SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
FORM SB-2/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN MILLENNIUM CORPORATION, INC.
(Name of Small Business Issuer in its Charter)
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New Mexico
(State or jurisdiction of incorporation or organization)
6211
(Primary Standard Industrial Classification Number)
85-0273340
(I.R.S. Employer Identification No.)
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1010 10TH Street, Suite 100
Golden, Colorado 80401
(303) 279-2002
(Address and telephone number of principal executive offices)
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Garrett L. Thomas, President and Chief
Executive Officer
American Millennium Corporation, Inc.
1010 10th Street, Suite 100
Golden, CO 80401
(303) 279-2002
(Name, address and telephone number of agent for service)
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Copies to:
Matthew G. Schindel, Esq.
Gray, Harris, Robinson, Shackleford, Farrior
Post Office Box 3324
501 E. Kennedy Blvd., Suite 1400
Tampa, Florida 33601
Telephone: (813) 273-5000
Facsimile (813) 273-5145
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: As soon as practicable after the effective date of
this Registration Statement.
------------------------
If the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933 other than securities offered only in connection with dividend
or interest reinvestment plan, please check the following box. [x]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, please check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. [ ]
1
CALCULATION OF REGISTRATION FEE
------------------- ------------ ---------------- ---------------- -----------
Title of each class Amount of Proposed maximum Proposed maximum Amount of
of securities to be shares to be offering price aggregate registra-
registered registered per share (1) offering price tion fee(1)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 3,080,001 $.15 $ 462,000.15 $115.50
par value, offered
by Selling
Shareholders (2)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, 3,244,001 $.15 $ 486,600.15 $121.65
issuable upon
exercise of
warrants (3)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 855,441 $.15 $ 128,316.15 $ 32.08
par value, offered
by Selling
Shareholders (4)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, 880,566 $.15 $ 132,084.90 $ 33.02
issuable upon
exercise of
warrants (5)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 1,242,294 $.15 $ 186,344.10 $ 46.59
par value, offered
by Selling
Shareholders (6)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 410,715 $.15 $ 61,607.25 $ 15.40
par value, issuable
upon exercise of
warrants (7)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 193,370 $.15 $ 29,005.50 $ 7.25
par value, offered
by Selling
Shareholders (8)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 30,200 $.15 $ 4,530.00 $ 1.13
par value, issuable
upon exercise of
warrants (9)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 600,000 $.15 $ 90,000.00 $ 22.50
par value, offered
by Selling
Shareholders (10)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 800,000 $.15 $ 120,000.00 $ 30.00
par value, issuable
upon exercise of
options (11)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 2,741,187 $.15 $ 411,178.05 $102.79
par value, issuable
upon conversion of
promissory note (12)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 2,741,187 $.15 $ 411,178.05 $102.79
par value, issuable
upon exercise of
warrants (13)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 1,821,875 $.15 $ 273,281.25 $ 68.32
par value, issuable
upon exercise of
options (14)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 350,000 $.15 $ 52,500.00 $ 13.13
par value, issuable
upon exercise of
options (15)
------------------- ------------ ---------------- ---------------- -----------
Common Stock, $.001 350,000 $.15 $ 52,500.00 $ 13.13
par value, issuable
upon exercise of
options (16)
------------------- ------------ ---------------- ---------------- -----------
TOTAL 19,340,837 $.15 $2,901,125.55 $725.28
=================== ============ ================ ================ ===========
2
(1) Calculated pursuant to Rule 457(c),(g). The closing "bid" price of
the shares of common stock being registered hereby on the
over-the-counter market through the NASD OTC Electronic Bulletin
Board was $.15 on November 26, 2001.
(2) Includes outstanding shares issued between September, 1999 and
March, 2000 pursuant to a Private Offering made in reliance on
Sections 4(6), 4(2) and/or 3(b) of the Securities Act of 1933, as
amended (the "Act") and according to the Rules contained in
Regulation D of the Act.
(3) Includes shares issuable upon exercise of warrants at $0.25 per
share exercisable for a period of 5 years, such warrants issued
between September, 1999 and March, 2000 pursuant to a Private
Offering made in reliance on Sections 4(6), 4(2) and/or 3(b) of
the Securities Act of 1933, as amended (the "Act") and according
to the Rules contained in Regulation D of the Act, including
154,000 shares issuable upon exercise of warrants issued to Jack
Augsback and Associates, a commissioned placement agent, at $0.25
per share and 10,000 shares issuable upon exercise of warrants
issued to Baker, Johnston & Wilson, transactional counsel, at
$1.00 per share.
(4) Includes outstanding shares issued upon conversion of Convertible
Promissory Notes issued between April and June of 2000.
(5) Includes shares issuable upon exercise of warrants at exercise
prices from $0.85 to $1.00 per share, such warrants issued
pursuant to Convertible Promissory Notes issued between April and
June of 2000, including 25,125 shares issuable upon exercise of
warrants issued to Jack Augsback and Associates, a commissioned
placement agent, at $1.00 per share.
(6) Includes outstanding shares issued pursuant to private investment/
warrant agreement.
(7) Includes shares issuable upon exercise of warrants issued to
private investment/warrant agreements at exercise prices from
$0.35 to $1.00 per share.
(8) Includes outstanding shares issued to consultants for services
rendered, in lieu of cash.
(9) Includes shares issuable pursuant to warrants issued to
consultants for services rendered, exercisable at $0.25 per share.
(10) Includes outstanding shares issued in conjunction with purchase of
100% of the outstanding stock of CompuGraphics Corporation.
(11) Includes shares issuable upon exercise of options held by AMCI's
past investor relations firm, exercisable as follows:
100,000 shares @ $0.05
100,000 shares @ $0.10
100,000 shares @ $0.75
100,000 shares @ $1.00
100,000 shares @ $1.50
100,000 shares @ $2.00
100,000 shares @ $2.50
100,000 shares @ $3.00
(12) Includes shares issuable upon conversion of a $675,000 convertible
note at a conversion rate of 1 share per $0.49 and a $300,000
convertible note at a conversion rate of 1 share per $0.22.
(13) Includes shares issuable upon exercise of 1,377,551 warrants at an
exercise price of $.63 per share and 1,363,636 warrants at an
exercise price of $0.27 per share.
(14) Includes 1,821,875 shares issuable upon exercise of options at an
exercise price of $0.19 per share issued pursuant to Key Person
Stock Option Agreements dated July 18, 2000.
(15) Includes 200,000 shares issuable upon exercise of option at an
exercise price of $.25 per share issued pursuant to an Employee
Stock Option Agreement dated February 1, 2001 and 150,000 shares
issuable upon exercise of options at exercise price ranging from
$.19 per share to $.59 per share issued pursuant to a consulting
agreement dated February 28, 2001.
(16) Includes 350,000 shares issuable upon exercise of options at an
exercise price of $.25 per share.
3
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PROSPECTUS
AMERICAN MILLENNIUM CORPORATION, INC.
19,340,837 SHARES OF COMMON STOCK
OFFERED BY CERTAIN SELLING SECURITY HOLDERS
----------------------------------
This Prospectus relates to the sale of an estimated 19,340,837 shares
of common stock, $.001 par value, of American Millennium Corporation, Inc.
including 5,971,106 shares currently issued and outstanding, and 13,369,731
shares issuable upon exercise of warrants and options. All such shares are or
shall be offered by our current security holders. Our stock is traded in the
over the counter market through the NASD OTC Bulletin Board under the symbol
AMCI. The closing sale price on November 26, 2001 was $0.15.
------------------------
THE SECURITIES OFFERED INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The date of this proposed Prospectus is November, 2001.
4
INSIDE FRONT COVER
CROSS-REFERENCE
REGISTRATION STATEMENT LOCATION OR CAPTION
ITEM NUMBER AND HEADING IN PROSPECTUS
1. Front of Registration Statement and Outside Front Cover Page of Prospectus.5
2. Inside Front and Outside Back Cover Pages of Prospectus....................5
3. Prospectus Summary Information and Risk Factors............................6
4. Use of Proceeds...........................................................10
5. Determination of Offering Price...........................................10
6. Selling Security Holders..................................................11
7. Plan of Distribution......................................................15
8. Legal Proceedings.........................................................15
9. Directors, Executive Officers, Promoters and Control Persons..............16
10. Security Ownership of Certain Beneficial Owners and Management............18
11. Description of Securities.................................................20
12. Interests of Named Experts and Counsel....................................20
13. Description of Business...................................................20
14. Management's Discussion and Analysis or Plan of Operation.................23
15. Description of Property...................................................25
16. Certain Relationships and Related Transactions............................25
17. Market for Common Equity and Related Stockholder Matters..................26
18. Executive Compensation....................................................27
19. Financial Statements......................................................29
20. Changes in and Disagreements of Accountants
on Accounting or Financial Disclosure...................................46
Part II - Information not required in Prospectus
1. Indemnification of Directors & Officers ..................................46
2. Other Expenses of Issuance and Distribution ..............................46
3. Recent Sales of Unregistered Securities...................................46
4. Exhibits .................................................................50
5. Undertakings..............................................................51
6. Signatures................................................................52
5
PROSPECTUS SUMMARY
American Millennium Corporation, Inc. (AMCI) is a New Mexico corporation
organized in 1979 to develop various technologies for industrial and consumer
applications. AMCI is currently a provider of wireless solutions for the
monitoring of mobile and fixed assets. We develop, sell, and service satellite
communication systems in the field for tracking, monitoring, and reporting data
on oil wells, natural gas compressors, rail cars and trucks. Revenues are
received from hardware sales, product engineering, and operating services. In
addition, we generate monthly recurring revenues from airtime sales. We are
resellers for Vistar Datacom, Inc. and ORBCOMM USA, LP hardware and satellite
airtime. Under the terms of our reseller agreements, we are able to modify and
engineer this hardware and develop custom software specifically to a customer's
needs. Our product is marketed under the name of SatAlarm, which is an internet
based system for tracking and monitoring assets.
Since our current products require significant research and development of
propriety technologies, we have generated significant losses and negative cash
flow. Because of these factors, our auditors have expressed substantial doubt as
to our ability to continue as a going concern, as noted in the financial
statements.
ORBCOMM USA, LP, one of our main suppliers of satellite airtime, has recently
emerged from bankruptcy. Due to our current agreement with Vistar Datacom, Inc.
to provide satellite airtime, we are no longer economically dependent on ORBCOMM
and do not believe this will have a significant impact on our current or future
operations.
Our principal executive offices are located at 1010 10th Street, Suite 100,
Golden, Colorado 80401, telephone: 303-279-2002.
THE OFFERING
Securities
This Prospectus relates to the sale of 19,340,837 shares of Common Stock by
the holders hereof, identified as "Selling Security Holders" in this Prospectus.
See "SELLING SECURITY HOLDERS."
The 19,340,837 shares of Common Stock offered by the Selling Security
Holders consist of 5,971,106 shares outstanding, as well as 13,369,731 shares
issuable upon the exercise of outstanding warrants and options. The shares may
be offered for sale from time to time by the holders in regular brokerage
transactions, either directly or through brokers or to dealers, in private sales
or negotiated transactions, or otherwise, at prices related to then prevailing
market prices.
AMCI will not receive any proceeds from the sale of shares of Common Stock
by the Selling Security Holders. All expenses of the registration of such
securities are, however, being borne by AMCI.
The Selling Security Holders, and not the Company, will pay or assume such
brokerage commissions as may be incurred in the sale of their securities.
The Company's Common Stock is traded on the over-the-counter market through
the NASD OTC Bulletin Board under the symbol "AMCI". On November 26, 2001, the
closing bid price was $0.15. Total number of shares of Common Stock Outstanding
25,523,328
Total number of shares of Common Stock being Offered by Selling Security
Holders is 19,340,837.
Risk
Factors The Common Stock offered hereby involves a high degree of risk and
prospective investors should consider carefully the factors specified under
"Risk Factors" before electing to invest. See "Risk Factors."
Trading Symbol "AMCI"
6
Available Information
AMCI is subject to the reporting requirements of the securities and exchange act
of 1934, as amended, and provides quarterly and annual reports to the Securities
and Exchange Commission. Our annual report for the most recent fiscal year on
Form 10-KSB, when filed, shall contain audited financial statements. The reports
and other information filed by us may be inspected and copied at the public
reference facilities of the Securities and Exchange Commission (SEC) in
Washington, D. C., and at some of its regional offices, and copies of such
material can be obtained from the public reference section of the SEC,
Washington, DC 20549 at prescribed rates. We are an electronic filer and the SEC
maintains a web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically. The SEC web site
address is http://www.sec.gov. AMCI will provide a report to stockholders, at
least annually, which report will include audited financial statements of the
company.
RISK FACTORS
The securities offered hereby involve a high degree of risk and each prospective
investor should consider certain risks and speculative features inherent in and
affecting the business of the Company before purchasing any of the securities
offered hereby. In considering the following risk and speculative factors, a
prospective purchaser should realize that there is a substantial risk of losing
his entire investment.
Risks associated with our operations
There is a significant risk that the company will not be able to remain in
business.
There is a significant risk that we will not be able to remain in
business. To fund future operations we will need to pursue additional sources of
cash in the short term. As of November 26, 2001, we had working capital of about
$50,000. Such funds are not sufficient to cover current operating expenses. Our
revenues are not estimated to cover our operating expenses until June 2002 and
in the interim we will need an estimated additional $2 million in capital
funding. The availability of other sources of cash may, or may not, materialize
and thus, present a significant risk to the investor that we will exhaust our
financial resources in the short term, with no ability to pay for ongoing
operational expenses, before our revenues can be developed to adequately cover
its expenses. Our recurring losses from operations, significant working capital
deficiency, and deficiency in assets raise substantial doubt as to our ability
to continue as a going concern. (See also, the Independent Auditor's Report and
Financial Statements).
Due to our focus on product development, we have not been profitable
since the re-organization in 1998. Our product is highly technical and will
require substantial resources to develop, support and maintain. The future of
our success depends primarily on the ability to fund operations through outside
capital until the time we become profitable. Also, raising additional equity
capital would have a dilutive effect on existing stockholders.
If we do not effectively manage the commercial release of our SatAlarm asset
monitoring system, our business will be harmed.
In November of 2000, we began to offer our SatAlarm asset monitoring
system commercially. We face numerous risks coincident with the introduction of
our services. For example, our monitoring systems have not yet been subjected to
the demands of widespread commercial use. We cannot be sure that our services
will successfully process large numbers of user transactions. If we experience
problems with the scalability or functionality of our services, our full
commercial deployment could be delayed and our results of operations would be
adversely impacted. Additionally, we have limited experience selling our
services to customers and cannot predict the length of sales cycles or
implementation times for our services. On the other hand, if we experience
extensive interest in our services, we may fail to meet the expectations of
customers due to limited experience in operating our services and the strains
this demand will place on our Web site, network infrastructure and systems.
Our ability to obtain and retain customers depends on the
attractiveness of our service to our customers and on our customer service
capabilities. If we are unable at any time to address customer service issues
adequately or to provide a satisfactory customer experience for current or
potential customers, our business and reputation may be harmed.
7
The markets for mobile and remote asset monitoring have not developed,
and their development is subject to substantial uncertainty. We cannot assure
you that these markets will develop.
We depend heavily on the commercial acceptance of our SatAlarm service.
We cannot predict if our target customers will choose our product as a means of
monitoring their assets, or if customers will be willing to pay a fee to use our
service, or if potential users will select our system over our competitors. Our
ability to obtain and retain customers will depend on the attractiveness of our
service to our customers and our customer service capabilities. If we experience
significant system, customer service, security or other problems, customers may
stop using or refuse to try these and other services we offer. The occurrence of
these problems could have a material adverse effect on our business, financial
condition or results of operations.
We have a history of losses and expect to incur losses in the future, and we may
never achieve profitability.
As of July 31, 2001, we had not generated any significant revenues and
had an accumulated deficit of $17,550,053. Our lack of revenues can be
attributed primarily to the fact that our SatAlarm product had not been released
commercially until November of 2000. Due to the need to establish our brand and
service, we expect to incur increasing sales and marketing, research and
development, and administrative expenses and therefore could continue to incur
net losses for at least the next several years or longer. As a result, we will
need to generate significant revenues to achieve and maintain profitability.
Our ability to generate gross margins generally assumes that if a
market for our services develops, we must generate significant revenues from a
large base of active customers. We currently charge our customers a fee to use
our SatAlarm monitoring system. In order to attract customers, we may run
special promotions and offer discounts on development fees, hardware and
satellite airtime. However, given the lack of an established or proven
commercial market for our services, we cannot be sure that customers will be
receptive of our fee structures. Even if we are able to establish a sizeable
base of users, we still may not generate sufficient gross margins to become
profitable. In addition, our ability to generate revenues or achieve
profitability could be adversely affected by special promotions or changes to
our pricing plans.
If we cannot effectively manage our growth, our ability to provide services will
suffer.
Our reputation and ability to attract, serve and retain our customers depend
upon the reliable performance of our Web site, network infrastructure and
systems. We have a limited basis upon which to evaluate the capability of our
systems to handle controlled or full commercial availability of our SatAlarm
asset monitoring system. We will have to expand to address the anticipated
growth in our user base and market opportunities. To manage the expected growth
of operations and personnel, we will need to improve existing and implement new
systems, procedures and controls. In addition, we will need to expand, train and
manage an increasing employee base. We will also need to expand our finance,
administrative and operations staff.
We may not be able to manage our growth effectively. Our current and planned
personnel, systems, procedures and control may be inadequate to support our
future operations. If we are unable to manage our growth effectively or
experience disruptions during our expansion, our business will suffer and our
financial condition and results of operations will be seriously affected.
If we are unable to maintain and develop our strategic relationships and support
and distribution arrangements, our SatAlarm asset monitoring services may not
achieve commercial acceptance.
We have established strategic relationships with a number of third parties. Our
strategic relationships generally involve the support and promotion and
distribution of our service through third parties. In return for promoting and
supporting our service, our partners may receive revenue-sharing opportunities.
In order to achieve wide distribution of our service, we believe we must
establish additional strategic relationships to market our service effectively.
Also, since SatAlarm is dependent upon partners to manufacture hardware and
provide satellite airtime, we must establish strategic relationships to support
our service effectively. If one of our partners terminates or limits its
relationship with us, our business could be severely harmed or fail. We have
limited experience in establishing and maintaining strategic relationships and
we may fail in our efforts to establish and maintain these relationships.
8
Our current strategic relationships have not yet resulted in significant
revenues, primarily because we have only recently commercially released
SatAlarm. As a result, our strategic partners may not view their relationships
with us as significant or vital to their business and consequently, may not
perform according to our expectations. We have little ability to control the
efforts of our strategic partners and, even if we are successful in establishing
strategic relationships, these relationships may not be successful.
The bankruptcy of ORBCOMM USA, LP, and its subsequent re-emergence from
bankruptcy could prevent us from offering our SatAlarm asset monitoring system
and severely harm our business or cause it to fail.
On September 15, 2000 ORBCOMM USA, LP filed for relief under Chapter 11 of the
United States Bankruptcy Code. ORBCOMM is one of our two current suppliers of
satellite airtime. Approximately one quarter of our current customer base is
dependent on ORBCOMM airtime. We also purchase satellite airtime from Vistar
Datacom. Although some of our applications are completely dependent upon
ORBCOMM, most of our current and future applications can be supported using
Vistar airtime with minimal time and costs involved in switching airtime
applications.
We rely on a relatively new management team and need additional personnel to
grow our business.
Our management team is relatively new. We hired our President and Chief
Executive Officer in October of 2001, our Chief Technology Officer in September
of 1998 and our Chairman and Vice President of Business Development in September
of 1998. There can be no assurance that we will successfully assimilate our
recently hired personal or that we can successfully locate, hire, assimilate and
retain qualified key management personnel. Our business is largely dependent on
the personal efforts and abilities of our senior management, including our
President and Chief Executive Officer, our Chairman and Vice President of
Business Development and our Chief Technology Officer. Any of our officers or
employees can terminate his or her employment relationship at any time. The loss
of these key employees or our inability to attract or retain other qualified
employees could have a material adverse effect on our results of operations and
financial condition.
You may not be able to sell your shares or will only be able to sell them at a
significant loss.
Our shares began trading through the NASD OTC Electronic Bulletin Board under
the symbol AMCI during June 1998. Accordingly, there can be no assurance that a
trading market will continue. When a registration statement becomes effective
relating to the shares sold herein, purchasers who desire to liquidate their
shares may have difficulty selling them considering the early stage nature of
our public market, should any such market develop. Management does not
anticipate any stock price appreciation and investors may not ever be able to
sell shares or only at a significant loss.
Our shares do not trade on the Nasdaq Stock Market and there is significant
market illiquidity associated with the OTC Bulletin Board.
Our Common Stock does not meet the current Nasdaq listing requirements for the
SmallCap(r) Market. If we are unable to satisfy Nasdaq's requirements for
listing, trading, if any, of our Common Stock will continue to be conducted on
the NASD's OTC Bulletin Board, established for securities that do not meet the
Nasdaq SmallCap(r) Market listing requirements. Consequently, the liquidity of
our securities could be impaired, not only in the number of securities which
could be bought and sold, but also through delays in the timing of transactions,
reduction in security analysts' and the news media's coverage us, and lower
prices for our securities than might otherwise be attained.
There are risks relating to low-priced stocks and the penny stock regulations.
Until such time, if any, that our securities are listed on the Nasdaq
SmallCap(r) Market or a registered U.S. securities exchange, they will continue
to be subject to Rule 15g-9 under the 1934 Act, which imposes additional sales
practice requirements on broker-deals which sell such securities to persons
other than established customers and institutional accredited investors. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the Rule may
affect the ability of broker-dealers to sell our Common Stock and may affect
your ability to sell any of the Common Stock acquired pursuant to this
Memorandum in the secondary market. The Commissions regulations define a "penny
stock" to be any equity security that has a market price (as therein defined)
less than $5.00 per share or with an exercise price of less than $5.00 per
share, subject to certain exceptions. The penny stock restrictions will not
apply to our Common Stock if the Common Stock is listed on the Nasdaq
SmallCap(r) Market and has certain price and volume information provided on a
current and continuing basis, or meets certain minimum net tangible assets and
other criteria. There can be no assurance that our securities will qualify for
exemption from these restrictions. If our Common Stock continues to be subject
to the rules on penny stocks, the market liquidity for the Common Stock could be
severely adversely affected.
9
There is historically low trading volume for our common shares.
Because of the relatively low volume of trading that has historically taken
place with our common stock, if could be difficult to sell shares in large
volume. We have calculated the average weekly trading volume to be near 175,500
shares for the last six months, which does not allow for large blocks of stock
to be sold. A large block trade order could have an adverse effect on the stock
price.
Shares eligible for future sale may adversely affect the market. Should we be
successful in the registration of the shares described herein, such an event may
have a depressive effect on the then trading price of our common shares. In the
future, we intend to enter into licensing and other agreements, which may
provide for an exchange of our common shares. Accordingly, there is the
possibility that sales of common shares issued in such a manner, may, in the
future, have a depressive effect on the price of our common stock in any market
which may develop.
There are risks involving contingent liabilities for a prior private securities
offering.
There is a risk that we will have to rescind and refund the purchase price of
certain unregistered securities sold in private transactions in the states of
Alabama, Georgia, Kentucky and Texas aggregating gross proceeds totaling
$65,750.00. On or about September 13, 1999, AMCI commenced a private offering of
our common stock, which was intended to conform with available exemptions from
the registration of the securities. In August 2000, we determined that a Form D
NOTICE OF SALE OF SECURITIES had not been forwarded to the Securities and
Exchange Commission and that similarly, the appropriate notice filings and fees
had not been forwarded to the regulatory agencies in the appropriate states.
Upon discovering this inadvertent deficiency AMCI immediately prepared the Forms
D, cover letters, uniform consents, and filing fees, as necessary, and filed
them with the SEC and with the appropriate state regulatory agencies.
We are uncertain whether any of the administrative agencies of the above-listed
states will accept our tardy notice filings as curative for purposes of
preserving the Rule 506 exemption in any such state(s). In the event the state
securities regulatory agency or agencies of Alabama, Georgia, Kentucky and/or
Texas determine that a violation has defeated the available Rule 506 exemption
and that no alternative exemption exists, such agency or agencies may elect to
proceed against AMCI for injunctive relief and administrative/civil penalties,
including but not limited to disgorgement of the above-described offering
proceeds. The unregistered sale of securities in Alabama, Georgia, Kentucky
and/or Texas without the benefit of an exemption from registration could also
give rise to civil actions against the company by purchaser(s) in the offering
in such states, who may be entitled to rescission and refund of the purchase
price with interest.
Reliance on forward looking statements.
Statements in this document which are not purely historical facts, including
statements regarding anticipations, beliefs, expectations, hopes, intentions or
strategies for the future, may be forward looking statements within the meaning
of section 27A of the Securities Act of 1933, as amended and Section 21.E of the
Securities Exchange Act of 1934, as amended. All forward-looking statements
within this document are based upon information available to us on the date of
this release. Any forward looking statements involve risks and uncertainties
that could cause actual events or results to differ materially from the events
or results described in the forward-looking statements, including the timing and
nature of independent test results; the nature of changes in laws and
regulations that govern various aspects of our business; the market acceptance
of our licensed technologies; retention and productivity of key employees; the
availability of acquisition candidates and proprietary technologies at prices we
believe to be fair market; the direction and success of competitors; management
retention; and unanticipated market changes.
USE OF PROCEEDS
We will not realize any proceeds from the sale of shares of Common
Stock by the Selling Security Holders. See "SELLING SECURITY HOLDERS".
DETERMINATION OF OFFERING PRICE
The offering price of the securities described herein was
calculated pursuant to Rule 457(c) and/or (g) of the Act and was not computed
based on the assets, historical operating performance or other conventional
means and should not be construed to indicate any relationship thereto. In
establishing the offering price, the company relied on the closing "bid" price
as reflected in the over-the-counter (OTC) marketplace. In May, 1998, our Common
Shares were cleared for trading through the OTC under the symbol AMCI. Since
that date, our Common Shares have traded at prices ranging from $.10-$2.125. On
November 26, 2001, the closing "bid" price of the Company's securities was
$0.15.
10
SELLING SECURITY HOLDERS
The shares of Common Stock of the Company offered by this Prospectus
are being sold for the account of the Selling Security Holders identified in the
table indicated below (the "Selling Security Holders"). The Selling Security
Holders are offering for sale an aggregate of 19,340,837 shares of the Company's
Common Stock, of which 5,971,106 are outstanding and 13,369,731 shares are
issuable upon the exercise of outstanding warrants and options held by the
Security Holders. The subject shares will be offered at market prices as
reflected on the Electronic Bulletin Board. It is anticipated that registered
broker-dealers will be allowed the commissions which are usual and customary in
open market transactions. There are no other understandings or arrangements with
respect to the distribution of the Common Stock. None of the selling security
holders are broker dealers or broker dealer affiliates.
The following table sets forth the number of issued and outstanding, as
well as issuable, Shares being held of record or beneficially (to the extent
known by the AMCI) by such Selling Security Holders and provides (by footnote
reference) any material relationship between AMCI and such Selling Security
Holders, all of which is based upon information currently available to the
Company.
Number of
Number of Shares Issuable
Shares of Upon Exercise Number of Number of
Issued Common of Warrants/ Percentage Shares of Shares of
Stock Before Options Before Common Stock Common
Offering (1) Offering to be sold Stock
Name (1) in Offering After
(1) Offering
------------------ ------------- -------------- --------- ------------ --------
BMJ Partners, Robert 100,000 100,000 * 200,000 0
Johnson, Partner
(2)**
Gary, Pamela and
Andrew McKean (2) 120,000 120,000 * 240,000 0
Stanley E. Adams (2) 50,000 50,000 * 100,000 0
Atlanta Commodity 40,000 40,000 * 80,000 0
Corporation Profit
Sharing Plan & Trust,
John H. Yarbrough,
Jr., President (2)**
Albert L. Simpson (2) 40,000 40,000 * 80,000 0
Chelverton Fund LTD, 500,000 500,000 2.196% 1,000,000 0
James Morton,
Director (2)**
Anglo Irish Nominees 100,000 100,000 * 200,000 0
(Trusts) Limited
Simon Grant Duggan,
Director (2)**
Greg Bigham (2) 66,667 66,667 * 133,334 0
Roy D. Bigham (2) 66,667 66,667 * 133,334 0
Donald Bigham (2) 66,667 66,667 * 133,334 0
Dr. Robert Chin (2) 200,000 200,000 * 400,000 0
Roland Mueller (2) 500,000 500,000 2.196% 1,000,000 0
Robert C. Pelphrey (2) 56,000 56,000 * 112,000 0
Terry H. Thomas (2) 12,000 12,000 * 24,000 0
John Martin Preston (2) 100,000 100,000 * 200,000 0
John S. Robinson (2) 48,000 48,000 * 96,000 0
Brigit Klimischka (2) 100,000 100,000 * 200,000 0
Wayne Philpott (2) 3,000 3,000 * 6,000 0
Mary Thornton (2) 2,000 2,000 * 4,000 0
Paul Lathigee and
Steve Zadra (2) 200,000 200,000 * 400,000 0
Anthony Kuschak (2) 109,000 109,000 * 218,000 0
11
Research Equity Fund, 200,000 200,000 * 400,000 0
Zenni Morris,
Director (2)**
Paul Lathigee (2) 20,000 20,000 * 40,000 0
574080 BC Ltd, dba 140,000 140,000 * 280,000 0
dba Performance
Capital Group, Mike
Lathigee, President (2)**
Sudan DeWitt Capital 200,000 200,000 * 400,000 0
Corp., Greg Sudan,
Director(2)**
Mark and Carolyn 20,000 20,000 * 40,000 0
Stys (2)
JoAnn Augsback (2) 10,000 10,000 * 20,000 0
Beverly Lewis (2) 10,000 10,000 * 20,000 0
John M. Lockhart II (16) 50,000 50,000 * 100,000 0
Robert E. Buntin (7) 600,000 0 2.636% 600,000 0
Molesworth Associates, 23,170 0 * 23,170 0
Gordon Molesworth,
President (3)**
AlphaCom, Inc., 87,719 0 * 87,719 0
Bob Snyder, President(16)**
Doug Chalmers, MD (16) 43,860 0 * 43,860 0
Lindy J. Amyx (3) 19,857 19,857 * 39,714 0
John S. Robinson (3) 10,343 10,343 * 20,686 0
Options Unlimited, 855,441 1,030,441 3.758% 1,885,882 0
Inc., Yolanda
Bannister, Director (5)**
Augsback and Associates, 0 179,125 * 179,125 0
Inc., Jack Augsback,
President (7)**
Potter Financial, Inc., 0 800,000 * 800,000 0
Barry Potter, President (6)**
Peter A. Jankowski (8) 50,000 50,000 * 100,000 0
Patrick Galvin (8) 25,000 25,000 * 50,000 0
Michael J. Bowe (13) 285,715 285,715 1.255% 571,430 0
Zable Family Trust, 700,000 0 3.075% 700,000 0
Walter Zable, Trustee (13)**
Renee Riegler (10) 0 166,667 * 166,667 0
Andrew F. Cauthen (10)(17) 0 1,200,000 * 1,200,000 0
Brian Dale (10) 0 21,875 * 21,875 0
Phyllis Watwood (10)(17) 0 383,333 * 383,333 0
Shirley Harmon (10)(17) 0 50,000 * 50,000 0
Ronald J. Corsentino 0 190,000 * 190,000 0
(11)(12)(17)
Richard Walker (9) 38,336 0 * 38,336 0
Robert Sullivan (9) 27,988 0 * 27,988 0
12
Eric Horton (9) 26,812 0 * 26,812 0
Stuart Smith (9) 17,522 0 * 17,522 0
Todd Smith (9) 6,942 0 * 6,942 0
Justin Quis Quis (9) 7,000 0 * 7,000 0
The Charterbridge 15,400 0 * 15,400 0
Financial Group, Inc. (9)**
Stephen Lee (11) 0 40,000 * 40,000 0
Dale Hedman (11) 0 40,000 * 40,000 0
James Taylor (11) 0 40,000 * 40,000 0
Chris Major (11) 0 40,000 * 40,000 0
Rodney R. Schoemann (15) 0 5,657,374 * 5,657,374 0
Baker, Johnston & 0 10,000 * 10,000 0
Wilson, LLP (14) **
-------------------- ----------- ------------- -------- ---------- --------
Total 5,971,106 13,369,731 26.23% 19,340,837 0
==================== =========== ============= ======== ========== ========
* Represents less than One Percent (1%) of the issued and outstanding stock.
**These entities are not beneficially owned or controlled in any manner by
AMCI or any of AMCI's officers, directors or affiliates.
1. Includes an additional 19,340,837 currently unissued shares covered by
this registration statement which may or may not be issued and/or sold,
dependent upon exercise of warrants and options and payment of full
purchase price for such additional shares by the Security Holders, such
warrant or option shares described in the following notes and in this
prospectus.
2. Shares issued pursuant to coordinated private offering made in reliance
upon Sections 4(6), 4(2) and/or 3(b) of the Act and according to
Regulation D. Each such Selling Security Holder also holds a warrant
exercisable for a period of five years for the purchase of an
equivalent number of additional shares at an exercise price of $0.25
per share (aggregate 3,080,001 warrant shares).
3. Shares issued in lieu of cash as compensation for business consulting
services. Amyx holds a warrant exercisable for an additional 19,857
(warrant) shares at $0.25 per share. Robinson holds a warrant
exercisable for an additional 10,343 (warrant) shares at $0.25 per
share.
4. Shares acquired in exchange for 100% of the stock of CompuGraphics
Corporation.
5. Shares acquired upon exercise of conversion of two (2) convertible
promissory notes dated April 7, 2000 for $502,500 and June 7, 2000 for
$300,000, respectively. Security Holder also holds warrants for the
purchase of 502,500 additional shares at $1.00 per share, 352,941
additional shares at $0.85 per share, and an option for the purchase of
175,000 additional shares at $$.25 per share.
6. Includes shares issuable upon exercise of options held by Potter
Financial, Inc., AMCI's past investor relations firm, exercisable
as follows:
100,000 shares @ $0.05
100,000 shares @ $0.10
100,000 shares @ $0.75
100,000 shares @ $1.00
100,000 shares @ $1.50
100,000 shares @ $2.00
100,000 shares @ $2.50
100,000 shares @ $3.00
As of the date of this registration, Potter Financial has not exercised
any of the options and is not a holder of any issued shares. Potter
Financial is the beneficial owner of 800,000 shares issuable upon
exercise of these options.
13
7. Includes shares issuable upon exercise by Augsback at prices ranging
from $0.25 to $1.00 per share. Augsback has no issued and outstanding
common stock however, Augsback is the beneficial owner of 179,125
shares issuable upon exercise of warrants issued to Augsback as a
commissioned placement agent for AMCI.
8. Includes a total of 75,000 shares issued pursuant to Option Purchase
Agreement for purchase price of $1.00 per share, in addition to
warrants for an additional 75,000 shares at a purchase price of $1.25
per share.
9. Shares issued pursuant to an agreement with Charterbridge Financial
Group, Inc. for investor relations services.
10. Shares issuable upon exercise of options issued pursuant to Key Person
Stock Option Agreement dated July 18, 2000. Key persons have option to
purchase 1,821,875 shares of common stock at $.19 per share.
11. Shares issuable upon exercise of options issued to Employee Stock
Option Agreement dated February 1, 2001. Certain employees have the
option to purchase 200,000 shares of common stock at $.25 per share.
12. Shares issuable upon exercise of option issued pursuant to consulting
agreement dated February 28, 2001 with the option to purchase 150,000
shares of common stock at prices ranging from $.19 per share to $.59
per share.
13. Shares issued pursuant to a limited private offering made to certain
New York investors pursuant to an exemption letter from the New York
Department of Law. Includes 985,715 shares issued at prices ranging
from $.35 to $.49 per share. Michael J. Bowe also holds a warrant
exercisable for the purchase of an additional 285,715 additional shares
at an exercise price of $.35 per share.
14. Shares issuable upon exercise of warrants by Baker, Johnston & Wilson
at $1.00 per share.
15. Includes: 1,377,551 shares issuable upon conversion of a $675,000
convertible note at a conversion rate of 1 share per $0.49; an
additional 1,377,551 shares issuable upon exercise of warrants at an
exercise price of $0.63 per share; 1,363,636 shares issuable upon
conversion of a $300,000 convertible note at a conversion rate of 1
share per $0.22; an additional 1,363,636 shares issuable upon exercise
of warrants at $0.27 per share; and an additional 175,000 shares
issuable upon exercise of an option at an exercise price of $0.25 per
share.
16. Includes an aggregate of 181,579 shares issued and 50,000 unissued
warrant shares exercisable at $1.00 per share.
17. The following selling security holders are officers or directors of
AMCI as follows:
Andrew F. Cauthen, Director, Vice Chairman
Phyllis Watwood (the spouse of Steve Watwood, Director, VP of Sales and
Chairman)
Shirley Harmon, Director,Secretary
Ronald J. Corsentino, Controller, Treasurer,
Principal Accounting Officer
14
PLAN OF DISTRIBUTION
Selling Security Holders
The Selling Security Holders are offering shares of Common Stock for
their own account and not for the account of the Company. The Company will not
receive any proceeds from the sale of the shares of Common Stock by the Selling
Security Holders.
Each Selling Security Holder will, prior to any sales, agree
(a) not to effect any offers or sales of the Common Stock in any manner other
than as specified in this Prospectus, (b) to inform the Company of any sale of
Common Stock at least one business day prior to such sale and (c) not to
purchase or induce others to purchase Common Stock in violation of Regulation M
under the Exchange Act.
The shares of Common Stock may be sold from time to time to purchasers
directly by any of the Selling Security Holders acting as principals for their
own accounts in one or more transactions in the over-the-counter market or in
negotiated transactions at market prices prevailing at the time of sale or at
prices otherwise negotiated. Alternatively, the shares of Common Stock may be
offered from time to time through agents, brokers, dealers or underwriters
designated from time to time, and such agents, brokers, dealers or underwriters
may receive compensation in the form of commissions or concessions from the
Selling Security Holders or the purchasers of the Common Stock.
Under the Exchange Act, and the regulations thereunder, any person
engaged in a distribution of the shares of Common Stock of the Company offered
by this Prospectus may not simultaneously engage in market making activities
with respect to the Common Stock of the Company during the applicable "cooling
off" periods prior to the commencement of such distribution. In addition, and
without limiting the foregoing, each Selling Security Holder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of Common Stock by the Selling Security
Holder. There are possible limitations upon trading activities and restrictions
upon broker-dealers effecting transactions in certain securities which may also
materially affect the value of, and an investor's ability to dispose of, the
Company's securities.
The Company will use its best efforts to file, during any period in
which offers or sales are being made, one or more post-effective amendments to
the Registration Statement, of which this Prospectus is a part, to describe any
material information with respect to the plan of distribution not previously
disclosed in this Prospectus or any material change to such information in this
Prospectus.
LEGAL PROCEEDINGS
We are not subject to any legal proceedings. We are unaware of any governmental
authority that is contemplating any proceeding to which we are a participant.
15
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our executive officers and directors are as follows:
Name Title/Position Age
Garrett L. Thomas President, CEO, Director 56
Stephen F. Watwood Vice President of Business Development, 51
Director, Chairman of the Board
Andrew F. Cauthen Vice Chairman, Director 57
Bruce R. Bacon Vice President of Engineering, Chief 42
Technology Officer, Director
Shirley M. Harmon Director, Secretary 54
Ronald J. Corsentino Treasurer, Controller 32
Garrett L. Thomas, 56, Chief Executive Officer/President/Director.
Mr. Thomas is the immediate past CEO of QUAKE Global, Inc., an authorized
subscriber communicator manufacturer and value added reseller for ORBCOMM, where
he was responsible for winning the key contract with Volvo Truck and setting up
the Samsung manufacturing relationship. Since leaving Quake, Mr. Thomas has been
providing consulting and legal services to various wireless telecommunication
entities and high technology startups in Southern California. Mr. Thomas has
considerable experience in business development and has worked with marketing
and sales management in structuring marketing strategy and distribution
channels. In addition, he has led negotiating teams in transactions with
resellers, OEM's, end users and the US Government and in setting up strategic
relationships both in the United States and internationally. Mr. Thomas has been
a senior manager in four startup companies including Sun Microsystems, Inc., a
highly successful Silicon Valley workstation manufacturer, where he was part of
the senior management team that grew Sun's federal subsidiary to $1 billion in
revenues in just over five years. Prior to coming to work in the computer
industry, Mr. Thomas spent close to ten years working in the aerospace industry
at Bendix, Pratt & Whitney Aircraft and COMSAT where he specialized in
government contracts. His academic credentials include a Juris Doctor from
Georgetown University and also a Masters in Law from George Washington Law
School.
Stephen F. Watwood, 51, Vice President of Business Development/Chairman
of the Board/Director
Mr. Watwood owned and operated a commercial and residential construction company
for twenty four years where he was directly responsible for project development,
business planning, and management. During that period, he owned a solar power
technology company and was an early pioneer in designing and installing
photo-voltaic systems into remote locations. He is considered by certain of his
peers to be an expert in this technology and, to date, his early efforts serve
as the basis for the development of this technology in Northwest Colorado. The
duties of Mr. Watwood include development of new business, project management
for ongoing initiatives, and creating technical solutions for Subscriber
Communicator systems.
16
Andrew F. Cauthen, 57, Vice Chairman/Director.
Mr. Cauthen's background includes ten years operating experience as
president/CEO for Century Capital Property Management Corp. With over one
billion in assets, Century Capital had over 200 employees and approximately 45
commercial properties under management throughout the United States. Following
his association with Century Capital, Mr. Cauthen was president of Mac Haik
Development of Houston, Texas. He has been in an executive capacity of several
companies, most recently as president and CEO of ZapCom International, Inc., a
division of Imagitel, Inc. Mr. Cauthen has broad-based experience in strategic
planning, organization design and management. He has consulted to businesses in
real estate finance, acquisition, development, joint venture financing,
telecommunications, computer services, consumer products, and marketing.
Bruce R. Bacon, 42, Chief Technology Officer (CTO)/Vice President of
Engineering/ Director
Mr. Bacon holds a degree in Electrical Engineering from Montana State University
where he was also a graduate research assistant in the field of semiconductor
laser frequency stability and linewidth reduction. His most recent experience is
that of lead design engineer at RadiSys Corporation where he was responsible for
electrical system architecture design, writing specifications, digital and
analog circuit design, prototype debug, design validation, and production
release. He has broad experience in field service, customer technical support,
in-house technical training, new product development, and manufacturing
operations. Mr. Bacon's duties include oversight of manufacturing, field
engineer for development of Subscriber Communicator, and senior project engineer
for our initiative with satellite monitoring of rail, container, and petroleum
assets in industry.
Shirley M. Harmon, 54, Director, Secretary.
Ms. Harmon retired from the United States Department of Navy in 1995. She was a
civilian employee with twenty eight years in the financial division. She has
held various positions and titles during this employment, which include the
following: Budget Analyst, and Management and Analyst for the Ship Parts Control
Center, financial evaluating and executing various budget programs. Additional
responsibilities included establishing and maintaining payroll records for over
7,000 government employees throughout the United States and overseas. After
leaving the Department of Navy, Ms. Harmon took a position with a private trust.
Her responsibilities included the establishment and maintenance of the trust's
financial records.
Ronald J. Corsentino, 32, Controller, and Treasurer. Mr. Corsentino has been
Controller since June of 2000 and Treasurer since July 2001. Prior to joining
the Company, from 1993 to 2000, Mr. Corsentino served as Federal Tax Services
Manager for KPMG Peat Marwick, LLP in Albuquerque, NM and Denver, CO where he
focused on the cable and telecommunications industry. Mr. Corsentino received
his BSBA in Accounting from the University of Southern Colorado and his Masters
of Taxation from the University of Denver.
17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known with respect to the
beneficial ownership of our common stock as of October 31, 2001 by (i) all
persons who are beneficial owners of five percent (5%) or more of our common
stock, (ii) each director and nominee for directors, (iii) the named executive
officers and (iv) all current directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o Corporate Security, AMCI,
1010 10th Street, Golden, CO 80401. Percentage of ownership is based on
25,523,328 shares of common stock issued and outstanding on October 31, 2001.
Shares of common stock subject to stock options which are currently exercisable
or will become exercisable within 60 days after October 31, 2001 are deemed
outstanding for computing the percentage of the person or group holding such
options, but are not deemed outstanding for computing the percentage of any
other person or group.
Amount of Shares
of Common Stock, Percent Ownership of
par value .001, Class
Name and Address of Owned Beneficially
Beneficial Owner
Named executive officers and directors:
Garrett L. Thomas 1,000,000 (1) 3.12% (1)
Andrew F. Cauthen 1,761,876 (2) 5.50% (2)
Stephen F. Watwood 2,979,942 (3) 9.29% (3)
Bruce R. Bacon 1,483,099 (4) 4.49% (4)
Shirley M. Harmon 151,872 (5) *
Ronald J. Corsentino 190,000 (6) *
Other 5% Stockholders:
Harto Ltd.** 2,157,495 8.45%
Roy Peacock, Director
Victoria House
P.O. Box 1090
The Valley, Anguilla
BWI
Global Investments Ltd., Trustee** 2,500,000 9.80%
Anthony Hulme, Director
Victoria House
P.O. Box 1066
The Valley, Anguilla
BWI
Mali-Suisse Mining Holdings, S.A.** 1,626,000 6.37%
Stephen Hafer, Director
28 Old Brompton Road
Suite 1119
London, England SW7 3DL
Options Unlimited, Inc.** 4,613,154(8) 18.07% (8)
Yolanda Bannister
Alpha & Omega Law Center
Trident House, Broad Street
Bridgestone, Barbados
Rodney R. Shoemann, Sr. 5,657,374 (9) 22.17% (9)
3904 Wheat Drive
Metairie, LA 70002
All Officers and Directors
of AMCI as a Group (7 persons) 7,521,789 (7) 23.47% (7)
*Holds less than 1% of the outstanding shares.
**These entities are not beneficially owned or controlled in any manner by
AMCI or any of AMCI's officers, directors or affiliates.
18
1. Includes an option for the purchase of 1,000,000 shares at a purchase
price of $0.19 per share. Mr. Thomas is the President, CEO and a director.
2. Includes an option for the purchase of 1,200,000 shares at a purchase
price of $0.19 per share and 486,491 shares at a purchase price of $0.10 per
share. Mr. Cauthen is the Vice Chairman of the Board of Directors.
3. Includes an option to Mr. Watwood's wife Phyllis Watwood for the
purchase of 383,333 shares at a purchase price of $0.19 per share and 278,319
shares at a purchase price of $0.10 per share and an option to Mr. Watwood to
purchase 1,715,040 shares at a purchase price of $.10 per share. Mr. Watwood is
the acting Vice President of Business Development and the Chairman of the Board
of Directors.
4. Includes an option for the purchase of 1,000,000 shares at a purchase
price of $0.19 per share and 373,099 shares at a purchase price of $0.10 per
share. Mr. Bacon is the acting Vice President of Engineering, Chief Technology
Officer and a director.
5. Includes an option for the purchase of 50,000 shares at a purchase price
of $.019 per share and 21,372 shares at a purchase price of $0.10 per share. Ms.
Harmon is the corporate secretary and a director.
6. Includes an option for the purchase of 40,000 shares at a purchase price
of $0.19 per share, 25,000 shares at a purchase price of $0.59 per share, 25,000
shares at a purchase price of $0.40 per share and 100,000 shares at a purchase
price of $0.19 per share. Mr. Corsentino is the Controller and Treasurer.
7. Includes options held by such officers and directors for the purchase of
an aggregate of 3,921,875 shares at a purchase price of $0.19 per share,
2,874,321 shares at a purchase price of $.010 per share, 25,000 shares at a
purchase price of $.40 per share, 25,000 shares at a purchase price of $.59 per
share and 40,000 shares at a purchase price of $.25 per share.
8. Includes warrants for the purchase of 502,500 additional shares at $1.00
per share, 352,941 additional shares at $0.85 per share, 1,363,636 shares
issuable upon conversion of a $300,000 convertible note at a conversion rate of
1 share per $0.22, an additional 1,363,636 shares issuable upon exercise of
warrants at $0.27 per share; and an additional 175,000 shares issuable upon
exercise of an option at an exercise price of $0.25 per share.
9. Includes: 1,377,551 shares issuable upon conversion of a $675,000
convertible note at a conversion rate of 1 share per $0.49; an additional
1,377,551 shares issuable upon exercise of warrants at an exercise price of
$0.63 per share; 1,363,636 shares issuable upon conversion of a $300,000
convertible note at a conversion rate of 1 share per $0.22; an additional
1,363,636 shares issuable upon exercise of warrants at $0.27 per share; and an
additional 175,000 shares issuable upon exercise of an option at an exercise
price of $0.25 per share.
19
DESCRIPTION OF SECURITIES
AMCI, in accordance with its Articles of Incorporation and Amendments
thereto, is authorized to issue up to 50,000,000 shares of Common Stock, par
value $.001 per share, and 10,000,000 shares of Preferred Stock, par value $1.00
per share. As of the date hereof, none of the Preferred Shares were outstanding
and there were 25,523,328 shares of Common Stock outstanding.
Holders of Common Shares are entitled to one vote per Common Share on
all matters to be voted on by Shareholders. The Common Shares do not have
preemptive rights or cumulative voting rights. A majority vote is sufficient for
most actions requiring the vote or concurrence of Shareholders. AMCI's Officers
and Directors as a group (7 persons) own directly and control the votes of
approximately 6.13% of the Issuer's capital stock, and beneficially own,
including stock options not yet exercised, 23.47% of the common stock.
All Shares are entitled to share equally in dividends when and if
declared by the Board of Directors out of funds legally available therefore. It
is anticipated that AMCI will not pay cash dividends on its Shares in the
foreseeable future. In the event of liquidation or dissolution of AMCI, whether
voluntary or involuntary, holders of the Shares are entitled to share equally in
all assets of the Company legally available for distribution to Shareholders.
The holders of Shares have no preemptive or other subscription rights to acquire
authorized but unissued capital stock of the Company, and there are no
conversion rights or redemption or sinking fund provisions with respect to such
Shares. All of the outstanding Shares and those Shares issued in accordance with
this offering will be fully paid and non-assessable.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No such interests.
DESCRIPTION OF BUSINESS
History
American Millennium Corporation, Inc. is a New Mexico corporation organized in
1979 under the name Energy Optics, Inc. (Energy) to develop various technologies
for industrial and consumer applications. Energy was unable to realize revenue
sufficient to maintain an active status, and was unsuccessful in securing
funding sufficient to aggressively market these devices and systems. After
becoming inactive and ceasing all initiatives to pursue funding for production
and marketing, Energy was de-listed from the NASDAQ Small Cap listing. However,
as an inactive over-the-counter stock, Energy's principals maintained the
corporate books, kept Energy in good standing and retained its status as fully
reporting to the Securities and Exchange Commission.
In order to proceed with its acquisition strategy, Energy recognized that it had
to reduce its overwhelming debt. A settlement agreement was reached to eliminate
the Small Business Administration debt (including accrued interest) by a
combination of cash payments, issuance of stock and forgiveness of debt. The
remainder of the debt was extinguished by forgiveness of some debt and interest
in exchange for common stock. (Most of this debt was to directors of Energy.)
With a clean slate, Management believed that it could pursue its research and
development of products and services.
20
In June 1997, Energy acquired business assets including real estate in Tavares,
Florida, buildings, equipment and a controlling stock interest of Lean Protein
Foods, Inc., a specialty food company, in a transaction totaling approximately
$3.6 million. In September and October 1997, Energy acquired a total of 80% of
American Millennium Corporation and 20% of Microgravity Aviation Corporation,
both of which were development stage enterprises. Early in 1998, Energy
discontinued operations of Lean Protein Foods, Inc. and on July 31, 1998, sold
its interest. Management also negotiated the rescissions of both the purchase
contracts for a 20% stock ownership held in Microgravity Aviation Corporation
and the contract for purchase of the real estate in Tavares, Florida.
Under an Agreement and Plan of Merger dated May 27, 1998, Energy merged with
American Millennium Corporation, a subsidiary of which Energy owned
approximately an 80% interest, with the parent as the surviving corporation.
Upon completion of the merger, we changed our name to American Millennium
Corporation, Inc.
In July of 2000, we completed our acquisition of CompuGraphics Corporation, a
Florida corporation. As a result of the acquisition, CompuGraphics Corporation
was merged into American Millennium Corporation, Inc.
Our corporate headquarters are located at 1010 Tenth Street, Suite 100, Golden,
Colorado 80401, and our telephone number is (303) 279-2002.
Products
Our current focus is on providing hardware and software solutions to facilitate
timely, accurate, and cost effective one-way and two-way delivery of information
via satellite communication and the Internet. We offer a service where customers
can access information about various fixed and mobile assets through a custom
Internet based software application. With our SatAlarm application, customers
can use their existing PC and Internet connection to select a particular asset,
and request various information including location, speed, temperature and
sensor readings.
Through utilization of newly available two-way satellite communication, we can
monitor currently isolated facilities and equipment. We have activated over four
hundred systems for satellite monitoring of oil and gas production and pipeline
equipment as well as systems for monitoring and tracking rail and highway
vehicles. Assets that could not be practically served by land-based
communication systems can now utilize satellite monitoring and tracking to yield
significantly better equipment management. This results in increased production,
less product loss and increased capital efficiency for our customers.
Our principal suppliers of both satellite terminals and satellite airtime
include Vistar Datacom, Inc. and ORBCOMM USA L.P. Under the terms of our
agreement with Vistar Datacom, Inc., we can provide solutions based on Vistar's
GlobalWave network to customers in the oil and gas market throughout the 48
contiguous states and Canada. Under the terms of our past agreement with
ORBCOMM, we are able to offer tracking and remote monitoring for customers in
the oil and gas, rail car, and cargo container industries, although an exception
has been provided for the sale of monitoring units as well as satellite airtime
by us to General Motors Corporation. On September 15, 2000, ORBCOMM USA, LP
filed for relief under Chapter 11 of the United States Bankruptcy Code. Although
some of our applications are completely dependent upon ORBCOMM, most of our
current and future applications can be supported using Vistar airtime with
minimal time and costs involved in switching airtime applications. ORBCOMM has
emerged from bankruptcy and is now under new management. It is expected that the
Company will enter into a new airtime agreement with ORBCOMM shortly or will
obtain airtime from one of ORBCOMM's resellers.
21
HOW DOES SATALARM WORK?
1. Status, location, malfunction or failure information is sent from our
hardware located on a customer's asset to a satellite network.
2. The information passes through the satellite network to our service
center for analysis. The customer can then either access a web site to
check the status of their asset, or SatAlarm can automatically alert the
customer with various alarms.
Since travel times to remote units can be measured in hours, accurate
information of this nature is of great value. We become a key and ongoing link
in the customer's value chain. We share in that value by charging for our
engineering, installation, and operating services as well as receiving a
recurring fee for the communication traffic. By way of example, several units
have been contracted for by a customer and were provisioned by us to monitor gas
well compressors and the mainline station compressor. Our customer will receive
daily reports that the units are running or not running, as well as alarm
reports whenever the units shut down unexpectedly. We provide a secure website
on the Internet for this customer to view the operating conditions and alarms.
CURRENT OPERATIONS
OIL AND GAS CUSTOMERS. We have various initiatives underway with oil and gas
producers as well as manufacturers of gas compressors and control panels for
those compressors. We currently have over four hundred of our Sentry units that
are activated and monitoring production assets for our customers. We also have
many potential customers with Sentry units in active field trials. These units
are currently monitoring a variety of assets in the United States. Much of oil
and natural gas production occurs in largely remote areas far beyond the
economic range of wired or terrestrially based wireless communication. Key to
the operation of these production sites are enormous compressors used to
extract, collect, and transfer the oil and gas to transmission pipelines. The
malfunction or failure of one of these compressors is a red-alert event for the
production operator. The economic loss can be measured in thousands of dollars
per hour of down time, resulting in a high value to reducing the duration of an
outage. The Sentry product has been designed for easy installation and
operation. Customers simply place the Sentry on the top of the compressor facing
south and turn it on. There is no connection to the compressor required as the
Sentry is battery powered. Currently, approximately 80% of our revenues are
derived from the oil and gas industry.
In July of 2000, we completed our acquisition of CompuGraphics Corporation.
CompuGraphics has developed Sat-Trac, which is similar to our SatAlarm
application. Sat-Trac is also a user interface that allows customers to view a
variety of conditions for a particular customer owned asset. Our current plans
include marketing Sat-Trac as a stand-alone software product to be used by
customers to monitor assets.
Our current revenues are dependent on a few major customers. As of July 31, 2001
approximately 64% of our accounts receivable are due from three customers, and
approximately 58% of our revenues are generated from three customers.
Predominately all of our expenses during the last two years have been related to
the research and development and customization of our hardware and software
applications. Less than 5% of these total costs have been borne directly by our
customers. We released the first version of SatAlarm in late November 2000,
which was our first commercially available product.
PROPRIETARY TECHNOLOGY APPLICATIONS. We believe that we have now developed
certain proprietary technologies for the monitoring of various types of assets
utilizing the ORBCOMM and Vistar systems. In addition to monitoring of data
communications, we have the ability to remotely control functions at the asset
location. Due to the sensitive and proprietary nature of this technology as well
as our intent to protect us to the extent that is possible with patent
applications, we are unable to disclose specific aspects of the systems.
Nevertheless, we believe that the applications are both valuable and viable. We
have retained the service of Dorr, Carson, Sloan & Birney, PC, a Denver,
Colorado based patent, trademark and copyright law firm, to effect these
applications.
MARKETING. We believe that a significant base of recurring revenues derived from
monthly satellite monitoring charges will build our value. Our principal
marketing efforts are directed toward the oil and gas market in the United
States, which has a need for monitoring of high value assets. Our personnel work
with management and engineers in order to determine their technological needs,
cost objectives and to develop solutions for their individualized asset
monitoring requirements. Marketing efforts are performed by both our personnel
and outside sales service providers.
22
COMPETITION. There are numerous competitors to ORBCOMM's and Vistar's satellite
based data and messaging service. However, we are confident that Systems already
deployed do not present any competition of a formidable nature for several
reasons. First, geostationary systems and terrestrial-based wireless networks
are regional, not global, in coverage. Secondly, the big Low Earth Orbit systems
such as Iridium and Globalstar must focus on voice telephony to build rapid
revenues to service the multi-billion dollar capitalization costs associated
with their deployment. Also, their electronic architecture makes it expensive to
send data and the end-user equipment is expensive. Additionally, the majority of
the satellite systems in development exist only on paper and have either not
obtained financing or licensing or both. We do not believe that any system
either deployed or in development can compete with the ORBCOMM/Vistar/AMCI
collective ability to provide the low cost service for data transfer, the small,
inexpensive communicators, or the ability to provide global near-real-time
two-way communications. If new satellite wireless technologies do emerge, we
will adapt our current products to utilize any that provide a competitive
advantage. There is potential competition from other ORBCOMM and Vistar
resellers who are licensed to market services within the same industries where
we are marketing our products. Also, ORBCOMM and Vistar are marketing their own
services to virtually all industries via in-house resellers and employed sales
personnel.
Remote asset monitoring via satellite is a relatively new market, in which no
one supplier has a majority of market share. The market is new and emerging, and
we believe that with our SatAlarm application, we will be participants in the
development of a substantial future market. Potential substitutes for our
product include cellular services. Cellular service is still not available in
all remote areas, which gives our application an advantage, as the possibilities
for satellite access are available virtually everywhere.
MANUFACTURING AND SUPPLIERS. We purchase the satellite terminal component for
our hardware units from Vistar Datacom and ORBCOMM authorized manufacturers. In
the case of Vistar, they are the sole source for that component. Airtime for
satellite monitoring is also purchased from Vistar and ORBCOMM.
GOVERNMENT REGULATIONS. As value-added resellers for Vistar and ORBCOMM, our
services and products are subject to the rules and regulations of the Federal
Communications Commission. We anticipate no problems in obtaining the necessary
certifications in a timely manner as required.
PERSONNEL
As of October 31, 2001, we had ten full-time employees, four of whom are
directors or officers. None of our employees are represented by a labor union,
and we consider our employee relations to be good.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction with the
financial statements and related notes, which provide additional information
concerning our financial activities and condition.
FOR THE YEAR ENDING JULY 31, 2001
RESULTS OF OPERATIONS
We had a net loss of $2,862,490 (or $.12 per share) on revenues of $282,055 for
the year ended July 31, 2001 compared to a net loss of $2,725,775 (or $.15 per
share) on revenues of $341,418 for the year ended July 31, 2000. The increase in
net loss was primarily attributable to the increase in interest expense,
write-off of equipment and the loss on an impairment of non-compete agreement
for the year ending July 31, 2001.
Gross profit for the year ended July 31, 2001, was $93,540 (33% of sales)
compared to $128,812 (37%) for the year ended July 31, 2000. The cost of sales
for fiscal year 2001 consisted primarily of hardware units and airtime sold
while costs of sales for 2000 were attributable to the costs of joint product
development that were not a true indication of the cost of the product sold.
Selling, general and administrative expenses were $2,373,978 for the year ended
July 31, 2001, compared to $2,611,054 for the year ended July 31, 2000. The
decrease in selling, general and administrative expenses is primarily due to
stock options issued to key officers and directors, resulting in a compensation
charge of $1,048,671 for the year ended July 31, 2000, and only $187,000 for the
year ended July 31, 2001.
We earned $282,055 from sales revenue in 2001 compared to $341,418 in 2000. The
revenue was derived primarily from the sale of hardware and airtime to new and
existing customers.
As of July 31, 2001, we had available income tax net operating loss
carryforwards of $12,119,889, tax credits of $21,379 and capital loss
carryforwards of $2,328,670 that can be used to offset future taxable income,
subject to certain restrictions based on significant ownership changes.
23
EFFECTS OF INFLATION
We believe that our revenues and results of operations have not been
significantly affected by inflation during the three years ended July 31, 2001.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We understand that cash equivalents on hand at July 31, 2001, are not adequate
to meet even our short-term capital needs. We continue to have negative working
capital and a deficiency in assets of approximately $1,562,220 for fiscal year
2001 and $566,925 for fiscal year 2000. Due to our focus on product development,
we have not been profitable since our re-organization in 1998. We expect this to
continue as we are still firmly committed to new product and service
development. Although our forward-looking business plan calls for a continual
increase in sales of developed products, we are also planning for increased
development costs that will not be offset by increased revenue in the near
future.
To fund our operations we will need to pursue additional sources of cash in the
short term. As of July 31, 2001, we had substantially no working capital. Our
cash funds are not sufficient to cover current operating expenses. Our revenues
are not estimated to cover expenses until June 2002, and in the interim the
Company will need an additional $2 million in capital funding. The availability
of other sources of cash may, or may not, materialize and thus, present a
significant risk that we will exhaust our financial resources in the short term,
with no ability to pay for ongoing operational expenses, before our revenues can
be developed to adequately cover its expenses. Because of these factors, our
auditors have expressed substantial doubt as to our ability to continue as a
going concern, as noted in the financial statements.
We purchase major components for our products from limited sources. The
continued financial viability of each of these companies will significantly
determine our future. Because our technology is dependent on our two major
suppliers, the discontinuance of operations of either one could have a
significant negative impact on the deliverability of our products. Because of
the "new" nature of this product line, each of our suppliers must also be
considered "start-up" in nature, and also subject to the volatility and risk
that comes with a start-up business.
We have no material commitments for capital expenditures and expect no
significant changes in the number of employees. We will continue to out-source
production and manufacturing and major marketing efforts will be performed by
the officers and directors.
Net cash used in operating activities was $1,703,560 for the year ended July 31,
2001, compared to $1,228,042 for the year ended July 31, 2000. The increase in
net cash used in operating activities resulted primarily from the fact that for
the year ended July 31, 2000, $1,048,670 of compensation was issued in the form
of stock options, compared to only $231,700 for the year ended July 31, 2001.
Net cash used in investing activities was $165,741 for the year ended July 31,
2001 compared to $282,971 for the year ended July 31, 2000. The decrease in net
cash used in investing activities resulted primarily from decreasing capital
expenditures for computer equipment, purchased software and office equipment.
Also, in 2000, $150,000 in cash was used in the acquisition of a non-compete
agreement related to the CompuGraphics merger.
Net cash provided by financing activities was $1,768,337 for the year ended July
31, 2001, compared to $1,602,925 for the year ended July 31, 2000. The increase
in net cash provided by financing activities resulted primarily from the sale of
common stock and convertible securities to various accredited private investors.
If we are unable to raise additional funds before December 2001, we may have to
limit our operations to an extent not presently determinable by management, but
which may include the sale of any assets owned or our ceasing to conduct
business. Although we have no commitments for capital, we may raise additional
funds through:
- public offerings of equity, securities convertible into equity or debt,
- private offerings of securities or debt, or other sources.
Current shareholders should assume that any additional funding will cause
substantial dilution to their ownership. In addition, we may not be able to
raise additional funds on favorable terms, if at all.
In July of 2001, we began commercial production of our Sentry product, a
satellite based modem equipped with a vibration switch intended to remotely
monitor oil and gas compressors. We currently have orders from customers for
approximately 600 Sentry units and are expecting more orders over the next
several months. We believe that the production and sale of this product line,
will place us in a cash flow positive position.
24
DESCRIPTION OF PROPERTY
We lease our headquarters facility which occupies approximately 4,400 (four
thousand, four hundred) square-feet, located at 1010 10th Street, Suite 100,
Golden, CO.
We do not invest in real estate or real estate mortgages, nor do we
invest in the securities of or interests in persons primarily engaged in real
estate activities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Promoters.
On April 27, 2000, we entered into a one-year agreement with Charter Bridge
Financial ("Charter Bridge") for the purpose of investor relations and public
promotion. The agreement called for AMCI to pay Charter Bridge $10,000.00
initially and a monthly fee of $4,500.00 thereafter. Additionally, we agreed to
issue to Charter Bridge 70,000 unregistered shares of our common stock upon
execution of the agreement and three additional installments of 70,000
unregistered shares, on 8/1/2000, 11/1/2000, and finally on 2/1/2001. On
September 27, 2000 we terminated Charter Bridge pursuant to the terms of the
agreement, for unsatisfactory or non-performance. To date, Charter Bridge has
received $19,000 and 140,000 shares in fees for services.
In July 1999, we engaged Jack Augsback and Associates, a Florida licensed
broker, ("Augsback") to serve as its exclusive agent for placement
opportunities. We agreed to pay Augsback commissions equal to ten percent of the
gross proceeds from placement offerings, with an additional one percent
non-accountable expense allowance also in cash. Additionally, we granted
Augsback warrants equal to five percent of the gross proceeds from placement
offerings. On July 6, 2000, we cancelled our placement agent contract with
Augsback. As of the termination date, we had paid Augsback a total of
$128,146.35 in commissions and costs.
On December 7, 1998, we entered into a two-year agreement with Potter Financial,
Inc. (Potter) for the purpose of investor relations and public promotion.
Pursuant to an addendum to the contract, Potter is entitled to purchase options
in AMCI as follows in consideration for services rendered in the contract:
100,000 shares @ $0.05
100,000 shares @ $0.10
100,000 shares @ $0.75
100,000 shares @ $1.00
100,000 shares @ $1.50
100,000 shares @ $2.00
100,000 shares @ $2.50
100,000 shares @ $3.00
The original option contract was ti lapse December 31, 2000. On July 17, 2000
our Board of Directors passed a resolution extending the exercise period to
December 31, 2002, so that the issuable shares could be registered in this
registration statement. Our contract with Potter expired on December 6, 2000
We had accrued salaries due to our officers of $66,901 at JULY 31, 2001.
We had notes payable due to our shareholders at JULY 31, 2001 of $200,000. These
notes are unsecured, due at various dates through July 31, 2002 and provide for
annual interest at 11%.
On August 13, 1999, the Board of Directors authorized the issuance of 165,000
shares of AMCI common stock in lieu of cash compensation. 100,000 shares were
issued to one of our officers for services provided, and 65,000 shares were
issued to a consultant in settlement of an outstanding liability in the amount
of $13,000.
Effective February 29, 2000 the corporate secretary resigned. The Board of
Directors authorized the issuance of 100,000 shares of our restricted common
stock valued at $52,500 and a cash payment of $17,500 in settlement of accrued
compensation and out-of-pocket expenses.
25
On April 3, 2001, the Board of Directors authorized the issuance of options for
the purchase of 3,406,225 shares of AMCI common stock at an exercise price of
$.10/share. These options were issued to 9 officers, directors and related
parties in order to settle liabilities of AMCI due them in the amount of
$647,183. These options are fully vested and shall be exercisable for 3 years.
The nature of the liabilities settled with these options are as follows:
Accrued consulting $298,498
Advances from officers $14,080
Notes payable $245,396
Accrued salaries $89,209
--------
$647,183
========
On April 24, 2001 Bruce R. Bacon, the Company's VP of Technology and CTO, was
granted an option to purchase 1,000,000 shares of AMCI common stock at an
exercise price of $.19/share. The option is fully vested and shall be
exercisable for 3 years. In addition, on April 24, 2001 Ron Corsentino, the
Company's Controller was granted an option to purchase 100,000 shares of AMCI
common stock at an exercise price of $.19/share. The option is fully vested as
of May 29, 2001 and shall be exercisable for 2 years. These options remain
unexercised as of October 31, 2001.
On April 24, 2001 the Board of Directors authorized the issuance of options for
the purchase of 285,000 shares of AMCI common stock at an exercise price of
$.25/share. These options were granted to certain individuals who were employed
by AMCI on February 1, 2001. The options are fully vested as of February 1, 2001
and are exercisable for two years. These options remain unexercised as of
October 31, 2001.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since May 27, 1998, our shares have been traded through the
over-the-counter market through the NASD OTC Electronic Bulletin Board ("OTCBB")
marketplace under the symbol AMCI. Since that date, our shares have traded on
the Bulletin Board at prices ranging from $.10 to $2.125; however, there can be
no assurance that our shares will continue to trade within this range, given the
effect of the shares being registered hereby. Quotations on the OTCBB reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
As of November 26, 2001, we had 804 Shareholders of Record.
Holders of our Common Stock are entitled to dividends when, as and if
declared by the Board of Directors, out of funds legally available therefore. We
do not anticipate the declaration or payment of any dividends in the foreseeable
future, and has not paid dividends at any time in the past.
We intend to retain earnings, if any, to finance the development and
expansion of its business. Future dividend policy will be subject to the
discretion of the Board of Directors and will be contingent upon future
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors. Therefore, there can be no assurance that
any dividends of any kind will ever be paid.
AMCI's stock registrar and transfer agent is Securities Transfer
Corporation.
26
EXECUTIVE COMPENSATION
The following tables summarize the executive compensation earned or paid for
services rendered for the fiscal years ended July 31, 2001, 2000 and 1999:
Other Compensation Total
Fiscal Year Bonus (1),(2) (2)
Name and Principal Position Salary
Andrew F. Cauthen 2001 180,000 -- -- 180,000
Vice Chairman of the 2000 120,000 -- 14,500 134,500
Board of Directors 1999 15,000 -- -- 15,000
Director
(April 1999 to
Present)
Steve Watwood 2001 96,000 -- -- 96,000
VP Business Development 2000 96,000 -- -- 96,000
Chairman of the Board 1999 98,001 -- 186,500 284,501
Director
(May 1998 to Present)
Bruce Bacon 2001 96,000 -- -- 96,000
VP of Engineering 2000 96,000 -- -- 96,000
Chief Technology Officer1999 96,000 -- 106,500 202,500
Director
(September 1998
to Present)
Shirley Harmon 2001 -- -- -- --
Secretary 2000 -- -- -- --
Director 1999 -- -- 13,313 13,313
(May 1998 to Present)
James Statham 2001 16,000 -- -- 16,000
Chief Operation Officer 2000 96,000 -- -- 96,000
Director 1999 98,001 -- 226,250 324,251
(May 1998
to September 2000)
Ronald J. Corsentino 2001 78,000 -- -- 78,000
Controller, 2000 10,000 -- -- 10,000
Treasurer 1999 -- -- -- --
(June 2000 to Present)
All Executives as a Group 2001 466,000 -- -- 466,000
2000 322,000 -- 14,500 432,500
1999 307,002 -- 532,563 839,565
1. Includes the value of restricted common stock issued.
2. Does not include the value of long-term compensation in the form of options
issued to officers, included in the OPTIONS/SAR GRANTS table below.
27
Any increase in officer compensation would be predicated on prevailing industry
standards and our existing financial situation. The Board of Directors may
authorize an increase in the compensation of our executive officers without a
vote of Shareholders.
We did not make any bonus cash payments to our executive officers; however, we
may, in the future, develop programs which may include bonus payments.
We do not compensate our Directors for their participation. We do not provide
for agreements with any of our executive officers. However, we may, in the
future, need to compete for the services of our executive officers, at which
time, the Board of Directors may adopt and require our executive officers to
execute employment agreements.
OPTIONS/SAR GRANTS TABLE
The following options table reflects our long-term compensation in the form of
individual grants of stock options made during the last completed fiscal year to
each of the named executive officers. During the fiscal year ended July 31,
2001, we granted options to purchase 4,841,225 shares of common stock to
employees, officers and directors. The exercise price may be paid in cash,
check, shares of our common stock valued at fair market value on the exercise
date or a cashless exercise procedure involving a same-day sale of the purchased
shares. All option grants are immediately exercisable in full. No stock
appreciation rights were granted to the named executive officers during the
fiscal year ended July 31, 2001. As of November 26, 2001, none of these options
have been exercised.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
------------------ -------------- ------------- ----------- ---------- -------
Percent of
Number of Total Market
Options/SARs Price
Securities on
Underlying Granted to Exercise of Date
Options Employees in Base Price Expiration of
Officer Granted (#) Fiscal Year ($/Sh) Date Grant
------------------ --------------- ------------ ----------- ---------- -------
Andrew F. Cauthen 486,491 10.04% $0.10 4-03-2004 $.29
------------------ --------------- ------------ ----------- ---------- -------
Stephen F. Watwood 1,715,040 35.43% $0.10 4-03-2004 $.29
------------------ --------------- ------------ ----------- ---------- -------
Bruce R. Bacon 1,000,000 20.66% $0.19 4-24-2004 $.37
373,099 7.70% $0.10 4-03-2004 $.29
------------------ --------------- ------------ ----------- ---------- -------
Shirley Harmon 21,372 .44% $0.10 4-03-2004 $.29
------------------ --------------- ------------ ----------- ---------- -------
Ronald J. Corsentino 100,000 2.06% $0.19 6-01-2004 $.36
40,000 .83% $0.25 2-01-2003 $.37
25,000 .51% $0.50 3-01-2003 $.50
25,000 .51% $0.40 5-01-2003 $.40
------------------ --------------- ------------ ----------- ---------- -------
28
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDING JULY 31, 2001 AND 2000
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT 30
FINANCIAL STATEMENTS
Balance Sheets 31
Statements of Operation 32
Statements of Deficiency in Assets 33
Statements of Cash Flows 34
NOTES TO FINANCIAL STATEMENTS 35 to 45
29
[LOGO]
Dohan and Company 7700 North Kendall Drive, 200
Certified Public Accountants Miami, Florida 33156-7564
A Professional Association Telephone (305) 274-1366
Facsimile (305) 274-1368
E-mail info@uscpa.com
Internet www.uscpa.com
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
American Millennium Corporation, Inc.
Golden, Colorado
We have audited the accompanying balance sheets of American Millennium
Corporation, Inc. as of July 31, 2001 and 2000, and the related statements of
operations, deficiency in assets and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Millennium
Corporation, Inc. at July 31, 2001 and 2000, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has suffered recurring losses from operations,
has a working capital deficiency and has a deficiency in assets that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 10. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Dohan and Company, P.A.
Certified Public Accountants
Miami, Florida
October 21, 2001
30
Member:
Florida Institute of Certified Public Accountants
American Institute of Certified Public Accountants - Private Companies and SEC
Practice Sections
SC International - Offices in Principal Cities World-Wide [LOGO]
AMERICAN MILLENNIUM CORPORATION, INC.
BALANCE SHEETS
--------------------------------------------------------------------------------
July 31, 2001 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................... $ 4,184 $ 105,148
Accounts receivable, less allowance for doubtful
accounts of $14,204 and $1,564................... 53,030 23,899
Inventories........................................ 37,758 21,161
Prepaid expenses................................... 8,224 6,514
Advances to employees ............................. 3,000 --
Short-term portion of non-compete agreement........ 35,000 35,000
Discount on issuance of debt....................... -- 41,875
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS................................. 141,196 233,597
--------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET.......................... 145,409 154,714
--------------------------------------------------------------------------------
OTHER ASSETS
Long-term portion of non-compete agreement......... -- 138,639
Securities in closely-held corporation............. 3,040 3,040
Security deposits.................................. 12,753 7,407
Other assets....................................... 760 760
Deferred income tax asset, less valuation
allowance of $5,207,267 and $3,385,497........... -- --
--------------------------------------------------------------------------------
TOTAL OTHER ASSETS................................... 16,553 149,846
--------------------------------------------------------------------------------
TOTAL ASSETS......................................... $ 303,158 $ 538,157
================================================================================
LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES
Accounts payable.................................... $ 320,950 $ 226,792
Accrued payroll and related taxes................... 79,361 44,149
Accrued liabilities................................. 76,613 468,827
Current portion of capitalized lease obligations.... 9,547 24,473
Notes payable to officers........................... 53,385 210,992
Notes payable to related parties.................... 189,576 62,285
Note payable to stockholder......................... 200,000 25,899
Advances from officers.............................. -- 24,952
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES............................. 929,432 1,088,369
--------------------------------------------------------------------------------
Long-term portion of capitalized lease obligations.... 7,440 16,713
Long-term portion of interest payable ................ 53,506 --
Convertible notes .................................... 875,000 --
--------------------------------------------------------------------------------
TOTAL LONG TERM LIABILITIES .......................... 935,946 16,713
--------------------------------------------------------------------------------
TOTAL LIABILITIES..................................... 1,865,378 1,105,082
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND 12)
DEFICIENCY IN ASSETS
Preferred stock, 10,000,000 shares authorized;
none issued -- --
Common stock, $.001 par value, 60,000,000 shares
authorized; 23,723,328 and 21,402,284 shares
issued and outstanding........................... 23,723 21,402
Additional paid-in capital......................... 15,964,110 14,099,236
Accumulated deficit................................ (17,550,053) (14,687,563)
--------------------------------------------------------------------------------
TOTAL DEFICIENCY IN ASSETS........................... (1,562,220) (566,925)
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS........... $ 303,158 $ 538,157
================================================================================
See accompanying notes.
31
AMERICAN MILLENNIUM CORPORATION, INC.
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
For the Years Ended July 31, 2001 2000
--------------------------------------------------------------------------------
REVENUES............................................. $ 282,055 $ 341,418
COST OF REVENUES..................................... 188,515 212,606
--------------------------------------------------------------------------------
GROSS PROFIT......................................... 93,540 128,812
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Compensation to officers and directors............. 724,778 1,273,153
Consulting - others................................ 279,645 135,641
Professional....................................... 169,128 184,574
Employee salaries.................................. 474,458 423,171
Employee benefits and payroll taxes................ 160,764 59,855
Research and development........................... -- 136,507
Travel............................................. 121,186 110,315
Telephone and utilities............................ 44,100 46,529
Depreciation and amortization...................... 136,772 17,798
Other.............................................. 263,147 223,511
-------------------------------------------------------------------------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 2,373,978 2,611,054
--------------------------------------------------------------------------------
LOSS FROM OPERATIONS................................. (2,280,438) (2,482,242)
OTHER INCOME (EXPENSES)
Interest expense................................... (366,196) (148,208)
Amortization of loan costs......................... (41,875) (109,647)
Loss on disposal of property and equipment......... (74,199) (25,689)
Miscellaneous income............................... 3,760 40,011
Impairment of assets .............................. (103,542) --
--------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSES)........................ (582,052) (243,533)
--------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES............................. (2,862,490) (2,725,775)
INCOME TAXES......................................... -- --
--------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (2,862,490) (2,725,775)
--------------------------------------------------------------------------------
NET LOSS............................................. (2,862,490) (2,725,775)
================================================================================
NET LOSS PER COMMON SHARE
BASIC .......................................... $ (0.12) $ (0.15)
DILUTED .......................................... $ (0.12) $ (0.15)
================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC ............................................. 22,249,332 18,218,392
DILUTED ........................................... 22,249,332 18,218,392
===============================================================================
See accompanying notes.
32
AMERICAN MILLENNIUM CORPORATION, INC.
STATEMENTS OF DEFICIENCY IN ASSETS
FOR THE YEARS ENDED JULY 31, 2001 AND 2000
--------------------------------------------------------------------------------
Additional Total
Common Stock Paid-in Accumulated Deficiency
Description Shares Amount Capital Deficit Other in Assets
--------------------------------------------------------------------------------
Balance -
July 31, 1999 16,403,472 $16,404 $11,200,669 ($11,961,788) $ -- $ (744,715)
Sale of
common stock 3,130,001 3,130 713,520 -- -- 716,650
Common stock
issued for
interest 25,000 25 6,225 -- -- 6,250
Common stock
issued for
compensation 200,000 200 72,300 -- -- 72,500
Common stock
exchanged for
services 165,200 165 87,365 -- -- 87,530
Common stock
exchanged for
100% ownership
in CompuGraphics
Corp. 600,000 600 ( 600) -- -- --
Common stock
issued for
payment of
accounts
payable 23,170 23 19,440 -- -- 19,463
Conversion of
debt to equity 855,441 855 951,646 -- -- 952,501
Stock options
issued for
services -- -- 1,048,671 -- -- 1,048,671
Net loss for
the year -- -- -- (2,725,775) -- (2,725,775)
--------------------------------------------------------------------------------
Balance -
July 31, 2000 21,402,284 $21,402 $14,099,236 $(14,687,563) $ -- $ (566,925)
--------------------------------------------------------------------------------
Sale of
common stock 2,192,294 2,192 660,808 -- -- 663,000
Common stock
issued for
interest 25,000 25 8,475 -- -- 8,500
Common stock
exchanged for
services 70,000 70 54,621 -- -- 54,691
Common stock
issued for
payment of
accounts
payable 33,750 34 13,466 -- -- 13,500
Debt discount -- -- 248,621 -- -- 248,621
Stock options
issued for
services and
payment of debt -- -- 878,883 -- -- 878,883
Net loss for
the year -- -- -- (2,862,490) -- (2,862,490)
--------------------------------------------------------------------------------
Balance -
July 31, 2001 23,723,328 $23,723 $15,964,110 $(17,550,053) $ -- $(1,562,220)
================================================================================
See accompanying notes.
33
AMERICAN MILLENNIUM CORPORATION, INC.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the Years Ended July 31, 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)........................................ $(2,862,490) $(2,725,775)
Adjustments to reconcile net (loss) to net
cash used used by operating activities:
Depreciation and amortization................. 137,217 17,798
Amortization of loan costs..................... 41,875 109,647
Provision for bad debts....................... 12,640 1,564
Loss on disposal of property and equipment.... 74,199 25.689
Common stock exchanged for services........... 68,191 87,530
Stock options issued in consideration for past
services.................................... 231,700 1,048,670
Common stock issued for compensation.......... - 72,500
Common stock issued as interest .......... 8,500 --
Amortization of debt discount ................ 248,621 --
Write down of impaired asset ................. 103,542 --
Stock options issued for compensation ....... 109,647 --
(Increase) decrease in assets:
Accounts receivable........................... (41,771) (5,098)
Inventory..................................... (16,597) (15,186)
Prepaid expenses.............................. (1,710) (6,514)
Other assets.................................. - (42,893)
Increase (decrease) in liabilities:
Accounts payable.............................. 94,158 54,527
Accrued payroll and related taxes............. 35,212 (45,759)
Accrued liabilities........................... - 195,258
Interest payable ............................. 53,506 -
--------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES................. (1,703,560) (1,228,042)
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts
Proceeds from disposal of property and equipment... 400 1,700
--------------------------------------------------------------------------------
RECEIPTS FROM INVESTING ACTIVITIES.................... 400 1,700
--------------------------------------------------------------------------------
Disbursements
Acquisition of property and equipment.............. (157,795) (129,157)
Acquisition of non-compete agreement............... -- (150,000)
Loans to employees ................................ (3,000) -
Additional security deposits and other............. (5,346) (5,514)
--------------------------------------------------------------------------------
DISBURSEMENTS FROM INVESTING ACTIVITIES............... (166,141) (284,671)
--------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES................. (165,741) (282,971)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Proceeds from notes payable to officers............. 172,385 150,000
Proceeds from related parties ...................... 85,000 9,000
Proceeds from note payable stockholder.............. 200,000 200
Proceeds from issuance of common stock, net......... 708,000 1,512,120
Proceeds from issuance of convertible notes, net ... 830,000 --
Proceeds from capitalized leases.................... -- 13,809
--------------------------------------------------------------------------------
RECEIPTS FROM FINANCING ACTIVITIES..................... 1,995,385 1,685,129
--------------------------------------------------------------------------------
Disbursements
Payments on notes due stockholder................... -- (19,948)
Payments on notes due related parties............... (27,849) (16,600)
Payments on advances by officers................... - (13,713)
Payments on notes payable to officers............... (175,000) (30,978)
Payments on capitalized leases...................... (24,199) (965)
--------------------------------------------------------------------------------
DISBURSEMENTS FROM FINANCING ACTIVITIES................ (227,048) (82,204)
--------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 1,768,337 1,602,925
--------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... (100,964) 91,912
CASH AND CASH EQUIVALENTS - BEGINNING.................. 105,148 13,236
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - ENDING.....................$ 4,184 $ 105,148
================================================================================
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest..........................................$ 12,601 $ 5,471
Income taxes......................................$ -- $ --
In addition to amounts reflected above, common stock or common stock
options were issued for:
Notes payable to related parties..................$ 88,183 $ --
Note payable to officer...........................$ 129,992 $ --
Advances to officer reduced accrued liabilities...$ 14,080 $ 52,500
Reduction of accounts payable.....................$ 13,500 $ 19,463
================================================================================
See accompanying notes.
34
AMERICAN MILLENNIUM CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2001 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY American Millennium Corporation, Inc. (the Company), a New Mexico
corporation, was organized in 1979 and has provided engineering services
relating to research and development activities for outside parties as well as
internal product development. The Company has developed various proprietary and
patented technologies for industrial and consumer applications.
BUSINESS COMBINATION A controlling interest (79.3%) of American Millennium
Corporation, a Delaware corporation, was acquired in October 1997. The remaining
interest in American Millennium Corporation was acquired under an Agreement and
Plan of Merger dated May 27, 1998, when the companies merged, with the parent as
the surviving corporation. Upon completion of the merger, the Company changed
its name from Energy Optics, Inc. to American Millennium Corporation, Inc.
NATURE OF OPERATIONS Since the merger, operations have been focused primarily on
hardware and software combinations to facilitate timely, accurate and cost
effective one-way and two-way monitoring of information. This is achieved
through a variety of platforms including satellite, cellular, various radio
frequency protocols and wireline.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt
instruments with an original maturity of three months or less at the date of
purchase to be cash equivalents.
INVENTORIES Inventories consist of Subscriber Communicators and related parts.
Inventories are stated at the lower of cost or market, determined on the
first-in, first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation of
equipment is provided over estimated useful lives ranging from five years to
seven years, using the straight-line method. Expenditures for maintenance and
repairs are charged to expense as incurred. Major improvements are capitalized.
Gains and losses on disposition of property and equipment are included in income
as realized.
AVAILABLE-FOR-SALE EQUITY SECURITIES The Company accounts for marketable
securities in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity securities." This
statement requires securities that are available for sale to be carried at fair
value, with unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity.
INCOME TAXES Income taxes are computed under the provisions of the Financial
Accounting Standards Board (FASB) Statement 109 No. (SFAS 109), Accounting for
Income Taxes. SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of the difference in events that have been recognized in the
Company's financial statements compared to the tax returns.
INCOME TAX CREDITS Income tax credits will be recognized as a reduction of the
provision for income taxes in the year in which utilized.
35
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION The Company develops and sells satellite communication
systems. Revenue from sales of satellite communication systems is recorded at
the time the goods are shipped or access is granted to the service. The Company
provides airtime to its customers on a month-to-month basis, which is recognized
as revenue at the time the service is provided.
AMORTIZATION OF NON-COMPETE AGREEMENT The non-compete agreement is recorded at
cost and amortized on a straight-line basis. Non-compete agreement is amortized
over the term of the agreement, which is five years. Accumulated amortization
was $36,458 as of July 31, 2001. Amoritization expense was $35,000 and $1,458
for the years ending July 31, 2001, and 2000, respectively.
AMORTIZATION OF LOAN COSTS Loan costs incurred in the acquisition of
indebtedness is amortized using the straight-line method over term of the
respective debt instrument.
CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE Concentrations of credit
risk with respect to receivables results from the fact that approximately 56% of
accounts receivable at July 31, 2001, was due from two customers. Further,
approximately 62% of revenues from the sale of products and services are to
three customers.
Risks associated with industry concentrations are limited due to the wide
variety of customers and markets into which the Company's products and services
are provided, as well as their dispersion across many different geographic
areas.
The Company is economically dependent on ORBCOMM USA, L.P. (ORBCOMM), which has
filed for protection under Chapter 11 of the Federal Bankruptcy Act, and Vistar
Datacom, for whom it is a value-added reseller. ORBCOMM and Vistar Datacom both
provide satellite service for the Company's monitoring devices and are also the
suppliers for the main component of the Company's Subscriber Communicators.
USE OF ESTIMATES The process of preparing financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as
incurred.
ADVERTISING Advertising costs are expensed as incurred.
COMPUTER SOFTWARE DEVELOPED FOR INTERNAL USE Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," ("SOP 98-1") issued by the American Institute of Certified Public
Accountants is effective for financial statements beginning after December 15,
1998, SOP 98-1 requires that costs incurred in the preliminary stage of a
development project be expensed as incurred, and that subsequent costs be
capitalized or expensed, depending on criteria defined within SOP 98-1
Capitalized costs should be amortized on a straight-line basis unless another
systematic basis is more representative of the software's use.
36
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED NET LOSS PER COMMON SHARE Basic net loss per common share is
computed by dividing the net loss applicable to common shareholders by the
weighted average number of common shares outstanding during each period. Diluted
net loss per common share is determined by using the weighted average number of
common shares outstanding during the period, adjusted for the dilutive effect of
common stock equivalents, consisting of shares that might be issued upon
exercise of common stock options. In periods where losses are reported, the
weighted average number of common shares outstanding excludes common stock
equivalents, because their inclusion would be anti-dilutive.
IMPAIRMENT OF LONG-LIVED ASSETS The Company follows FASB Statement No. 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS 121 requires that impairment losses are to be
recorded when long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the related carrying
amount may not be recoverable. When required, impairment losses on assets to be
held and used are recognized based on the fair value of the asset. Long-lived
assets to be disposed of, if any, are reported at the lower of the carrying
amount or the fair value less cost to sell.
COMPREHENSIVE INCOME The Company has previously adopted FASB Statement No. 130
(SFAS 130) "Reporting Comprehensive Income". This statement establishes
standards for reporting of comprehensive income and its components (revenues,
expenses, gains, losses) in financial statements and requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Comprehensive income consists
of the unrealized gain on marketable securities and is presented in the
Statements of Deficiency in Assets. The adoption of SFAS 130 had no impact on
the Company's net income or total shareholders' equity.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company has adopted FASB
issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities".
This Statement requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the value of those derivatives would be accounted for depending on
the use of the derivatives and whether it qualifies for hedge accounting. This
statement is not expected to have a material impact on the Company's
consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS Cash, receivables, accounts payable, debt,
accrued expenses and other liabilities are carried at amounts which reasonably
approximate their fair value due to the short-term nature of these amounts or
due to variable rates of interest which are consistent with current market
rates.
RECLASSIFICATIONS Certain amounts in the prior year financial statements have
been reclassified for comparative purposes to conform with the presentation of
the current year financial statements. Additionally, retroactive effect has been
given to the merger for purposes of comparative financial statement
presentation.
37
NOTE 2. RELATED PARTY TRANSACTIONS
NOTES PAYABLE On September 22, 2000, a stockholder advanced $20,000 to the
Company in the form of a 30-day unsecured promissory note bearing interest at
the rate of eight percent per annum. As of July 31, 2001, this note is still
outstanding.
On October 6, 2000, a stockholder advanced $75,000 to the Company in the form of
a 30-day unsecured promissory note bearing interest at the rate of eight percent
per annum. As of July 31, 2001, this note is still outstanding.
On December 28, 2000, a stockholder advanced $125,000 to the Company in the form
of a 45-day unsecured promissory note bearing interest at the rate of eight
percent per annum. The Company received net proceeds of $118,750 from the
issuance of this note. As of July 31, 2001 this note is still outstanding.
Notes payable to officers at July 31, 2001 and 2000, were $53,385 and $210,992,
respectively. These notes are unsecured, due at various dates through July 31,
2002, and provide for annual interest at 6%. For the year ended July 31, 2001,
officers of the Company advanced funds to the Company totaling $139,500.
On November 10, 2000 a note payable to an officer of the Company in the amount
of $175,000 was paid in full, including accrued interest.
Notes payable to parties related by virtue of common control at July 31, 2001
and July 31, 2000 were $189,576 and $62,285, respectively. These notes are
unsecured, due at various dates through July 31, 2002, and provide for annual
interest at 6%.
STOCK OPTIONS On April 3, 2001 the Board of Directors authorized the issuance of
options to purchase 3,406,225 shares of our common stock at an exercise price of
$.10 per share. These options were issued to nine officers, directors and
related parties in order to settle liabilities due them in the amount of
$647,183. The nature of the liabilities settled with these options were as
follows:
Accrued consulting $298,498
Advances from officers 14,080
Notes payable 245,396
Accrued salaries 89,209
--------
$647,183
========
On April 24, 2001, the Company's Vice President of Technology and Chief
Technology Officer, was granted an option to purchase 1,000,000 shares of the
Company's common stock at an exercise price of $.19 per hare. The option is
fully vested and shall be exercisable for three years. Compensation expense of
$180,000 was recognized, which was determined by the difference between the
option exercise price of $.19 and the market value of our stock on April 24,
2001 of $.37. These options remain unexercised as of July 31, 2001.
On April 24, 2001, the Board of Directors authorized the issuance of options to
purchase 285,000 shares of the Company's common stock at an exercise price of
$.25/share. These options were granted to certain individuals who were employed
by the Company on February 1, 2001. The options are fully vested as of February
1, 2001 and are exercisable for two years. Compensation expense of $34,700 was
recognized, which was determined by the difference between the option exercise
price of $.25 and the market value of our stock on April 24, 2001 of $.37. These
options remain unexercised as of July 31, 2001.
On May 29, 2001, the Controller and Principal Accounting Officer, was granted an
option to purchase 100,000 shares of the Company's common stock at an exercise
price of $.19 per share. The option is fully vested and shall be exercisable for
three years. Compensation expense of $17,000 was recognized, which was
determined by the difference between the option exercise price of $.19 and the
market value of our stock on May 29, 2001 of $.36. These options remain
unexercised as of July 31, 2001.
38
NOTE 3. BUSINESS COMBINATION
On July 18, 2000, the Company completed a merger with CompuGraphics Corporation
by exchanging 600,000 shares of its common stock for all of the common stock of
CompuGraphics. The merger was accounted for as a pooling of interest and
accordingly the prior year's financial statements include the combined results
of operations, financial position and cash flows of CompuGraphics.
Prior to the merger, CompuGraphics' fiscal year ended on December 31. In
recording the business combination, CompuGraphics financial statements were
restated to conform with the Company's year end. The effects of conforming
CompuGraphics accounting policies to those of the Company were not material.
NOTE 4. NON-COMPETE AGREEMENT IMPAIRMENT
During the fiscal year, the Company reviewed its non-compete agreement and
realized the sum of the expected future net cash flows is less than the carrying
amount of the asset. As a result, management determined that the useful life of
the agreement should be reduced from five years to two years and an impairment
loss of $103,542 was recognized. The remaining value of $35,000 will be
amortized over the remaining year.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
2001 2000
--------------------------------------------------------------------------------
Office furniture and equipment $ 124,083 $ 114,970
Computer software 115,190 24,089
Demonstrator Subscriber Communicators 18,900 30,754
Subscriber Communicators leased to customer 4,228 7,768
--------------------------------------------------------------------------------
262,401 177,581
Accumulated depreciation ( 116,992) ( 22,867)
--------------------------------------------------------------------------------
Property and equipment, net $ 145,409 $ 154,714
================================================================================
Depreciation expense for the years ending July 31, 2001 and 2000, amounted to
$102,588 and $15,419, respectively. Of these amounts, $101,773 and $14,309 are
included in other selling, general and administrative expenses for July 31, 2001
and 2000, respectively; and $815 and $1,109 are included in cost of revenues for
July 31, 2001 and July 31, 2000, respectively.
NOTE 6. SECURITIES IN CLOSELY-HELD CORPORATION
Archibald Brothers Fine Beverages, Inc. (Archibald) is a closely-held company in
which the Company owns 30,400 shares of common stock. The shares are held in
escrow pursuant to an agreement providing for the sale of shares under an option
to a third party. Under this agreement the J.M. Smucker Company (a minority
shareholder) has the option to acquire all remaining shares of Archibald at a
predetermined formula price at the earlier of three years or upon sales reaching
$28 million. The investment is recorded at the cost of $3,040. The fair value of
this investment as of July 31, 2001 was $14,390.
In addition to the 30,400 shares of Archibald's common stock already owned, the
Company has options to purchase up to 69,600 shares of common stock at $1 per
share on or before October 31, 2001.
39
NOTE 7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued liabilities consisted of the following:
2001 2000
--------------------------------------------------------------------------------
Professional fees $ 20,000 $ 133,874
Consulting - officers 44,077 326,953
Settlement -- 8,000
Employee benefits 3,135 --
Other accrued expenses 9,401 --
-----------------------------------------------------------------------------
$ 76,613 $ 468,827
================================================================================
NOTE 8. COMMON STOCK
STOCK ISSUED FOR SERVICES On April 27, 2000, the Company entered into an
agreement with The Charterbridge Financial Group, Inc. for consultation services
in connection with new business opportunities and promotion of the Company to
the public. The agreement calls for the issuance of 70,000 unregistered shares
of the Company's common stock each quarter along with a monthly cash payment of
$4,500. In October of 2000, the Company terminated the services to be provided
by that company. 70,000 shares of the Company's unregistered common stock valued
at $54,691 was issued on August 1, 2000 and 33,750 unregistered shares of the
Company's common stock valued at $13,500 was issued on May 16, 2001 in
settlement of the final amount due under the contract.
On June 25, 2001 the Board of Directors authorized the issuance of 25,000 shares
of the Company's unregistered common stock to a stockholder as penalty shares
for late payment of a 30 day note due the shareholder dated September 23, 1999.
On August 24, 2000 the Board of Directors authorized the issuance of 50,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $50,000 from the sale of these shares. Each of the shares issued
carries a warrant to purchase one additional share of the Company's common stock
for $1.00.
On September 18, 2000 the Board of Directors authorized the issuance of 131,579
shares of restricted common stock to two private investors. The Company received
net proceeds of $75,000 from the sale of these shares. Each of the shares issued
carries a warrant to purchase one additional share of the Company's common stock
for $1.00.
On November 15, 2000 the Board of Directors authorized the issuance of 25,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $25,000 from the sale of these shares. Each of the shares issued
carries a warrant to purchase one additional share of the Company's common stock
for $1.00.
40
NOTE 8. COMMON STOCK (CONTINUED)
On January 5, 2001, a stockholder exercised warrants to purchase 100,000 shares
of the Company's restricted common stock. The Company received net proceeds of
$25,000 from the exercise of these warrants.
On February 5, 2001 and March 15, 2001 the Board of Directors authorized the
issuance of 985,715 shares of the Company's restricted common stock to two New
York investors pursuant to an exemption letter obtained from the New York
Department of Law. The shares were sold at prices ranging from $.35 to $.49 per
share; resulting in net proceeds to the Company of $433,000. One investor holds
a warrant to purchase 285,715 common shares of the Company's stock at a purchase
price of $.35 per share for a period of three years.
On June 18, 2001 the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $125,000 from the sale of these shares. Each of the shares
issued carries a warrant to purchase one additional share of the Company's
common stock for $0.27 for a period of five years.
STOCK OPTIONS During the year ending July 31, 2001, the Board of Directors
granted to various officers, directors and related parties of the Company stock
options in consideration for past services, in settlement of accrued liabilities
and as future incentive to perform for the Company. At July 31, 2001, there were
6,353,100 shares under option at exercise prices ranging from $.10 to $.19 per
share which expire on various dates through April 24, 2004. All options vest
immediately upon grant. Compensation expense of $197,000 has been recognized in
the current fiscal year relating to the granting of these options. As of July
31, 2001, none of the options have been exercised.
During the year ending July 31, 2001, the Board of Directors granted to
employees, who were employed by the Company on February 1, 2001, options to
purchase one share of common stock at an exercise price of $.25. These options
vest immediately upon grant and have a maximum term of 2 years. During the
current fiscal year compensation expense of $34,700 has been recognized relating
to the granting of these options. As of July 31, 2001 there were 285,000 shares
reserved for issuance under this plan. All of these options remain unexercised
as of July 31, 2001.
Pursuant to employment agreements entered into during fiscal year 2000 and 2001,
certain employees were granted options to purchase the Company's common stock at
$1.00 per share, which was more than 100% of the market price on the dates the
options were granted. Accordingly, no compensation expense has been recorded in
the current fiscal year relating to these options. The options vest after one
year of service and have a maximum term of 3 years. At July 31, 2001, 600,000
shares were reserved for future issuance under the plan.
41
NOTE 9. INCOME TAXES
Deferred income taxes and benefits for 2001 and 2000 are provided for certain
income and expenses which are recognized in different periods for tax and
financial reporting purposes. The tax effects (computed at 35%) of these
temporary differences and carryforwards that give rise to significant portions
of deferred tax assets and liabilities consist of the following:
Current
Period
2000 Changes 2001
--------------------------------------------------------------------------------
Deferred tax assets:
Accrued officers' compensation $ 114,436 ($114,436) $ --
Allowance for bad debts -- 4,971 4,971
Stock options offered as compensation -- 81,095 81,095
Unamortized portion of non-compete
agreement -- 57,167 57,167
Net operating loss carryforwards 3,013,845 1,228,119 4,241,964
Capital loss carryforwards 815,035 -- 815,035
--------------------------------------------------------------------------------
3,943,316 1,256,916 5,200,232
Investment credit carryforwards 3,836 -- 3,836
Research credit carryforwards 17,543 -- 17,543
--------------------------------------------------------------------------------
3,964,695 1,256,916 5,221,611
Valuation allowance (3,950,273) (1,256,994) (5,207,267)
--------------------------------------------------------------------------------
Deferred tax asset 14,422 ( 78) 14,344
--------------------------------------------------------------------------------
Deferred tax liabilities:
Excess book depreciation over
tax depreciation 14,422 ( 78) 14,344
--------------------------------------------------------------------------------
Deferred tax liability 14,422 -- 14,344
--------------------------------------------------------------------------------
Net deferred tax asset (liability) $ -- $ -- $ --
================================================================================
For the year ended July 31, 2001, the Company generated, for U.S. income tax
purposes, a net operating loss of approximately $2,805,500, resulting in a total
loss carryforward of approximately $12,119,900. Capital loss carryforwards at
July 31, 2001, were $2,328,670. These loss carryforwards expire at various dates
through the year 2019.
A valuation allowance must be established to reduce deferred income tax benefits
if it is more likely than not that a portion of the deferred income tax benefits
will not be realized. It is management's opinion that it is more likely than not
that the entire deferred tax benefit may not be recognized in future years
because the utilization of the remaining carryforwards is dependent on the
Company's ability to generate sufficient taxable income during the carryforward
periods and no further significant changes in ownership. Therefore, a valuation
allowance equal to the deferred tax benefit has been established, resulting in
no deferred tax assets as of the balance sheet dates.
42
NOTE 9. INCOME TAXES (CONTINUED)
During the year ended July 31, 1998, there were significant ownership changes in
the Company as defined in Section 382 of the Internal Revenue Code. As a result
of these changes, the Company's ability to utilize net operating losses
available before the ownership change is restricted to a total of approximately
$1,775,483 per year (approximately 5.33% of the market value of the Company at
the time of the ownership change). Therefore, substantial net operating loss
carryforwards will, in all likelihood, be eliminated in future years due to the
change in ownership.
For the year ended July 31, 2001, no tax credits expired. Remaining tax credits
total $21,379 which expire at various dates through 2005. As a result of
significant changes in ownership as defined in Section 383 of the Internal
Revenue Code, the Company's ability to utilize tax credits available before the
ownership change will be limited.
NOTE 10. OPERATING AND ECONOMIC CONDITIONS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, conditions have limited the ability of the
Company to market its products and services at amounts sufficient to recover its
operating and administrative costs. As a result, the Company has incurred
operating losses of $2,862,490 and $2,725,775 for the years ending July 31, 2001
and 2000, respectively.
In addition, the Company has used substantial working capital in its operations.
As of July 31, 2001 and 2000, current liabilities exceed current assets by
$788,236 and $854,772, respectively. Cash used by operations for the years ended
July 31, 2001 and 2000, amounted to $1,703,560 and $1,228,042, respectively.
Sales are expected to fund day-to-day operations and marketing activities
related to digital, wireless and wireline communications endeavors. Management
plans to raise additional capital by further issuance of the Company's common
stock through the private offering of stock under Regulation D, Rule 506, and
additional offerings to the public under Form SB-2 and other capital
instruments.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts or
classifications of liabilities that might be necessary in the event the Company
cannot continue in existence.
43
NOTE 11. NOTES PAYABLE
On November 9, 2000, the Company entered into a Series 1 Convertible Note
Purchase Agreement providing for the offer, sale, issuance and delivery of up to
$675,000 in principal amount of Series 1 Convertible Notes with Purchase
Warrants. Under the Agreement, the Company shall issue $675,000 principal amount
of Convertible Notes convertible into 1,377,551 shares of Common Stock of the
Company at $.49 per share. With such Convertible Notes the Company will issue
Purchase Warrants entitling the holder to purchase up to 1,377,551 shares of the
Common Stock of the Company at an exercise price of $.63 per share. The Company
received net proceeds of $636,250 from the issuance of this convertible note. As
of July 31, 2001, this note has not been converted into equity and is still
outstanding.
On April 23, 2001, the Company entered into a Series 1 Convertible Note Purchase
Agreement providing for the offer, sale, issuance and delivery of up to $300,000
in principal amount of Series 1 Convertible Notes with Purchase Warrants. Under
the Agreement, the Company is to issue $300,000 principal amount of Convertible
Notes convertible into 1,363,636 shares of Common Stock of the Company at $.22
per share. With such Convertible Notes the Company will issue Purchase Warrants
entitling the holder to purchase up to 1,363,636 shares of the Common Stock of
the Company at an exercise price of $.27 per share. The Company has recorded a
debt discount of $245,454 relating to the issuance of this note. Attributable to
the beneficial conversion feature is $145,454 calculated by the excess of the
fair value of the Company's common stock on April 23, 2001 of $.38 and the
conversion price of $.22. Attributable to the stock purchase warrants is $99,998
calculated by the excess of the fair value of the Company's common stock on
April 23, 2001 of $.38 and the warrant price of $.27 pursuant to APB No. 14. The
Company received net proceeds of $200,000 from the issuance of this convertible
note and not the full $300,000 as per Purchase Agreement. As of July 31, 2001
this note has not been converted into equity and is still outstanding.
On July 25, 2001, an outside consultant advanced the Company $65,000 in the form
of a short term advance with an interest rate of 10%. As of July 31, 2001 this
advance is still outstanding.
NOTE 12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES The Company's corporate headquarters are located in a 4,600
square foot facility in Golden, Colorado. Under the terms of a lease agreement
dated December 8, 1999, the Company is to occupy the Golden offices for a term
of 36 months beginning the first day of December 1999, with a monthly rent of
$4,600. The Company's former President and CEO operates out of an executive
suite in Houston, Texas with a monthly rent of approximately $1,000. This lease
expires October 31, 2001.
The Company also leases office equipment under non-cancelable leases expiring at
various times through May 2003, with monthly payments of $1,007.
Future minimum lease payments under all operating leases for years subsequent to
July 31, 2001 are as follows:
2002 $ 68,404
2003 30,036
2004 5,035
----------
$ 103,475
==========
Total rental expense, primarily from office space and equipment, was $77,271 and
$46,335 for the years ended July 31, 2001 and 2000, respectively.
CAPITAL LEASES The Company leases certain computer and office equipment. The
leases include options for renewal or purchase and contain clauses for payment
of property taxes and insurance. In most cases, management expects that in the
normal course of business, leases will be renewed or replaced by other leases.
Capital lease obligations consisted of the following:
2001 2000
---------- ---------
Lease payments, payable in monthly
installments totaling $1,658 and $2,789,
respectively, inclusive of imputed interest
at a rate of 11.6%, maturing at
various dates through May 2004. $ 16,987 $ 41,186
Current obligations under capital leases ( 9,547) ( 24,473)
---------- -----------
Long-term obligations under capital leases $ 7,440 $ 16,713
========== ===========
Future minimum lease payments under capital leases for years subsequent to July
31, 2001 are as follows:
2002 11,483
2003 4,890
2004 4,075
----------
$ 20,448
Amount representing interest (3,461)
----------
Present value of future minimum lease payments $ 16,987
==========
44
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
SELF-INSURANCE The Company carries a $100,000 policy for general liability and
property insurance. The Company has not obtained product liability insurance to
date due to the cost of such insurance. ORBCOMM and Vistar Datacom provide
one-year warranties on the Subscriber Communicators which is passed along to the
customer. Management presently believes that there is no material risk of loss
to the Company from product liability claims against the Company as a
distributor.
In September 1999, the Company commenced a private offering of its common stock,
which was intended to conform with available exemptions from the registration of
the securities. The Company raised $65,750 in the states of Alabama, Georgia,
Kentucky, and Texas; however, the Company did not forward the appropriate notice
filings and fees to the regulatory agencies in these states. In the event, the
state securities regulatory agencies determine that a violation has defeated any
available Rule 506 exemption, the unregistered sale of securities in Alabama,
Georgia, Kentucky and/or Texas without the benefit of an exemption from
registration could give rise to civil actions against the Company by purchasers
in the offering of such states who may be entitled to rescission and refund of
the total purchase price with interest.
NOTE 13. SUBSEQUENT EVENTS - ADVANCES
On August 8, 2001, a shareholder of the Company advanced $30,130 to the Company
in the form of a 30 day unsecured note bearing interest at the rate of 8% per
annum. As of October 29, 2001, this note is still outstanding.
On September 14, 2001, an officer of the Company advanced $10,000 to the Company
in the form of a short term loan. This note was repaid according to terms.
NOTE 14. SUBSEQUENT EVENTS - COMMON STOCK
On August 22, 2001, the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $125,000 from the sale of these shares. Each of the shares
issued carries a warrant to purchase one additional share of the Company's
common stock for $0.27 for a period of five years.
On September 25, 2001, the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $150,000 from the sale of these shares. Each of the shares
issued carries a warrant to purchase one additional share of the Company's
common stock for $0.27 for a period of five years.
NOTE 15. SUBSEQUENT EVENTS - CHANGE IN CHIEF EXECUTIVE OFFICER
The Company's CEO and President, resigned effective September 30, 2001. On
October 1, 2001, the Board of Directors elected a new CEO and President. The
former CEO will remain on the Board of Directors and will serve as Vice
Chairman.
NOTE 16. SUBSEQUENT EVENTS - JOINT VENTURE
On August 29, 2001 the Company announced the execution of an agreement with
Midland, Texas-based CC Technology, Inc. (CCT) for product integration,
marketing and sales. The agreement calls for the Company's SATAlarm-Sentry (TM)
system to be integrated with CCT's ProFlo (TM) lubrication monitoring device for
compressor systems in the oil and gas industry.
45
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
At no time has the Company had any such disagreements with its accountants.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article XII of the Company's Articles of Incorporation and Article X of
the Company's By-laws provide that the Company shall have the power to, and
shall, indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Fees under the Securities Act of 1933 $ 725.28
Printing and Engraving(1) $ 3,000.00
Legal Fees(1) $ 15,000.00
Accounting/Auditing Fees(1) $ 8,000.00
(1)Estimated
RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued "unregistered" securities to various persons and
firms as specified below and all such securities were acquired directly from the
Company in transactions not involving any public offering. These transactions
are more thoroughly described in the Company's Forms 10-K and 10-QSB for the
fiscal year ended July 31, 2001. All such securities may only be resold upon
compliance with Rule 144, adopted under the Securities Act of 1933, as amended,
unless registered. All securities were sold in reliance upon Sections 4(2), 4(6)
and/or 3(b) of the Act, and/or pursuant to Regulation D, Rule 506, as indicated
below. All purchasers were either "accredited" or "sophisticated". All
purchasers executed a Subscription Agreement indicating they had such knowledge
and experience in financial and business matters that, either alone or with a
purchaser representative, they were capable of evaluating the merits and risks
of the investment. All purchasers were provided with access to information about
the Company.
From September 1999 through September 2000, the Company conducted a
private offering consisting of 3,080,001 shares of its unregistered common stock
in the manner and in reliance upon Regulation D, Rule 506, and the various
alternative exemptions cited above, to total of 28 accredited investors. The
unregistered common shares were offered and sold at a purchase price of $.25 per
share for an aggregate of $770,000 in proceeds to the Company. Each stock
purchase included a warrant to purchase an equivalent number of additional
common shares of the Company for $.25 per share. The Company further agreed to
conduct a registration of the 3,080,001 issued shares and the 3,080,001 warrant
shares sold in the private offering and all persons participating therein are
included as a part of the registration to which this Prospects is related. All
purchasers in the private offering executed a subscription agreement indicating
(i) they meet the definition of "Accredited Investor" as the term is specified
in Regulation D, Rule 502, and; (ii) they have such knowledge and experience in
financial and business matters that either alone or with a purchasers
representative, are capable or evaluating the merits and risks of the
investment. In connection with the private offering, Jack Augsback and
Associates were issued 154,000 warrant shares exercisable at $0.25 per share in
its role as a commissioned placement agent for the Company.
46
In July 2000, the Company issued 600,000 unregistered common shares as
partial consideration in exchange for 100% of the issued and outstanding stock
of CompuGraphics Corporation. The Company agreed to register all of the 600,000
unregistered shares issued in connection with the acquisition of CompuGraphics.
On April 7, 2000 and July 7, 2000, the Company sold two Series 1
Convertible Promissory Notes to a private accredited investor in the amounts of
$502,500 and $300,000 respectively, in the aggregate amount of $802,500, bearing
10 percent interest per annum. Upon conversion of the two notes into common
stock of the company pursuant to the terms of the notes, an aggregate of 855,441
shares were issued. The private investor also holds warrants for the purchase of
up to 855,441 additional shares at exercise prices from $0.85 to $1.00 per
share. In connection with the issuance of the $502,500 convertible note, Jack
Ausback and Associates were issued 25,125 warrant shares exercisable at $1.00
per share in its role as a commissioned placement agent for the Company.
From November 1998 to May 2001, the Company issued 3,836,370
unregistered common shares to engage consultants, to pay professionals and
consultants in lieu of cash, or as compensation for accrued, unpaid wages and
salaries to corporate officers: Brenda Lee Hamilton 322,000 shares; Roy Meadows
127,500 shares; Jose McClinton 65,500 shares; Gloria Blundell 12,500 shares;
Terry Wigton 50,000 shares; William K. Parker 10,000 shares; Brusse N. Bevers
2,500 shares; Lynn D. Crawford 2,500 shares; James A. Belknap 5,000 shares;
Karen R. Griffith 25,000 shares; Linda Claman Moore 67,500 shares; Richard
Walker 38,336 shares; Robert Sullivan 27,988 shares; Eric Horton 26,812 shares;
Stuart Smith 17,522 shares; Todd Smith 6,942 shares; Justin Quis Quis 7,000
shares; The Charterbridge Financial Group 15,400 shares; Lindy Amyx 19,857
shares; John S. Robinson 10,343 shares; Molesworth Associates, Inc. 23,170
shares; James C. Statham 1,150,000 shares; Steve Watwood 700,000 shares; Bruce
R. Bacon 583,000 shares; Renee C. Riegler 325,000 shares; Shirley M. Harmon
62,500 shares; Phyllis Watwood 32,500 shares; and Andrew F. Cauthen 100,000
shares. 30,200 shares issued to consultants carried a warrant to purchase
additional common shares of the Company for $.25 per share. 10,000 warrant
shares issuable upon exercise @ $1.00 per share were issued to Baker, Johnston &
Wilson, LLP for legal services.
From November 1998 to May 2001, the Company issued 450,000 unregistered
common shares to repay cash loans that had previously been made, to include:
Eco-Max Systems, Inc. 250,000 shares; and Savitar Farms, LLC 200,000 shares.
On June 8, 2000 American Millennium Corporation, Inc. entered into an
option agreement with six private investors. Pursuant to the terms of the
agreement, the investors, for consideration of $100,000, may purchase an
entitlement to purchase from the Company options and warrants exercisable up to
an aggregate of 8,000,000 newly issued restricted shares (constituting
approximately 25% of the Company as of June 8, 2000 on a fully diluted basis) of
the Company's common capital stock, at exercise prices ranging from $1.00 to
$5.25 per share. If the investors were to elect to exercise such rights in full,
the total proceeds to the Company under agreement would be approximately
$15,500,000 to $23,500,000 depending upon exercise periods. All share purchases
pursuant to such purchase rights, whether pursuant to options or warrants, are
for unregistered securities (i.e., governed by "Rule 144 restrictions") The
shares purchased are to only be registered by the Company if a) the investors
make their purchases in increments of $1.5 million or more, or (b) the investors
purchase shares prior to the time that the Company is otherwise filing a
registration statement for other shareholders or for "secondary offerings"
(i.e., "piggy-back registration rights"). The investors are not obligated to
purchase any shares from the Company and have the right to purchase all, or any
portion of, the option shares. The investors were required to purchase the above
described option package no later than June 21, 2000. The Company extended the
deadline for payment of the initial option purchase fee, of which only $75,000
has been paid to date, and in its discretion, issued 75,000 shares at $1.00 per
share to the private individuals who partially funded the option fee, along with
warrants to purchase and additional 75,000 shares at a purchase price of $1.25
per share (See, Selling Security Holders).
47
On December 7, 1998, the Company entered into a two-year agreement with Potter
Financial, Inc. (Potter) for the purpose of investor relations and public
promotion. Pursuant to an addendum to the contract, Potter is entitled to
purchase options in the company as follows in consideration for services
rendered in the contract:
100,000 shares @ $0.05
100,000 shares @ $0.10
100,000 shares @ $0.75
100,000 shares @ $1.00
100,000 shares @ $1.50
100,000 shares @ $2.00
100,000 shares @ $2.50
100,000 shares @ $3.00
The original option contract was to lapse December 31, 2000. On July 17, 2000
the Company's Board of Directors passed a resolution extending the exercise
period to December 31, 2002, so that the issuable shares could be registered in
this registration statement. The Company's contract with Potter expires on
December 6, 2000.
On December 28, 2000, the Company, pursuant to a Promissory Note, obtained
$125,000 in funding. Pursuant to the terms of the Note, the Note holder has the
option to purchase 350,000 shares of common stock at a price of $.25 per share
until January 28, 2002.
For the year ended July 31, 2001, we issued 128,750 unregistered common shares
to pay professionals and consultants in lieu of cash, or as compensation for
accrued, unpaid wages and salaries to corporate officers. We issued Karen R.
Griffith 25,000 shares of our common stock for interest payment and The
Charterbridge Financial Group 103,750 shares of our common stock for services in
connection with advertising and marketing.
On August 24, 2000, the Board of Directors authorized the issuance of 50,000
shares of restricted common stock to one private investor, Peter Jankowski. We
received net proceeds of $50,000 from the sale of these shares. Each of the
shares issued carries a warrant to purchase one additional share of our common
stock for $1.00 per share.
On September 18, 2000, the Board of Directors authorized the issuance of 131,579
shares of restricted common stock to two private investors, AlphaCom, Inc and
Doug Chalmers, MD. We received net proceeds of $75,000 from the sale of these
shares. Each of the shares issued carries a warrant to purchase one additional
share of our common stock for $1.00 per share.
On November 9, 2000, we entered into a Series 1 Convertible Note Purchase
Agreement providing for the offer, sale, issuance and delivery of up to $675,000
in principal amount of Series 1 Convertible Notes with Purchase Warrants. The
note was issued to two private investors, Options Unlimited and Rodney
Schoemann, Jr. Under the Agreement, we issued $675,000 principal amount of
Convertible Notes convertible into 1,377,551 shares of our Common Stock at $.49
per share. With such Convertible Notes we issued Purchase Warrants entitling the
holder to purchase up to 1,377,551 shares of our Common Stock at an exercise
price of $.63 per share. We received net proceeds of $636,250 from the issuance
of this convertible note. As of November 9, 2001, this note has not been
converted into equity and is still outstanding.
On November 15, 2000, the Board of Directors authorized the issuance of 25,000
shares of restricted common stock to one private investor, Patrick Galvin. The
Company received net proceeds of $25,000 from the sale of these shares. Each of
the shares issued carries a warrant to purchase one additional share of our
common stock for $1.00.
On January 5, 2001, a stockholder, the Chelverton Fund, exercised warrants to
purchase 100,000 shares of our restricted common stock. We received net proceeds
of $25,000 from the exercise of these warrants.
On February 5, 2001, and March 15, 2001, the Board of Directors authorized the
issuance of 985,715 shares of our restricted common stock to two New York
investors, Michael Bowe and the Zable Family Trust, pursuant to an exemption
letter obtained from the New York Department of Law. The shares were sold at
prices ranging from $.35 to $.49 per share; resulting in net proceeds to us of
$433,000. One investor holds a warrant to purchase 285,715 common shares of our
stock at a purchase price of $.35 per share for a period of three years.
48
On April 23, 2001, we entered into a Series 1 Convertible Note Purchase
Agreement providing for the offer, sale, issuance and delivery of up to $300,000
in principal amount of Series 1 Convertible Notes with Purchase Warrants. The
agreement was entered into with Rodney Schoemann, Jr., a private investor. Under
the Agreement, we issued $300,000 principal amount of Convertible Notes
convertible into 1,363,636 shares of our common stock at $.22 per share. With
such Convertible Notes we issued Purchase Warrants entitling the holder to
purchase up to 1,363,636 shares of our common stock at an exercise price of $.27
per share. We recorded a debt discount of $245,454 relating to the issuance of
this note. Attributable to the beneficial conversion feature is $145,454
calculated by the excess of the fair value of our common stock on April 23, 2001
of $.38 and the conversion price of $.22. Attributable to the stock purchase
warrants is $99,998 calculated by the excess of the fair value of our common
stock on April 23, 2001 of $.38 and the warrant price of $.27 pursuant to APB
No. 14. We received net proceeds of $200,00 from the issuance of this
convertible note. As of July 31, 2001 this note has not been converted into
equity and is still outstanding.
On June 18, 2001, the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor, Jerry D. Kennett, MD.
We received net proceeds of $125,000 from the sale of these shares. Each of the
shares issued carries a warrant to purchase one additional share of our
common stock for $0.27 for a period of five years.
On August 22, 2001, the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor, Patrick Galvin. We
received net proceeds of $125,000 from the sale of these shares. Each of the
shares issued carries a warrant to purchase one additional share of our
common stock for $0.27 for a period of five years.
On September 25, 2001, the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to one private investor, Jerry D. Kennett, MD.
We received net proceeds of $150,000 from the sale of these shares. Each of the
shares issued carries a warrant to purchase one additional share of our
common stock for $0.27 for a period of five years.
On November 5, 2001, the Board of Directors authorized the issuance of 2,000,000
shares of restricted common stock to one private investor, Jerry D. Kennett, MD.
We received net proceeds of $150,000 from the sale of these shares. Each of the
shares issued carries a warrant to purchase one additional share of our
common stock for $0.19 for a period of five years.
49
EXHIBITS
Table of Exhibits
The following Exhibits are a part of this registration:
EX-3(i) Articles of Incorporation
EX-3(ii) Amendment to Articles of Incorporation, dated August 25, 1980
EX-3(iii) Amendment to Articles of Incorporation, dated August 19, 1997
EX-3(iv) Amendment to Articles of Incorporation, dated May 27, 1998
EX-3(v) By-laws
EX-5(i) Opinion re Legality
EX-10(i) VISTAR VAR Agreement
EX-10(ii) CompuGraphics Stock Purchase Agreement
EX-10(iii) Lease Agreement
EX-23 Auditor's Consent
50
UNDERTAKINGS
The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which the Selling Security Holders
offer or sell securities, a post-effective amendment to this
registration statement, as necessary, to:
1. Include any prospectus required by Section 10(a)(3) of the Securities
Act;
2. Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b), if, in
the aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
3. Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post effective amendment to remove registration any of the
securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the company has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the undersigned of expenses incurred or paid by a director, officer or
controlling person of the undersigned in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the undersigned will, unless in the opinion of its counsel that matter
has been settled by controlling precedent, submit to a court of
approximate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
51
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN MILLENNIUM CORPORATION, INC.
Dated: November 27, 2001 By: /s/ Garrett L. Thomas
Garrett L. Thomas, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of this Registrant and
in the capacities and on the dates indicated.
Dated: November 27, 2001 By: /s/ Garrett L. Thomas
Garrett L. Thomas, Director,
Chief Executive Officer,
President,(Principal Executive
Officer)
Dated: November 27, 2001 By: /s/ Stephen F. Watwood
Stephen F. Watwood, Director,
Chairman of the Board, Vice
President of Business Development
Dated: November 27, 2001 By: /s/ Andrew F. Cauthen
Andrew F. Cauthen, Director,
Vice Chairman
Dated: November 27, 2001 By: /s/ Bruce R. Bacon
Bruce R. Bacon, Director,
Vice President of Engineering,
Chief Technology Officer
Dated: November 27, 2001 By: /s/ Shirley M. Harmon
Shirley M. Harmon, Director
Corporate Secretary
Dated: November 27, 2001 By: /s/ Ronald J. Corsentino
Ronald J. Corsentino, Controller
Treasurer,(Principal Accounting
Officer)
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