting. During the year ended December 31, 2003
1,611,111 shares vested under this commitment, were valued under SFAS No. 123
using a Black-Scholes model and the Company recorded an expense in the amount of
$139,522 which was charged to officers compensation. As of December 31, 2003,
none of the vested stock options were exercised. The Company also increased the
president of North Electric Company's annual compensation and committed to issue
500,000 shares of the Company's common stock as bonus compensation for achieving
future benchmarks of which, 250,000 has been earned in the first quarter of
2004. The remainder of the 500,000 shares will be earned in the future.
Lease commitments:
In February 2003, the Company signed a sub-lease agreement for office space in
Raleigh, North Carolina. The term of the lease is for 20 months beginning in
April 2003 and ending in November 2004. The terms of the lease call for a base
monthly payment of $2,383.
The Company leases communications equipment and owes $8,302 under capital lease
agreements, which expired in January through July 2001. These capital leases are
in default. The assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value of
the asset. The assets are amortized over their estimated useful lives.
Amortization of assets under capital leases is included in depreciation and
amortization expense.
The Company has no minimum lease payments due under the terms of non-cancelable
operating leases that have initial or remaining terms in excess of one year as
of December 31, 2003.
Total rent expense for all operating leases was $110,587 and $63,673 for the
years ending December 31, 2002 and 2003, respectively.
Contingencies:
During 1999, the Company entered into an agreement with a consulting firm for
services rendered over the period October 1999 through June 2000. The agreement
with the consultant may call for additional consideration totaling 4% of
outstanding stock in warrants or warrants for 1,320,000 shares of the Company's
common stock at a strike price of $2.30 per share , contingent upon the
consummation of the share exchange. The Company performed an analysis of the
value of the warrants to determine the amount of a possible expense under SFAS
No. 123. Using the Black-Scholes model, if the warrants had been issued, when
the agreement was signed, they would have been valued at approximately $704,000.
F-20
The Company believes that no such additional compensation is due to the
consultant under the terms of the agreement. No amount has been recorded related
to the possible requirements to issue warrants.
As of December 31, 2002, the Company owed $142,388 to an investor pursuant to a
judgment received related to a stock sale agreement. Pursuant to agreements with
the investor, during 2003 the Company issued 10 million shares of the Company's
common stock to the investor and received and additional $200,000 from the
investor. The investor released the judgment and there were no remaining amounts
due to the investor related to this transaction at December 31, 2003. If the
investor sells the 10 million shares of common stock for an amount in excess of
$2,400,000, then the Company is entitled to receive 90% of the excess as
additional proceeds. No amounts have been recorded related to the additional
proceeds.
During 2002, the Company received a $25,000 premium in exchange for a warrant to
purchase 5 million shares of the Company's common stock. The holder exercised
the warrant during 2003 in exchange for a contingent exercise price. Due to
certain conditions, no amounts had to be paid against the contingent exercise
price. Pursuant to the warrant agreement, the Company may be required to refund
110% of the warrant premium. No amount has been recorded against this contingent
liability.
Since its inception, the Company has treated certain personnel as independent
consultants per agreements with the personnel. As a result, the Company has not
withheld payroll taxes or paid payroll taxes on compensation paid to the
personnel. As a result, the Company may have delinquent payroll tax liabilities
and related estimated penalties and interest that cannot be estimated at this
time due to a history of inconsistent and unpredictable settlements with state
and federal agencies in such situations. Therefore no liability has been
recorded. Our President has undertaken to personally pay any such delinquent
payroll tax as may be required.
O. STOCK OPTIONS AND WARRANTS
In July 2000, the Company adopted a stock incentive plan for employees. The
maximum number of shares which may be awarded under the plan is 3,000,000. Any
person deemed eligible by the Stock Incentive Committee may receive shares or
options under the plan; option awards may be in the form of an incentive option
or a non qualified stock option. Stock options issued under the plan vest over
several years, unless accelerated by the Stock Incentive Committee. All the
shares authorized to be awarded under this stock option plan were granted in
2000 and 2001.
In addition, during the years ended December 31, 2002 and 2003, the Company
granted options and warrants to consultants to purchase 5,400,000 and 28,099,019
shares of common stock, respectively, at prices ranging from $0.012 to $0.25 per
share. The fair value of the stock options and warrants granted to consultants
has been recorded as an expense in the amount of $84,376 and $610,754 for the
years ended December 31, 2002 and 2003, respectively and $89,300 has been
recorded as a cost of capital for the year ended December 31, 2003. Of the
options and warrants granted since inception, options and warrants for
25,847,352 shares are unexercised and unexercised options expire between August
2005 and October 2008.
A summary of option and warrant activity, for both employees and consultants,
for the two years ended December 31, is as follows:
Number Price per Weighted Average
of Shares Share Range Per Share
--------- --------------- ----------------
Outstanding, January 1, 2002 2,517,802 $0.10 - $3.46 $ 1.18
Options and warrants granted 5,400,000 $0.0126 - $0.10 $ 0.03
At December 31, 2003 the weighted average remaining life of outstanding stock
options and warrants was approximately 40 months.
The Company accounted for the fair value of its options granted to employees in
2001 in accordance with APB 25. There were no options granted to employees in
2001. During 2002, the Company changed its method of accounting to follow the
fair value method of SFAS No. 123.
The fair value of options and warrants granted in 2002 and 2003 are estimated on
the date of the grant using a type of Black-Scholes option-pricing model. During
the year ended December 31, 2002 the following assumptions were used to value
grants: dividend yield of 0%, volatilities ranging from of 2.397 to 2.739, terms
varied based on the negotiated term of the options agreement, and risk-free
interest rates varied based on the Treasury bond yield with a term comparable to
the length of the term listed in the options agreement. During the year ended
December 31, 2003 the following assumptions were used to value grants: dividend
yield of 0%, volatilities ranging from 2.232 to 2.503, terms varied based on the
negotiated term of the options agreement, and risk-free interest rates varied
based on the Treasury bond yield with a term comparable to the length of the
term listed in the options agreement.
P. NET LOSS PER COMMON SHARE
As required by SFAS No. 128, the following is a reconciliation of the basic and
diluted EPS calculations for the periods presented:
For the year For the year Cumulative from
Ended Ended Inception (January 13,
December 31, December 31, 1999) to December 31,
2002 2003 2003 (Unaudited)
Net loss
(numerator) $ (2,876,910) $ (3,675,277) $ (17,119,542)
Weighted
average Shares
(denominator) 85,056,935 196,798,749 77,490,598
Basic and
diluted net loss
per share $ (.03) $ (0.02) $ (0.22)
As required by the Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 98, the above calculation of EPS is based on SFAS No. 128,
"Earnings Per Share." Thus, options and warrants granted as of December 31, 2002
and 2003 are not included in the calculation of diluted EPS as their inclusion
would be anti-dilutive.
F-22
Q. OPERATING LOSSES
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has sustained
substantial costs in implementing its action plan. In addition, the Company used
substantial amounts of working capital in funding these costs. At December 31,
2003, current liabilities exceed current assets by $2,329,777. The Company is
seeking to raise additional capital and develop partnerships and cooperative
agreements. In view of these matters, the ability of the Company to continue as
a going concern is dependent upon the Company's ability to achieve its business
objectives and the success of its future operations.
R. SUBSEQUENT EVENTS
In November 2003, the Company entered into an exclusive distribution agreement
for the sale of North Electric Company products in the Pacific Rim. The
agreement has an effective date of January 1, 2004 and a term of four years,
ending December 31, 2007. Under the distribution agreement, North Electric
Company is required to provide training, marketing and technical support during
the term of the agreement and provide product warranty and carry product
liability insurance for any sold products. As of April 9, 2004, no products have
been sold under this agreement.
In January 2004, the Company entered into a consulting agreement for twelve
months for management services with a consultant. Under the terms of the
agreement, the consultant will earn stock options for 6,882,352 of the Company's
common stock at a strike price of $0.17 per share of the Company's common stock.
The options will immediately vest.
In January 2004, the Company granted stock options for 5,000,000 shares of the
Company's common stock at a strike price of $0.20 per share to the Company's
president related to services provided to the Company in 2003. The options are
fully vested and expire three years from the date of the grant. The Company
performed an analysis of the value of the warrants to determine the amount of a
possible expense under SFAS No. 123. Using the Black-Scholes model, the fair
value of the fully vested stock options is $0 (zero) and therefore no additional
compensation expense and accrued liability have been recorded for the year ended
December 31, 2003.
In February 2004, the Company entered into a consulting agreement for twelve
months for financial management services with a consultant. Under the terms of
the agreement, the consultant is to be paid $4,000 per month and was granted
stock options for 1,000,000 shares of the Company's common stock of which
150,000 shares vest immediately and the balance to vest at a rate of 75,000 per
month until fully vested.
In February 2004, the Company entered into a consulting agreement for general
management services. Under the terms of the agreement the consultant is granted
fully vested non-qualified stock options for 2,000,000 million shares of the
Company's common stock with a strike price of $0.14 per share.
In February 2004, the Company entered into a consulting agreement for general
management services. Under the terms of the agreement the consultant is granted
fully vested non-qualified stock options for 1,000,000 million shares of the
Company's common stock with a strike price of $0.14 per share.
On February 7, 2004, the Company amended the consulting agreement dated
September 1, 2003 and the amendment to that agreement dated December 1, 2003
with a management consultant. Under the amendment, any unvested portion of the
previously granted stock options for four million shares and the stock options
for 1 million shares of the Company's common stock that were to be granted upon
consultant
F-23
becoming an employee, shall vest immediately upon the signing of a Letter of
Intent between the Company or any of its subsidiaries and any party to merge
with the Company, acquire the Company or to be acquired by the Company either in
whole or in part. As of April 9, 2004, no Letter of Intent has been signed and
therefore no acceleration of previously granted stock options or grants subject
to employment has occurred. (See Note N.)
In February 2004, the Company agreed to enter into formal discussion to
accomplish a merger between the Company and Union Telecom Limited, a Hong Kong
telecommunications provider. As of April 9, 2004, no letter of intent has been
executed.
On March 5, 2004, the Company entered into two stock subscription agreements
with a foreign investor to purchase 5,882,352 shares of the Company's common
stock at a purchase price of $0.17 per share. As of April 9, 2004, the
investor has paid $80,000 towards the purchase of the shares and none of the
shares has been issued. On April 13, 2004, we received a letter from counsel
of this foreign investor alleging that we had violated the Securities Act of
1933 and the Securities and Exchange Act of 1934 in connection with the
issuance of our securities and the solicitation of investment funds from such
investor and the general public. The letter further demanded the rescission
of the investor's four stock subscription agreements, dated November 18 and
December 15, 2003 and March 5, 2004 and the return of the investor's total
equity investment, an amount equal to $1,080,000. Of the total investment, we
received $960,000 in November and December of 2003 and the balance of
$120,000 in January and March 2003. In exchange for $1,000,000 of these
funds, the Company issued 8,823,528 shares of our common stock to the
stockholder in December 2003. Counsel to the investor has threatened to seek
legal remedies with respect to these alleged violations. The Company intends
to contest these claims. No adjustments has been made in the financial
statements to reflect this contingent liability as of December 31, 2003.
F-24
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the past two fiscal years, neither our principal independent accountant
nor any of our significant subsidiaries' accountants have resigned or been
dismissed. During the past two fiscal years, neither we nor our significant
subsidiaries have engaged a new principal accountant.
ITEM 8A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The company's Principal Executive Officer, who is also its Principal Financial
Officer, evaluated the effectiveness of the company's disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, the Principal Executive Officer has concluded that our disclosure
controls and procedures were effective as of the end of the period covered by
this report.
(b) Changes in Internal Controls
There has been no change in the company's internal control over financial
reporting that occurred during the last fiscal quarter covered by this report
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
1) Our director, executive officers, significant employees, significant
consultants and control persons as of April 9, 2004 were as follows:
NAME AGE POSITION POSITION SINCE
---------------------------- -------------------------- -------------------------- --------------------------
Andrew Benson 48 President and Sole 1999
Director
Thomas A. Stroup 49 Consultant and Member of 2003
the Advisory Group
George Giagtzis 51 Consultant 2004
Dr. Michael Polk 56 Consultant and Member of 2003
the Advisory Group
15
Dan Ference 54 President and Director, 2003
North Electric Company
Each person will hold his position until the next annual meeting of the
shareholders or until his successor is duly elected and qualified.
Andrew Benson, President and Sole Director
Mr. Benson has served as our president and sole director since January 1999. Mr.
Benson was formerly the president and chief executive officer of Video Sentry
Corporation, a business that developed and manufactured the SentryVision CCTV
System. Video Sentry Corporation was founded and incorporated in 1990,
introduced its line of SentryVision systems into the marketplace in 1992 and
ultimately launched an initial public offering in October 1994.
VideoSentry Corporation was merged with Knogo North America in February 1997,
forming a new corporation named Sentry Technology Corporation. Mr. Benson worked
with Sentry Technology Corporation as a consultant from February 1997 to
December 1998. In 1998, Mr. Benson joined Georgetown Ventures LLC, which funded
our formation in January 1999.
Thomas A. Stroup, Consultant and Member of the Advisory Group
Mr. Stroup serves as a consultant to us and provides guidance to the chief
executive officer. Since 2000, he has served as chairman of the board of
directors and chief executive officer of GroupServe, Inc. in Arlington, VA.
GroupServe, Inc. licenses its intellectual property developed for use by
providers of collaboration tools and discussion groups. Mr. Stroup also
co-founded NuRide, Inc., of Sterling, Virginia, a transportation demand and
management solution enterprise, focused on the reduction of traffic congestion
and automobile emission issues.
From 1997 to 2000, Mr. Stroup was president and chief executive officer of P-Com
Network Services, Inc., an international telecommunications service-provider
that designed and built systems in the United States, the United Kingdom and
Italy. Before P-Com Network Services, Mr. Stroup was the founder, president and
chief executive officer of Columbia Spectrum Management, a wireless
telecommunications consulting and negotiating firm. Mr. Stroup also served as
president of the Personal Communications Industry Association. Mr. Stroup
currently serves on the board of directors of the Virginia Center for Innovative
Technology, GroupServe, NuRide, and WhamTech. Mr. Stroup holds a B.S., summa cum
laude, in Public Administration from the University of North Dakota. He is also
a graduate of Georgetown University Law Center, where he served as editor of the
Georgetown Law Journal.
George Giagtzis, Consultant
George A. Giagtzis has over 25 years experience in fast growth information
technology, telecommunications, and internet projects and has held management
positions in business development, financial operations, marketing,
mergers/acquisitions, network deployment, and strategic planning with ROLM, IBM,
Sprint, and Global One. He is managing director of The AxeaGroup LLC, a
telecommunications and internet consulting and financial advisory firm he
founded in 1998 that focuses on domestic and international mergers and
acquisitions, venture capital formation, internet start-ups, and private and
merchant banking activities in Northern Virginia.
He holds a B.B.A. in Accounting from the University of Houston, an M.B.A. in
International Management from the American Graduate School of International
Management in Arizona, and a post graduate certificate in International Business
from Georgetown University.
16
Dr. Michael Polk, Consultant and Member of the Advisory Group
As a member of our Advisory Group, Dr. Michael Polk provides us with general
consulting services. In 1983, Dr. Polk founded Management Resource Systems, an
international consulting firm specializing in human resources. Since then, Dr.
Polk has been retained by organizations in the telecom, computer, medical
instrumentation, financial services and construction sectors, ranging from
startups to international conglomerates. He was a founding board member of
Applied Data Systems and currently serves on the board of directors of
Tours.Com, Targeted Response Advertising, Dental+Medical and The Gilbergroup.
Prior to founding Management Resource Systems, Dr. Polk held executive human
resource positions at United States Leasing Corp. and Hilti, Inc. Dr. Polk holds
degrees from Yale University, The University of Georgia and the University of
Southern California.
Dan Ference, President and Director, North Electric Company
Mr. Ference was appointed director of North Electric Company, effective March
2003. He has served as the president of North Electric Company from September
2001 through the present. Mr. Ference has over 27 years experience in the
communications industry with various voice and data products and technologies,
including almost 20 years of managing research and development programs and
centers. From May 1994 to June 2001, Mr. Ference was vice president of Fujitsu
Network Communications' Raleigh, North Carolina Development Center, where he was
responsible for overall Development Center Operations and the Network Management
and related Network Element development programs. Prior to this, his career
included serving at Bell Laboratories, ITT Network Systems, CIT - Alcatel, and
Nortel, Inc. Mr. Ference holds a B.S. degree from Penn State University and an
M.S. degree from Ohio State University both in Electrical Engineering.
Advisory Group
In August 2003, we established an Advisory Group to provide us with advisory
services relating to financing and the development and commercialization of our
products. In addition, the members assist our chief executive officer in the
strategic direction and tactical execution of our day-to-day operations. In
exchange for their services as members of the Advisory Group, we have issued
options to purchase 2.5 million shares of our common stock to Dr. Polk, options
to purchase 5 million shares of our common stock to Mr. Stroup and options to
purchase 2 million shares of our common stock to Mr. Gilberg who is no longer
a member of our advisory group. We also pay Mr. Stroup $20,000 per month in
exchange for his services as a member of the Advisory Group.
The members of the Advisory Group are Andrew Benson, Thomas A. Stroup and
Dr. Michael Polk.
17
Audit Committee and Audit Committee Financial Expert
We do not have a standing audit committee. Our sole director performs the
functions usually designated to an audit committee. Accordingly, we do not have
an audit committee financial expert. As we generate revenue in the future, we
intend to identify and appoint a financial expert to serve on our audit
committee.
Code of Ethics
Due to a lack of adequate resources, we have not yet adopted a code of ethics.
Prior to the adoption of a code of ethics, our management intends to promote
honest and ethical conduct, full and fair disclosure in our reports to the SEC,
and compliance with applicable governmental laws and regulations.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total compensation paid to or accrued for the
years ended December 31, 2003, 2002 and 2001 to our chief executive officer and
our other most highly compensated executive officers who were serving as
executive officers at the end of our last fiscal year. None of our other
executive officers earned more than $100,000 in total annual salary and bonus in
the most recently completed fiscal year.
Name
and
Principal Annual
Position Year Compensation Long-Term Compensation
-------------- ------ --------------------------------------- ---------------------------------------------------
Other
Annual
Salary Bonus Compensation Awards
($) ($) ($)
-------------- ------ -------------- -------- --------------- ---------------------------------------------------
Securities
Restricted Underlying
Stock Options/
Award(s) SARs
($) (#)
-------------- ------ -------------- -------- --------------- ---------------------------------------------------
Andrew 2003 $342,794 $0 $160,000(1) 9,000,000(1)
Benson, 2002 $229,358 $0 $ 0 0 0
President 2001 $237,865 $0 $111,000(1) 0 0
and Sole
Director $ 0
Dan Ference,
President 2003 $131,167(2) $0 $ 0 $363,839(2) 7,270,000(2)
of North 2002 $130,000(2) $0 $ 0 $ 0 1,600,000(2)
Electric
Company
(1) During the year ending December 31, 2002, Mr. Benson received cash and stock
as compensation. He was granted 6,000,000 unrestricted shares of our common
stock, with a fair value of $111,000 based on the market value of the stock on
the date of the commitment to issue the unrestricted stock. The value of those
shares is represented in Other Annual Compensation. During the year ended
December 31, 2003, Mr. Benson received cash and stock as compensation. He was
issued 4,000,000 restricted shares of our
18
common stock, with a fair value of $160,000 based on the market value of the
stock on the date of the commitment to issue the unrestricted stock. In
addition, at December 31, 2003, the Company committed to issue Mr. Benson a
stock option grant for 5,000,000 shares of our common stock with a strike price
of $.20 per share as additional 2003 compensation. The options were fully vested
at the time of the grant and expire three years from the date of the grant. The
options were valued under a Black-Scholes model and were determined to have a
fair value of $0(zero). No additional compensation was recorded in 2003 related
to the commitment to issue the stock option grant.
(2) During the year ended December 31, 2002, Mr. Ference had an approved annual
salary of $130,000 and received an incentive bonus in the form of 1,600,000
shares of the Company's restricted common stock . The restricted common stock
was valued based on a 50% discount the market value of the stock at time of
receipt, which was $0(zero). The stock was trading at $.01 per share at the time
and there was serious doubt about the ability of the Company to continue as a
going concern. On November 30, 2003, the Company entered into an informal
agreement with Mr. Ference related to past, present and future compensation.
Under the terms of the agreement the Company committed to issue 1,770,000 shares
of the Company's common stock as satisfaction for amounts owed to Mr. Ference in
unpaid compensation through the year ended December 31, 2003. The Company
committed to issue Mr. Ference stock options for 5,500,000 shares of the
company's common stock at a strike price of $0.15 per share. 1,500,000 vested on
November 30, 2003 and the balance to vest over the following 36 months and will
expire three years after the date of vesting. During the year ended December 31,
2003 1,611,111 shares vested under this commitment, were valued under SFAS No.
123 using a Black-Scholes model and the Company recorded an expense in the
amount of $139,522 which was charged to officers compensation. As of December
31, 2003, none of the vested stock options were exercised. The Company also
increased Mr. Ference's annual compensation and committed to issue 500,000
shares of the Company's common stock as bonus compensation for achieving future
benchmarks of which, 250,000 has been earned in the first quarter of 2004. The
remainder of the 500,000 shares will be earned in the future.
During the 2003 fiscal year our executive officers had no outstanding options or
SARs, however, in the fourth quarter of 2003 we committed to issue stock option
grants for services rendered during 2003. Of the committed stock option grants,
1,611,111 shares are assumed to have vested as of December 31, 2003. We do not
have a Long-Term Incentive Plan.
Percent of total
Number of Securities Options/SARs
Underlying Options/ Granted to Employees Exercise or base
Name SARs Granted (#) In fiscal year Price ($/sh) Expiration Date
----------------------- -------------------------- ---------------------- ------------------ ----------------
AndrewBenson 5,000,000(1) 46.2% $0.20 per share January 1, 2007
Dan Ference 5,500,000(2) 50.8% $0.15 per share November 2006
through
November 2009
(1) The options were granted January 1, 2004 and are fully vested.
(2) The options were granted November 30, 2003 with 1,500,000 immediately
vesting and the remainder to vest on a monthly basis over the next three years.
Options expire three years from date of vesting or November 2006 through
November 2009.
Employment contracts
19
We do not have any employment agreements with our executive officers.
Directors' Remuneration
We do not currently compensate our directors for serving on the board of
directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth the following information about the beneficial
ownership of our common stock as of February 23, 2004 by (i) each person who we
know is the beneficial owner of more than 5% of the outstanding shares of common
stock, (ii) each of our directors and executive officers, and (iii) all of our
directors and executive officers as a group. We are not aware of any beneficial
owner of more than 5% of the outstanding common stock other than as set forth in
the following table. Unless otherwise indicated, the address of each named
beneficial owner or executive officer is c/o DataMEG Corp., P.O. Box 130145,
Boston, MA 02113.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS(3)
------------------------------------ ------------------------------- -------------------
Andrew Benson 21,763,668(2) 9.60%
La Jolla Cove Investors, Inc. 16,000,000 7.06%
7817 Herschel Ave., Suite 200
La Jolla, CA 92037
NAME AND ADDRESS OF DIRECTOR
OR EXECUTIVE OFFICER
Andrew Benson 21,763,668(2) 9.60%
Dan Ference 9,530,000(4) 4.20%
Directors and Officers as a Group 31,293,668 13.80%
(1) Unless otherwise noted below, we believe that all persons named in the
table have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. For purposes of this chart, a person is
considered to be the beneficial owner of securities that can be acquired by such
person within 60 days after February 23, 2004 through the exercise of warrants
or options or the conversion of convertible securities.
(2) Including 5,000,000 shares of our common stock that Mr. Benson has the
right to acquire through the exercise of fully vested stock options.
(3) Each beneficial owner's, director's or executive officer's percentage
ownership is determined by assuming that any warrants, options or convertible
securities that are held by such person (but not those held by any other person)
and which are exercisable within 60 days after February 23, 2004 have been
exercised.
(4) Including a commitment to issue 1,770,000 shares of our common stock in
lieu of cash as compensation for prior services rendered to North Electric
Company, Inc. and stock options for the purchase of 5,500,000 shares of common
stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 18, 2001 we entered into a short-term loan agreement with North
Atlantic Partners, LLP for
20
$120,000. Principal and interest on the loan were due April 15, 2002. The loan
was secured by approximately 3.4 million shares of our stock owned and pledged
by our president. On May 17, 2002, the investor filed suit against us and our
president for the principal, accrued interest, legal fees and related damages. A
liability in the amount of the principal, interest and legal fees was recorded
on our balance sheet. This liability was reduced by the receipt of the pledged
shares and has a current balance of approximately $56,000 at December 31, 2003.
We issued to our president 3,272,727 shares of common stock in August 2002 to
replace his forfeited pledged stock.
During 2002, we entered into several stock purchase agreements with Hickey Hill
Partners LLC and Miami Associates Investors, LLC to purchase shares of our
common stock. We discounted the purchase price based upon market conditions at
the time of issuance of the stock and the immediately following several days.
Hickey Hill Partners LLC filed a lawsuit against us and our president in the
Circuit Court of the 15th Judicial Circuit in and for Palm Beach County,
Florida. On April 3, 2003, the court issued a default judgment against us and
our president in the amount of $64,352, increasing at an interest rate of 6% a
year.
Miami Associates Investors, LLC also filed a lawsuit against us and our
president in the Circuit Court of the 17th Judicial Circuit in and for Broward
County, Florida for damages in the amount of $54,850 together with the awarding
of treble damages, attorneys fees and interest. On April 24, 2003, the court
determined that we and our president defaulted. A final judgment was entered
against us on and our president on December 5, 2003, in the amount of
$117,807.49.
On July 9, 2003, we executed a promissory note in favor of James G. Dodrill II
in the amount of $247,507.27 at an interest rate of 18%. Our president also
signed the promissory note as a guarantor. The full amount of the note was due
on August 15, 2003.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
3.1.1 Restated Certificate of Incorporation, as filed with the New York
Department of State on August 4, 2000 filed as exhibit 3.1.1 to the Form SB-2
dated August 6, 2003 and incorporated herein by reference.
3.1.2 Certificate of Exchange of Shares, as filed with the New York Department
of State on August 4, 2000 filed as exhibit 3.1.2 to the Form SB-2 dated August
6, 2003 and incorporated herein by reference.
3.1.3 Certificate of Amendment, as filed with the New York Department of State
on September 7, 2000 filed as exhibit 3.1.3 to the Form SB-2 dated August 6,
2003 and incorporated herein by reference.
3.1.4 Certificate of Amendment as filed with the New York Department of State
on August 7, 2002 filed as exhibit 3.1.4 to the Form SB-2 dated August 6, 2003
and incorporated herein by reference.
3.1.5 Certificate of Amendment as filed with the New York Department of State
on December 31, 2002 filed as exhibit 3.1.5 to the Form SB-2 dated August 6,
2003 and incorporated herein by reference.
3.1.6 Certificate of Amendment as filed with the New York Department of State
on May 12, 2003 filed as exhibit 3.1.6 to the Form SB-2 dated August 6, 2003 and
incorporated herein by reference.
3.2 By-Laws filed as exhibit 3.2 to the Form SB-2 dated August 6, 2003 and
incorporated herein by reference.
10.1 Subscription Agreement to purchase 1,000,000 shares of the registrant's
common stock between the registrant and Lawrence A. Rybacki dated July 15, 2003
filed as exhibit 10.1 to the Form SB-2/A dated February 27, 2004 and
incorporated herein by reference.
10.2 Subscription Agreement to purchase 750,000 shares of the registrant's
common stock between the registrant and Leroy S. Bren dated July 17, 2003 filed
as exhibit 10.2 to the Form SB-2/A dated February
21
27, 2004 and incorporated herein by reference.
10.3 Letter Agreement, Dated August 1, 2003, by and among DataMEG and AMT
Management Co filed as exhibit 10.3 to the Form SB-2/A dated February 27, 2004
and incorporated herein by reference.
10.4 Amendment to Original Agreement, dated November 18, 2003, by and among
DataMEG Corp. and AMT Management Co filed as exhibit 10.4 to the Form SB-2/A
dated February 27, 2004 and incorporated herein by reference.
10.5 Consulting Agreement, dated January 15, 2004, by and among DataMEG and
Michael Mitsunaga filed as exhibit 10.5 to the Form SB-2/A dated February 27,
2004 and incorporated herein by reference.
10.6 Settlement Agreement And Mutual Release, dated as of February 12, 2004,
by and among DataMEG and Rex Hestor filed as exhibit 10.6 to the Form SB-2/A
dated February 27, 2004 and incorporated herein by reference.
10.7 Rex Hester Stock Lock-up Agreement, dated as of January 2004 filed as
exhibit 10.7 to the Form SB-2/A dated February 27, 2004 and incorporated herein
by reference.
10.8 DataMEG Corp. Option Agreement, dated January 1, 2004, by and among
DataMEG and Andrew Benson filed as exhibit 10.8 to the Form SB-2/A dated
February 27, 2004 and incorporated herein by reference.
10.9 Consulting Agreement, dated September 1, 2003, by and among DataMEG and
Thomas Stroup filed as exhibit 10.9 to the Form SB-2/A dated February 27, 2004
and incorporated herein by reference.
10.10 Consulting Agreement Amendment, dated December 1, 2003, by and among
DataMEG and Thomas Stroup filed as exhibit 10.10 to the Form SB-2/A dated
February 27, 2004 and incorporated herein by reference.
10.11 Consulting Agreement Amendment, dated February 7, 2004, by and among
DataMEG and Thomas Stroup filed as exhibit 10.11 to the Form SB-2/A dated
February 27, 2004 and incorporated herein by reference.
10.12 Exclusive Distribution Agreement, dated January 1, 2004 by and among
North Electric Company, Inc. and International Network Technology, Ltd.
21.1 Subsidiaries of the registrant
31.1 Certification of the Principal Executive Officer and the Principal
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Reports on 8-K
On December 1, 2003, we filed a report on Form 8-K announcing the execution of a
product-distribution agreement.
On December 4, 2003, we filed a report on Form 8-K announcing an agreement with
AMT Holdings to receive additional funding.
On December 8, 2003, we filed a report on Form 8-K clarifying the details
regarding an erroneous
22
non-compliance designation appearing next to our stock symbol.
On December 17, 2003, we filed a report on Form 8-K announcing the a key
consultant to use had renewed his contract.
On December 31, 2003, we filed a report on Form 8-K announcing that we had
received the balance of the $1,000,000 funding agreement from AMT Management,
Inc.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fiscal Year Audit All
Ended Audit Related Tax Other Total
December 31, Fees (1) Fees (2) Fees (3) Fees (4) Fees
------------------- ----------------- ------------ ------------ ------------ ------------
2002 98,000 0 0 0 98,000
2003 81,000 0 2,000 0 83,000
Total 179,000 0 2,000 0 181,000
(1) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements and review of the
registrant's financial statements included in the registrant's Form
10-Q (17 CFR 249.308a) or 10-QSB (17 CFR 249.308b) or services that are
normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years.
(2) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit or review of the
registrant's financial statements and are not reported under Item 9(e)1
of Schedule 14A.
(3) The aggregate fees billed in the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax
advice, and tax planning. All the fees billed under this item in 2002
and 2003 were for tax compliance services.
(4) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in Items 9(e)1 through 9(e)3 of Schedule 14A (See
(1), (2), and (3) above).
Audit Committees Pre-Approval Policies and Procedures
Our president and sole director pre-approves all professional services and
fees provided by our principal accountants. During 2002 and 2003, our sole
director approved only professional services rendered by our principal
accountants for the audit of our annual financial statements and review of our
financial statements included in our Form 10-QSB or services that are normally
provided by the accountant in connection with statutory and regulatory filings
or engagements for those fiscal years and tax compliance.
23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DataMEG, Corp.
(Registrant)
By /s/ Andrew Benson,
---------------------------------------
Andrew Benson, President, Sole
Director and Principal Financial
Officer
Date: April 20, 2004
---------------------------------------
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By /s/ Andrew Benson
---------------------------------------
Andrew Benson, President, Sole
Director and Principal Financial Officer
Date April 20, 2004
24
Exhibit 10.12
EXCLUSIVE DISTRIBUTION AGREEMENT
THIS EXCLUSIVE DISTRIBUTION AGREEMENT (the "Agreement") is made and entered
into this 1st day of January, 2004 (the "Effective Date"), by and between:
NORTH ELECTRIC COMPANY, INC., a North Carolina
corporation duly organized under law and having
an usual place of business at 6131 Falls of
Neuse Road, Suite 205, Raleigh, NC 27609
(hereinafter referred to as "NECI"),
AND
International Network Technology Ltd., a Hong
Kong corporation duly organized under law and
having an usual place of business at 610 Lippo
Sun Plaza, 28 Canton Road, Tsimshatsui,
(hereinafter referred to as the "DISTRIBUTOR").
RECITALS
WHEREAS, NECI is in the business of researching, developing, marketing and
selling a suite of network assurance products and supplies (software and
hardware), for the telecommunications industry; and
WHEREAS, Distributor is a telecommunications company with operations and
facilities throughout the Pacific Rim (as hereinafter defined); and
WHEREAS, Distributor is in the business of selling and marketing products
similar to NECI's products and supplies, and the Distributor wishes to be
appointed as the exclusive distributor of NECI's products and supplies in the
Pacific Rim and NECI is willing to make such appointment in accordance with the
terms of this Agreement.
NOW, THEREFORE, in consideration of the payments to be made herein and the
mutual covenants and promises herein contained, the receipt and sufficiency of
which is hereby acknowledged, accepted and agreed to, the parties, intending to
be legally bound, hereby agree as follows:
Page 1 of 17
ARTICLE 1: DEFINITION
As used in this Agreement, the following words shall have the following
meaning:
(a) EFFECTIVE DATE: First date noted above
(b) TERM: A four (4) year period commencing with the
Effective Date and concluding in December 31,
2007.
(c) PRODUCTS All software and hardware products and
supplies, and accessory and related items as
set forth and identified on Exhibit "A"
annexed hereto and made a part hereof as if
set out verbatim (collectively, the
"Products").
(d) PARTY: A signatory to this Agreement, and affiliates
owned or controlled by or in common control
with a signatory to this Agreement and the
successors or assignees of any such signatory
of affiliates, wherever located.
(e) PERSON: Any individual, partnership, firm,
corporation, association, government, or any
other organization or entity.
(f) TERRITORY: The Countries of: China PRC, Hong Kong,
Macau, Singapore, Malaysia, Vietnam, Laos,
Cambodia, Thailand, India, South Korea,
Japan, Taiwan, Brunei, Indonesia,
Philippines, PNG, Australia and New Zealand
(collectively, the "Territory" or "Pacific
Rim").
ARTICLE 2: DISTRIBUTION RIGHTS
2.1 APPOINTMENT. Subject to the terms and conditions of this Agreement,
NECI hereby appoints Distributor, and Distributor hereby accepts its
appointment, as NECI's exclusive distributor for the sale of Products in the
Territory. Distributor shall have the right to engage sub-distributor(s) with
regard to distribution of the Products and such sub-distributor(s) shall be
governed by the terms of this Agreement.
Page 2 of 17
2.2 NO DIRECT SALES IN THE TERRITORY. During the Term of this Agreement,
NECI will not sell, transfer, or otherwise make available Products for delivery
or use in the Territory, nor shall NECI sell, transfer or otherwise make
available Products to any Person who NECI knows, intends to sell, transfer or
otherwise make available such Products for delivery or use in the Territory.
NECI shall promptly refer to Distributor any and all inquiries NECI receives
from a Person or inquiries relating to a sale or transfer of the Product in or
into the Territory.
ARTICLE 3: DUTIES OF DISTRIBUTOR
3.1 BEST EFFORTS. Distributor shall use its best efforts to develop and
promote markets for, and to sell, the Products in the Territory.
3.2 NON-COMPETITION; PROMOTIONS; ETC. During the Term of this Agreement,
the Distributor shall at its expense:
(a) Advertise and promote the Products in the Territory in a best
efforts and appropriate means, including but not limited to,
participation in relevant trade fairs, public demonstrations of
the Products, prompt and effective responses to trade and
customer inquiries and regular visits to customers and,
potential customers. If Distributor intends to utilize any of
NECI's logos or trademarks, the Distributor shall first provide
NECI with a copy of the presentation and obtain NECI's written
consent to use such presentation. Distributor (or any of its
sub-distributors) shall be solely responsible for its own
expenses connected with the promotion and sale of the Products,
including but not limited to, wages, salaries, commissions and
expenses directly or indirectly related to advertising, trade
shows, exhibitions and promotional activities;
(b) Maintain a suitable sales and service organization in each
country constituting the Pacific Rim with a sufficient number
of properly trained personnel to enable Distributor to
discharge the duties undertaken by it;
(c) Maintain a laboratory for customer demonstrations, training,
and for use in reproducing, analyzing, and correcting customer
problems which laboratory shall contain at least one of each of
the Products as listed on Exhibit A (the delivery, costs and
payment of which shall be determined by the parties hereto
after good faith negotiations); and
Page 3 of 17
(d) Prepare a marketing plan ("Plan") and to update the same at
least yearly. The Plan shall contain, at a minimum,
Distributor's best efforts to compile information on
competitive products; estimated sales volume; anticipated
quantities of the Products to be purchased; governmental
registration requirements; and marketing issues. The Plan shall
be shared with NECI.
3.3 TRAINING; USE OF PRODUCTS. In concern with NECI, Distributor shall
at its own expense establish reasonable procedures to assure that its employees,
subdistributors and other agents are properly trained and that Distributor is
satisfying the requirements of this Agreement. The costs of the training center
and allocation of responsibilities shall be determined by the parties hereto
after good faith negotiations.
3.4 CONFIDENTIALITY. Distributor will take all precautions to protect
confidential information received from NECI and identified by NECI as
confidential ("Confidential Information"). Distributor shall not disclose or
divulge any Confidential Information to any third person, except as required by
a judicial or governmental order. Information in the public domain or prepared
by NECI (or by Distributor with the prior approval of NECI) for the purpose of
distribution to customers or otherwise available, shall not be deemed to be
Confidential Information.
3.5 PROHIBITED SALES AND CONDUCT. Distributor agrees not to sell, and
agrees to use such efforts as are necessary to ensure that Distributor's
sub-distributors and agents do not sell any of the Products outside of the
Pacific Rim. Further, Distributor agrees to present the Products fairly to
potential customers, not to disparage the Products, any Product trademarks or
NECI in any way and to do all things reasonable to promote the reputation of the
Products and the value of any Product trademarks.
3.6 NON-COMPETITION AND EXCLUSIVITY. Distributor agrees that during the
Term of this Agreement, it will not sell or distribute any products, supplies,
or accessory items in the Pacific Rim that are in conflict with any of the
Products that it is selling and distributing pursuant to the terms and
conditions of this Agreement, and Distributor shall exclusively sell and
distribute only the Products.
3.7 NECI AUDIT. At least once every calendar year during the Term, NECI
shall have the right and option (and at its sole loss and expense), upon three
(3) calendar days written notice to Distributor to enter Distributor's premises
and to examine Distributor's written and electronic files and records for the
purposes of conducting an audit of Distributor's activities to ensure compliance
with the terms of this Agreement.
Page 4 of 17
ARTICLE 4: DUTIES OF NECI
4.1 REQUIREMENTS BY DISTRIBUTOR. NECI shall supply Distributor's
requirements for the Products in the Pacific Rim consistent with Distributor's
forecasts of its expected requirements for the Products, with a maximum
lead-time of two (2) months from the day Distributor places an order. If NECI
believes that it will not be able to satisfy Distributor's requirements for the
Products, it shall promptly notify Distributor, specifying the reasons for the
expected delay and its duration at the time the Product order is placed and/or
one month prior to delivery of Product.
4.2 MARKETING SUPPORT. NECI shall:
(a) Provide Distributor with information on marketing and
promotional plans of NECI for the Products as well as copies of
marketing, advertising, sales, technical training manuals and
available teaching and marketing aides and promotional
literature concerning the Products produced by or for NECI;
(b) NECI shall provide the training for Distributors and its agents
and sales personnel as set forth in Exhibit "B" annexed hereto;
(c) NECI shall redirect any enquiries, referrals and information of
existing or potential customers from the Pacific Rim to
Distributor with out delay upon its knowledge of such;
(d) NECI shall back Distributor up in all circumstances on their
relationship and the status of Distributor, advocating and
certifying in all domains Distributor's status positively;
(e) NECI shall maintain the same pricing as promulgated by
Distributor in the Pacific Rim whenever enquiries are received;
(f) For "Defect on Arrival" (DOA), NECI shall provide immediate
replacement;
(g) NECI shall arrange site visits to reference sites in U.S.A., as
may be requested by Distributor, for the purpose of
demonstrating how Products perform in real life situation; and
(h) NECI shall recognize Distributor's effort in localizing its
marketing materials or others for the purpose of marketing
Products in Pacific Rim, through pricing or otherwise.
Page 5 of 17
4.3 TECHNICAL SUPPORT. NECI shall:
(a) provide full technical support to Distributor, through emails
or phone calls, during the Term of this agreement. Scope of
support includes diagnosis, analysis and provision of solution
to problems encountered. The time of such support shall not be
limited to office hours in U.S.A.
(b) NECI shall endeavor to resolve all technical problems as
encountered by Distributor, in relation to Products. In the
event of fundamental design problem, Distributor has the right
to demand for containment action.
ARTICLE 5: PATENTS AND TRADEMARKS
5.1 LIMITED GRANT OF LICENSE. NECI hereinafter grants to Distributor the
limited right and license during the Term, to use, in the Pacific Rim, NECI's
trademarks and any trademark registrations, which NECI obtains and designates
for the Products, but only in connection with sales of the Products in the
Pacific Rim. Such trademarks license shall continue in effect only while
Distributor retains its distribution rights in the Pacific Rim. Distributor
agrees not to remove or obscure any Product label affixed by NECI. Upon the
termination of this Agreement for any reason, Distributor shall immediately
discontinue all uses of such corporate names, trademarks or trade names.
5.2 USAGE. Whatever use Distributor makes of the corporate name, or any
trade names of NECI, if permitted as provided herein, shall be for the exclusive
benefit of NECI and Distributor shall not thereby acquire any rights in, to or
under any such name, trademark or trade name.
ARTICLE 6: SALE OF PRODUCTS
6.1 MINIMUM SALE ESTIMATES FOR PRODUCTS. During the Term of this
Agreement, Distributor shall use its best efforts as set forth in Section 3.2
through 3.6 hereof, to achieve sales and performance estimates to be agreed by
the Parties on or before June 30, 2004 and annexed hereto as Exhibit "C" and
made a part hereof as if set out verbatim ("Sales Levels") and which may be
amended semi-annually thereafter upon the agreement of the Parties. The parties
agree that in reaching the annual Sales Levels they shall negotiate in good
faith with the intention of reaching an agreement and shall consider such
factors as: competition, pricing, Product(s) availability, delivery schedules,
resistance in the marketplace and the like. In the event of such agreement
cannot be reached, NECI shall supply Products to Distributor on a project basis,
with prices and deliveries to be negotiated.
Page 6 of 17
6.2 ADJUSTMENT OF SALES ESTIMATES FOR PRODUCTS. For periods subsequent
to the initial year of the Term, Distributor shall prepare and submit to NECI
quarterly forecasts of the Minimum Sales Estimates which it expects to achieve
in the upcoming quarterly period, and said reports shall be submitted not later
than fifteen (15) calendar days prior to the commencement of the applicable
quarterly period.
ARTICLE 7: PRICE AND TERMS
7.1 PRICING. The price for the Products to be charged by NECI to the
Distributor are as set forth on Exhibit "D" annexed hereto and made a part
hereof as if set out verbatim. All prices and changes shall be quoted in United
States Dollars.
7.2 PAYMENT. NECI will invoice Distributor upon shipment of the Products
purchased by Distributor and payment shall be due within ninety (90) days
following delivery of the Product to Distributor and/or a letter of credit will
be established with terms of payment. All sales of Product shall be FOB Raleigh,
North Carolina. All payments shall be made by Distributor by wire transfer in
United States Dollars in immediately available funds, irrespective of
fluctuations in exchange rates.
7.3 TAXES, ETC. The Distributor shall be responsible for all taxes,
shipping, custom duties, freight, insurance and all other charges
related to the shipping, delivery and sale of the Products by the
Distributor. Export duties and customs, if any, shall be borne by
NECI, at the U.S.A end.
ARTICLE 8: PRODUCT WARRANTY
8.1 WARRANTY. NECI warrants that all Products: (a) will conform with all
specifications and descriptions thereof provided by NECI, (b) will be free of
defects in material, workmanship and design, (c) will be of merchantable
quality, suitable for the purposes for which they are intended to be used, (d)
will be compatible with existing equipment of Distributors customers, and (e)
will be compatible to other equipment being linked to Products, providing
Distributor will have the right to exchange or return existing inventory if
Products do not meet requirements (a) to (e).
Warranty period for all Products delivered with in one year of this
agreement shall be 24 months from delivery or 18 months from installation
whichever shorter. Thereafter, the warranty period shall be 90 days. NECI shall
provide repair and return for any faulty hardware with 2 weeks, and shall
provide debug and solution to any software problem, free of charge during the
warranty period.
Except as expressly provided above, NECI grants no other warranties
or conditions, express or implied, by statute this Agreement or any
communication by NECI regarding the Product, their fitness for any particular
purpose, their quality, their merchantability or otherwise.
Page 7 of 17
8.2 DEFENSE AGAINST CLAIMS. In the event of any action, suit or
proceeding: (a) initiated by one or more of Distributor's customers (which term
includes any and all Persons receiving Products directly or indirectly from
Distributor, whether or not Distributor has been or will be compensated for such
Products received); and (b) naming NECI or Distributor as a party, NECI or
Distributor, at NECI's option, shall undertake principal responsibility for
defense of such action, suit or proceeding. The Parties agree to cooperate fully
in the defense of any such action, suit or proceeding.
8.3 INSURANCE. No later than the Effective Date, NECI and Distributor
shall each cause the other to be named as an additional insured on their
respective liability insurance policies to the same extent as each would be
covered in its own right for the manufacturer and sale of Products.
ARTICLE 9: INDEMNIFICATION
NECI shall indemnify, defend and hold harmless the Distributor and its
employees, servants, officers, directors, agents from and against all claims or
suits for
(a) bodily injury, including death, or property damage arising out
of the resale, or use of any Product, except if such injury,
damage, cost or expense is caused by the negligence, action or
inaction of Distributor or any party other than NECI;
(b) damages and loss caused by any fundamental design fault of
Products; or
(c) damages and loss caused by the legality of Patent or Trademark
owned by NECI.
Distributor shall indemnify, defend and hold harmless NECI and its
employees, servants, officers, directors, agents and representatives from and
against any and all claims or suits for bodily injury, including death or
property damage with respect to any claims or suits arising out of or relating
to Distributor's negligence, breach of this Agreement or any misrepresentations
by Distributor.
ARTICLE 10: TERM OF AGREEMENT AND EXTENSION
TERM. The term of this Agreement shall commence with the Effective
Date and conclude on 31st December, 2007.
Page 8 of 17
ARTICLE 11: TERMINATION
11.1 DEFAULTS. NECI may, in its sole discretion, elect to terminate this
Agreement if Distributor fails to cure any material breach of the provisions of
this Agreement within thirty (30) days after written notice of such breach.
Without limiting the generality of the foregoing, it shall constitute a material
breach thereof if Distributor fails:
(a) to make timely payments for Products delivered to Distributor,
and in the event of a late payment during a payment default, to
take all steps necessary and appropriate to assure that
subsequent payments will be timely;
(b) to carry out the Distributor's duties as required hereunder; or
(c) to fully and completely comply, during the entire Term, with
all of the terms and conditions of Article 12 hereof.
The Distributor has the same right as for NECI stated herein this clause
if NECI fails (b) and/or (c).
11.2 INSOLVENCY. Each Party shall have the right, upon written notice, to
terminate this Agreement forthwith if the other Party commits or suffers any act
of bankruptcy, comes under the control of a receiver, becomes insolvent, makes
an assignment for the benefit of creditors of all or part of its assets, or
undergoes liquidation or dissolution.
11.3 PRODUCT AVAILABILITY. Should North Electric Company be unable to
deliver product(s) designated in this distribution agreement by April 1, 2004,
this agreement shall be null and void.
11.4 EFFECT OF TERMINATION. Distributor shall terminate all Product
distribution activities in the Pacific Rim immediately upon termination of this
Agreement. NECI will repurchase all inventories on hand at cost to Distributor.
In addition, Distributor shall deliver to NECI all Product materials supplied by
NECI and all Product marketing materials of any kind. The obligations of NECI
and Distributor relating to Confident Information, Remedies and Indemnification
shall survive any termination of this Agreement. Nothing herein shall limit any
remedies, which a party may have for the other's default, except as expressly
provided herein. Neither party shall be liable to the other for any damage in
connection with such party's termination of this Agreement by notice, in
accordance with the Section.
Page 9 of 17
ARTICLE 12: LIMITATIONS OF REPRESENTATION
12.1 NO JOINT VENTURE. Distributor shall have no authority to represent
NECI as agent, or to bind NECI by any contract, representation, understanding,
act or deed concerning NECI (or any Product). Neither the making of this
Agreement nor the performance of any part of the provisions hereof shall be
construed to constitute Distributor as an agent or representative of NECI for
any purpose. This Agreement shall not be interpreted to establish a joint
venture or partnership.
12.2 DISTRIBUTOR AS PRINCIPAL. Notwithstanding any term of this
agreement, all sales of Products made by Distributor will be in its own name and
for its own account, it being understood that Distributor is an independent
organization re-selling products which are purchased from NECI.
ARTICLE 13: GENERAL
13.1 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with the laws of the State of Delaware. The Parties consent to the
jurisdiction of the courts of the State of Delaware and the jurisdiction of the
Federal District Court in the State of Delaware and to service of process by
registered mail, return receipt requested or in any other manner provided by
law.
13.2 COUNTERPARTS. For convenience of the Parties, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
far all purposes, and all of which taken together shall constitute but one and
the same instrument.
13.3 NOTICES. All notices, requests, demands, consents, waivers,
approvals and other communications hereunder shall be in writing and shall be
deemed to have been duly given (1) if delivered personally with receipt
acknowledged, (2) if transmitted by electronic mail, telex, telefax, telegraph,
or other like method, or (3) if mailed, postage prepaid, by certified mail,
return receipt requested, addressed as follows:
If to NECI;
North Electric Company, Inc.
6131 Falls of Neuse Road
Suite 205
Raleigh, NC 26709
Facsimile: 919-341-6010
Email: dan.ference@northelectriccompany.com
Page 10 of 17
With a copy to:
Peter B. Finn, Esq.
Rubin and Rudman LLP
50 Rowes Wharf
Boston, MA 02110
Facsimile: (617) 439-9556
Email: pfinn@rubinrudman.com
If to Distributor:
International Network Technology Ltd.
610 Lippo Sun Plaza
28 Canton Road
Tsimshatsui, Hong Kong
Facsimile: 852-3113-1002
Email: walter@intl-net.com
or such other addresses as either Party may designate for itself by written
notice given to the other Party from time to time in the manner hereinabove
provided. Except as otherwise expressly provided herein, all communications
hereunder shall be deemed to be given, received and dated on the date when
delivered personally, on the date of receipt of telex or telefax, or on the date
of delivery or refusal (if refused) of certified or registered mail.
13.4 SEVERABILITY. If any of the provisions of this Agreement are held
invalid or unenforceable and unless the invalidity or unenforceability thereof
does substantial violence to the underlying intent and sense of the remainder of
this Agreement, such invalidity or unenforceability of any other provisions of
this Agreement except those which the invalidated or unenforceable provisions
compromise an integral part of or are otherwise clearly inseparable from. In the
event any provision is held invalid or unenforceable, the Parties hereto shall
use their best efforts to agree upon a valid and enforceable provision which
shall be a reasonable substitute for such invalid or unenforceable provision in
light of the terms of this Agreement and, upon so agreeing, shall incorporate
such substitute provision in this Agreement.
13.5 INTEGRATION. This Agreement, together with all Exhibits, contains
the entire understanding and agreement of the parties hereto with respect to the
subject matter contained herein, supersedes all prior oral or written
understandings and agreements relating thereto except as expressly otherwise
provided, and may not be altered, modified or waived in whole or in part, except
in writing, signed by duly authorized representatives of the Parties.
Page 11 of 17
13.6 ASSIGNMENT. The rights granted to or obligations imposed upon the
Parties under this Agreement shall not be assignable, or otherwise delegable,
transferable, or subject to encumbrance in any manner or degree to or in favor
of any person for any purpose by any act of either Party or by operation of law
or otherwise, without the prior written consent of the other Party. Any attempt
to assign, delegate, transfer or encumber such rights or duties, in the absence
of the other Party's prior written consent, with the exception noted in the
preceding sentence, shall be void and of no force and effect.
13.7 FORCE MAJEURE. Each of the parties hereto shall be excused from
their performance of its obligations hereunder in the event such performance is
prevented by force majeure, and such excuse shall continue so long as the
condition constituting such force majeure continues plus thirty (30) days after
the termination of such condition. For the purposes of this Agreement, force
majeure is defined to include causes beyond the control of Distributor or NECI,
including, without limitation, acts of God, acts, regulations or laws of any
government, war, terrorism, civil commotion, destruction of production
facilities or materials by fire, earthquake or storm, labor disturbances, or
medical epidemics.
13.8 MEDIATION. In the event of any dispute or disagreement regarding
this Agreement or any of the terms hereof, the parties shall endeavor to
resolve, within thirty (30) days of receipt of written notice detailing such
dispute or disagreement, all such issues by mediation; and the parties hereby
appoint their respective Presidents to meet, confer and attempt to resolve the
differences. If the parties are, for whatever reason, unable to reach an
agreement, either party shall be entitled to proceed to adjudicate its rights in
an appropriate court.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed, under seal, on the day and year first above written.
NORTH ELECTRIC COMPANY, INC.
By:
(name)
(title)
Hereunto Duly Authorized
International Network Technology Ltd.
By: /s/ Walter Yong Nov. 28, 2003.
-------------------------------------
Walter Yong (name)
Chief Operating Officer (title)
Hereunto Duly Authorized
Page 12 of 17
EXHIBIT "A"
PRODUCTS AND SUPPLIES
NECI NETWORK ASSURANCE SYSTEM (NAS)
The NECI Network Assurance System consists of a set of components working
together to provide end-to-end active TDM and VoIP call quality testing. It
tests both connection signaling and call performance, ensuring high quality
voice services as perceived by network users. A number of packaging options are
available consisting of bundled hardware and software or software-only licenses.
Configurations can also support different numbers of interfaces and can also
support multiple NAPs within a single physical device. This agreement is signed
in view of the latest revolutionary developemtn to be released in December 2003.
Components of the NECI NAS include:
NETWORK ASSURANCE SYSTEM - CENTRAL SERVER (NAS-CS)
Centralized test control, administration, and reporting system for the NECI
Network Assurance System. The NAS-CS provides the ability to configure the
NAS components and their interfaces, define test sequences, schedules, source
and destination test endpoints, and generate and view test reports. The
NAS-CS is provided in a rack-mount configuration. Options are available for
120 VAC and -48VDC powering.
NETWORK ACCESS PROBE - SS7 SIGNALING (NAP-S)
The NAP-S performs scheduling; test, and SS7 call control for the NAP-T. It
interfaces to the SS7 network and is the Service Switching Point (SSP) for
the Network Assurance System. It can be provided in a rack-mount
configuration equipped with from 2 to 4 DS1 interfaces to the SS7 network.
Options are available for 120 VAC and -48VDC powering.
NETWORK ACCESS PROBE - TIME DIVISION MULTIPLEX (NAP-T)
The NAP-T performs voice path tests of the network including DTMF send and
receive and PESQ voice quality measurements. Test call quality is measured
with the embedded PESQ application using an artificial speech test stimulus
with the results shown in a Mean Opinion Score (MOS). The NAP-T is connected
to network TDM interfaces. It can be provided in a rack-mount configuration
equipped with from 1 to 16 DS1 interfaces. Options are available for 120 VAC
and -48VDC powering.
NETWORK ACCESS PROBE - DATA (NAP-D)
The NAP-D performs scheduling, test, and SIP call control for VoIP networks
via DTMF send and receive and PESQ voice quality measurements. Test call
quality is measured with the embedded PESQ application using an artificial
speech test stimulus with the results shown in a Mean Opinion Score (MOS).
The NAP-D is connected to network IP interfaces. It can be provided in a
rack-mount
Page 13 of 17
configuration equipped with from 1 to 4 10/100BT Ethernet interfaces. Options
are available for 120 VAC and -48VDC powering.
NETWORK ACCESS PROBES - OTHER
NECI will continue to develop new types of Network Access Probes as part of
the NECI Network Assurance System to support other test and interface
capabilities.
SOFTWARE UPGRADE
NECI plans to evolve the capabilities of NAS by providing new features and
functions via software upgrades to existing products. These upgrades are
available for an additional charge.
SOFTWARES SUPPORT
Each software package in the NAS carries an Annual Software Support Contract
(ASSC) fee that entitles the customer to software updates for any and all
service affecting problems found worldwide free of charge. It also entitles
the customer to any additional maintenance software updates which may be
released free of charge. In the event of fundamental design problem, updates
shall be issued free of charge.
Page 14 of 17
EXHIBIT "B"
TRAINING
NECI FACILITY BASED STANDARD TRAINING
NECI will provide training for up to 3 people free of charge at its headquarters
in Raleigh, North Carolina. The training period is expected to be 5 days in
duration. Travel and living expenses associated with the training will be the
responsibility of the Distributor. Standard training covers product sales and
capabilities, product installation, product operation and product support.
DISTRIBUTOR FACILITY BASED STANDARD TRAINING
If the Distributor prefers, NECI will provide 1 to 2 people to perform the
Standard Training at the Distributor's facility. In this case the training
period is expected to be 5 days in duration. In this case, the Distributor will
be responsible for the NECI trainers' travel and living expenses.
SALES SUCCESS ASSURANCE
NECI is fully committed to helping Distributor succeed. To assist in this, NECI
will provide free of charge 1 person to assist Distributor's sales staff on
sales calls and provide further on the job training of their sales team for up
to 4 weeks. The Distributor will be responsible for the NECI individual's travel
and living expenses.
FIRST CUSTOMER ORDER SUCCESS ASSURANCE
NECI is fully committed to helping Distributor succeed. To assist in this, NECI
will provide free of charge 1 person on site (both Distributor and customer site
as needed) for up to 4 weeks to help Distributor successfully deliver its first
customer order. The Distributor will be responsible for the NECI individual's
travel and living expenses.
ADDITIONAL TRAINING AVAILABLE
Distributor may want to consider additional training. NECI will make available
additional training in any or all of the 4 areas (product sales and
capabilities, product installation, product operation and product support)
covered in the standard training package. In this case, NECI Will work with the
Distributor to define the extent of the additional training desired and
negotiate an appropriate charge.
DISTRIBUTOR CONSULTING
NECI is fully committed to helping Distributor succeed. To assist in this, NECI
will also provide consulting services to assist Distributor establish the
organization and infrastructure required. In this case, NECI will work with the
Distributor to define the extent of the consulting desired and negotiate an
appropriate charge.
CERTIFICATION
NECI shall issue certificates to person having completed any of the training
provided by NECI.
Page 15 of 17
EXHIBIT "C"
SALES LEVELS
Page 16 of 17
EXHIBIT "D"
PRICES AND TERMS
PRICING WILL BE NEGOTIATED ON A PROJECT-BY-PROJECT BASIS.
Page 17 of 17
Ex. 21.1
Subsidiaries of DataMEG Corp.
North Electric Company, Inc., a North Carolina corporation.
Cascommunications, Inc., a Florida corporation.
Ex. 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew Benson, certify that:
1. I have reviewed this annual report on Form 10-KSB of DataMEG Corp., for
the year ended December 31, 2003;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report my conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this annual report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to material
affect, the registrant's internal control over financial reporting;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: April 20, 2004.
/s/ Andrew Benson
---------------------
By: Andrew Benson
President and Principal Financial Officer
Ex. 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of DataMEG, Corp., a New York Columbia
corporation (the "Company"), on Form 10-KSB for the year ending December 31,
2003, as filed with the Securities and Exchange Commission (the "Report"), I,
Andrew Benson, President and Principal Financial Officer certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to
my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Andrew Benson
--------------------------
By: Andrew Benson
President and Principal Financial Officer
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