SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| Annual report under Section 13 or 15(d) of the Securities Act of 1934
for the fiscal year ended July 31, 2002.
Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to __________.
Commission file number: 0-10841
AMERICAN MILLENNIUM CORPORATION, INC.
(Name of Small Business Issuer in its Charter)
NEW MEXICO 85-0273340
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(State or Other Jurisdiction
of Incorporation or Organization) (I.R.S. Employer Identification No.)
110 North Rubey Drive, Suite 100A, Golden, CO 80403
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (303) 279-2002
Securities registered under Section 12(b) of the Exchange Act: None
Title of each class: None
Name of each exchange on which registered: None
Securities registered under
Section 12(g) of the Exchange Act: Common Stock, $.001 par value
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(Title of Class)
Check whether the issuer: (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No Check if disclosure
of delinquent filers in response to Item 405 of Regulation S-B is not contained
in this form, and no disclosure will be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year:
$679,166 State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days. As of November 13, 2002, the aggregate market value of the
company's common stock held by non-affiliates was $4,926,017. State the number
of shares outstanding of each of the issuer's classes of common equity as of the
latest practicable date. As of November 13, 2002, 44,781,977 shares of common
stock were outstanding. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK
ONE): Yes ___ NO _X__
AMERICAN MILLENNIUM CORPORATION, INC.
FORM 10-KSB
TABLE OF CONTENTS
PART I
Item 1. Description of Business 1
Item 2. Description of Property 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 7
Item 6. Management's Discussion and Analysis or Plan of Operation 9
Item 7. Financial Statements 11
Item 8. Change In and Disagreements with Accountants on Accounting
and Financial Disclosure 27
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act 27
Item 10. Executive Compensation 28
Item 11. Security Ownership of Certain Beneficial Owners
and Management 29
Item 12. Certain Relationships and Related Transactions 32
Item 13. Exhibits and Reports on Form 8-K 33
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PART I
Item 1. DESCRIPTION OF BUSINESS
Overview
We are a provider of wireless solutions for tracking and monitoring of mobile
and fixed assets utilizing wireless communication technology and our own
collection of hardware and proprietary software applications. The core of our
business is the provision of information collected from remote assets to the
owner/operator of those assets for use in their management. The information can
be provided on a secure website at our server facilities for access by the
owner/operator through the Internet and a web browser or by web-enabled cellular
phone or PDA. We are a licensed value added reseller for Vistar Datacom.
Recent Developments
On April 22, 2002 we signed a Regional Operator Agreement with Vistar
Telecommunications, Inc. appointing us as the regional operator for South
America for distribution of the Vistar technology. The term of the agreement is
ten years, with two five year renewal options, and is exclusive for all of South
America except for Columbia and Venezuela, where we will be able to sell
non-exclusively. We will provide Vistar MT2000 terminals and airtime to
customers in South America. We will acquire the terminals from Vistar Telecomm
and will purchase bulk airtime from a commercial satellite provider.
On August 11, 2002 we signed a Distribution and Support Agreement with
Telespazio Brasil, a leading tracking and monitoring firm in Brazil. Under the
agreement, Telespazio was appointed the distributor and support party for our
products and services in South America.
We have formed a new wholly owned subsidiary, AMCi International, Inc., a
Delaware Corporation, for the pursuit of our activities as the Vistar licensee
for South America.
On September 24, 2002 we signed a Value-Added Reseller (VAR) agreement with
Aeroastro for the marketing of Satellite Enabled Notification System (SENS)
devices. SENS is a simplex (one-way) communication platform that utilizes
extremely low-power remote devices to send occasional short data messages over
the Globalstar satellite constellation from the field device to a back-office
system. Under the agreement, we may market the SENS technology in the United
States oil & gas industry and in the South American trucking industry.
AeroAstro and Globalstar have formed a partnership to bring the SENS technology
to the market with AeroAstro providing the hardware and Globalstar providing the
satellite system. The system is expected to be commercially released in late
November 2002, with full service across the North American market in January
2003.
The SENS technology is much lower cost than any commercially released low-data
rate satellite communication system, both for the modem device and satellite
airtime. SENS technology meets the need for a very low cost satellite
communication solution and as such will enable classes of applications that were
until now economically infeasible. AMCi recognizes the disruptive potential of
this technology and has moved to maintain and possibly increase it's own market
share potential in the face of this technology by adopting it where appropriate
rather than competing against it.
On October 14, 2002, we announced that we have received Class I, Division II
certification for hazardous location use of our SatAlarm Sentry product for both
the United States and Canada. This certification entails extensive testing
through an independent laboratory to ensure that the product is non-incendive
and can be used in areas where there may be ignitable atmospheres, such as in
its main application as a call out system for gas compressors.
Corporate Information
American Millennium Corporation, Inc. is a New Mexico corporation organized in
1979 under the name Energy Optics, Inc. 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.
1
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.
Our corporate headquarters are located at 110 North Rubey Drive, Suite 100A,
Golden, Colorado 80403, and our telephone number is (303) 279-2002.
SatAlarm line of products and services
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 five
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 supplier of both hardware and satellite airtime is Vistar Datacom,
Inc. Under the terms of our agreement with Vistar Datacom, Inc., we can provide
Vistar's GlobalWave (TM) asset management and tracking solutions to customers in
the energy, industrial, commercial, container, transportation, and consumer
vehicle markets throughout the 48 contiguous states and Canada.
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.
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.
The SatAlarm products provide access to data about remote high value assets in
the oil and gas industry using satellite technology and AMCi's proprietary
SatAlarm Server software. Owner/operators of such assets, primarily gas
compressors, need to know the operational status of those assets, which is often
difficult when they are located in remote, hard-to-reach sites. The
SatAlarm-Sentry unit collects data from the remote compressor and forwards it
through the Vistar Datacom GlobalWave(TM) satellite system and AMCi's SatAlarm
Server to the owner/operator. Access can be by web-enabled cellular phoneor PDA
or using a web browser to interface with AMCi's web servers where the data is
archived.
The SatAlarm Sentry product mounts on the asset using magnetic clamps and is
supplied with batteries good for two years of operation without replacement.
Installation and activation takes just a matter of minutes and can be
accomplished without any training, just using the AMCi installation guide.
2
Oil and Gas Industry
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 five 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. 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 placed on reduction of 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 required to the compressor as the Sentry is battery powered and
senses compressor's operating status using an internal vibration sensor. The
Sentry also contains additional interface circuitry, including digital inputs
and outputs, an analog input, and a serial port for sending and receiving
externally formatted data. In addition to deployments of the basic
vibration-sensing callout application, Sentry units are installed with a variety
of simple and complex sensors and devices. Tank level alarming is a common
additional use for the Sentry today in the oil and gas industry. Currently
approximately 80% of our revenues are derived from the oil & gas industry.
Our current revenues are dependent on a few major customers. As of July 31, 2002
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 three years have been related
to the research and development 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 release.
Proprietary Technology Applications
We believe that we have now developed certain proprietary technologies for the
monitoring of various types of assets utilizing the Vistar systems. In addition
to monitoring of data communications, we have the ability to remotely control
functions at the asset location. We now have a patent pending with the U.S.
Patent and Trademark Office in connection with our satellite call-out
technology.
Our Marketing and Sales
We believe that a significant base of recurring revenues derived from monthly
satellite and paging monitoring charges will build AMCi's value. Our principal
marketing efforts are directed toward the oil and gas market in the United
States, which have a need for monitoring of high value assets. Our personnel
work with management and engineers in the industries discussed above in order to
determine their technological needs, cost objectives and to develop solutions
for their individualized asset monitoring requirements. Marketing efforts are
performed both by our personnel and by outside sales/service providers.
We have recently appointed several independent distributors, both in the United
States and Canada, to serve as an indirect distribution and support channel for
our products and services. This will allow our customers to go directly to
experienced oil and gas industry firms for delivery and first level support of
our products.
Our Competition
There are numerous competitors to the satellite systems that we utilize in our
products. However, we are confident that there is not presently a viable
competitor to Vistar for the type of service they provide to the North American
market. First, all of the terrestrially-based systems, such as cellular data,
cellular control channel, GPRS, dedicated data networks such as Bell South's
Mobitex, MSV (fka ARDIS), two-way paging networks, and so forth, suffer from
significant outages in coverage from a geographic perspective. Remote and
widely-mobile assets, our focus, are not well served by these systems. Other
satellite systems that cover North America, and attempt to serve the same
markets that AMCi is working within, all suffer from one or more shortcomings
when compared to the Vistar system, such as lack of low power modes, not
weather-proof, too expensive, poorly conceived for embedded application use,
intermittent coverage outages (LEO systems), directional antennas required
making mobile applications expensive or impossible, data cost structures that
are not friendly to small data needs, expensive hardware, and more. We are
constantly on the lookout for promising emerging technologies that are poised to
compete with our products. For that reason, we have become a
value-added-reseller for the new AeroAstro/Globalstar system coming online in
the fourth quarter of 2002. We believe that this relatively very low cost
technology will open the door to a host of new applications not heretofore
economically viable. We see this technology as complementary to Vistar, serving
certain simple applications more economically. Rather than compete with it, we
are adopting the new technology and incorporating it into our product mix.
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.
3
Manufacturing and Suppliers
We purchase the major components for our hardware units from Vistar Datacom. The
Vistar hardware is currently sourced from two manufacturers providing sufficient
backup for our current needs. While the Vistar modem is only available from
Vistar, it remains competitively priced due to market pressure from other
communications providers. If necessary, we could reengineer our products to use
another communication link. The remainder of the components in our hardware,
whether commodity items or designed specifically by us for our product, are or
can be procured from several vendors. Airtime for satellite monitoring is also
purchased from Vistar.
Government Regulations
As a value-added reseller for Vistar, 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.
Employees
As of November 13, 2002, we had eleven full time employees, four of whom are
directors or officers. None of our personnel are covered by collective
bargaining agreements. Relations with our personnel are considered good.
Risks Related to Our Business
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 13, 2002, we had substantially no working capital.
Our cash funds are not sufficient to cover current operating expenses. Our
revenues are not estimated to cover our operating expenses until February 2003
and in the interim we will need an estimated additional $1 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
our 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 our
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.
We have a history of losses and expect to incur losses in the future, and we may
never achieve profitability.
As of July 31, 2002, we had not generated any significant revenues and had an
accumulated deficit of $19,155,308. Since inception, we have funded our business
through selling our stock, not from cash generated by our business. We expect to
continue to incur significant sales and marketing, research and development, and
administrative expenses and therefore could continue to experience net losses
and negative cash flows for several years, and perhaps for the duration of our
corporate existence. For the year ended July 31, 2002, we generated only
$679,000 in revenues. Even if sales of our products and services begin to grow,
we may not generate sufficient revenues to achieve profitability in the future.
Our lack of revenues can be attributed primarily to the fact that our SatAlarm
product was not released commercially until November of 2001. 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.
Overall, we will need to generate significant revenues and successfully
implement our new business strategy to achieve and maintain profitability.
If we do not effectively manage the commercial release of our SatAlarm asset
monitoring system, our business will be harmed.
4
In November of 2001, 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.
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.
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.
We rely on our management team. The loss of any of our executive officers could
materially harm our business.
Our business is largely dependent on the personal efforts and abilities of our
senior management, including our President and Chief Executive Officer, our Vice
President of Business Development, our Chief Technology Officer and our Chief
Financial 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.
Risks Related to Our Industry
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.
5
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 will continue to pay such fees once having selected 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.
If we market our services internationally, government regulation could disrupt
our operations.
We may in the future begin to provide services in international markets. Our
ability to provide satellite communication service in international markets
would likely be subject to rigorous governmental approval and certification
requirements similar to those imposed by the Federal Communications Commission.
To date, efforts to serve South America and other foreign markets are in a
preliminary stage and these markets may not prove to be a viable opportunity for
us. As a result, we cannot predict when, or if, international markets will
become a viable source of revenue for information management and satellite
communication services similar to ours.
Our ability to provide services in international markets may also be impacted by
the export control laws of the United States. Our hardware and software
technology makes us subject to export controls and may prevent us from being
able to export our products and services. Regulations and standards of the FCC
and other international bodies may also limit our ability to provide
international communication services.
If we enter the international market, our business activities will be subject to
a variety of potential risks, including the adoption of laws and regulatory
requirements, political and economic conditions, difficulties protecting our
intellectual property rights and actions by third parties that would restrict or
eliminate our ability to do business in these jurisdictions. If we begin to
transact business in foreign currencies, we will become subject to the risks
attendant to transacting in foreign currencies, including the potential adverse
effects of exchange rate fluctuations.
Risks Related to Our Stock
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 of 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-dealers 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. 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.
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, it could be difficult to sell shares in large
volume. We have calculated the average weekly trading volume to be near 30,000
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 in the future, 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.
6
Item 2. DESCRIPTION OF PROPERTY
RENTS AND LEASES
Our corporate headquarters are located in a 4,600 square foot facility in
Golden, Colorado. Under the terms of a lease agreement dated December 8, 1999,
we are to occupy the Golden offices for a term of thirty-six months beginning
the first day of December 1999 with a monthly rent of $4,600. On December 1,
2003 we will be moving the corporate headquarters to a new location consisting
of 3,466 square feet in Golden, Colorado. The new lease is currently based on a
month-to-month arrangement until a long-term lease can be negotiated with the
landlord.
PROPERTY AND EQUIPMENT
The furniture, fixtures and equipment used in the conduct of our business have a
historical cost of approximately $138,000 as of July 31, 2002. We also own
monitoring units that are leased to various customers, as well as demonstration
units with a total historical cost of approximately $19,000 as of July 31, 2002.
Item 3. LEGAL PROCEEDINGS
On February 26, 2002, Robert Buntin, a former employee, brought a suit against
us in U.S. District Court in the District of Nevada seeking damages in excess of
$250,000 and injunctive relief. The suit relates to our termination of Mr.
Buntin's employment agreement on December 19, 2001 and claims that the
termination was the result of an alleged inability by pay his salary and not his
gross neglect of duties under the agreement. The suit also alleges that we
misrepresented our ability to register stock issued to him in connection with
our acquisition of Compugraphics in July 2000.
On June 23, 2002, Potter Financial brought a suit against us in U.S. District
Court in the Southern District of Florida, Miami Division, seeking damages of an
unstated amount. The suit alleges that in connection with a consulting agreement
between the parties, we agreed to grant Potter Financial options to purchase
800,000 shares of our Common Stock and that we did not provide any freely
tradable shares underlying these options.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our common stock is traded on the NASDAQ over-the-counter market. Since May of
1986, it has been listed in the "pink sheets" and is currently listed on the
National Association of Securities Dealers' Electronic Bulletin Board under the
symbol "AMCI". Individual systems may add other symbols for access. Listed below
are the high and low bid for each of the last eight quarters. The quotations
reflect inter-dealer prices, without retail mark-ups, markdowns or commissions
and may not represent actual transactions.
FISCAL YEAR ENDED JULY 31, 2002 HIGH LOW
------------------------------- ---- ---
First Quarter $0.420 $0.120
Second Quarter $0.200 $0.070
Third Quarter $0.270 $0.060
Fourth Quarter $0.190 $0.080
FISCAL YEAR ENDED JULY 31, 2001 HIGH LOW
------------------------------- ---- ---
First Quarter $0.938 $0.406
Second Quarter $0.984 $0.375
Third Quarter $0.750 $0.203
Fourth Quarter $0.580 $0.220
HOLDERS
As of November 13, 2002, there were 809 stockholders of record and approximately
44,781,977 shares of our common stock issued and outstanding.
7
DIVIDEND POLICY
We have never declared nor paid cash dividends on our common stock. On October
11, 2002, we issued 1,000,000 shares of Series A Non-Voting Cumulative Preferred
Stock, which are entitled to cumulative dividends at an annual rate of 12% of
the original issue price per share, payable quarterly, subject to adjustment for
any combination, consolidation, share distribution, or share dividend. The
initial original issue price is $2.50 per share. Dividends are payable for the
term of the Vistar Regional License for South America, which is 10 years with
two five year options. In the event dividends are declared on our common stock
in an amount which exceeds the dividends declared on the Series A preferred
stock determined on a Common Share Equivalent Basis (as defined below), the
holders of the Series A preferred stock shall be entitled to an additional
dividend so that the total dividends on the common stock and the Series A
preferred stock are equivalent on a Common Share Equivalent Basis. Common Share
Equivalent Basis shall be determined by comparing the dividend that would have
been or will be declared or paid on the number of shares of common stock into
which the shares of Series A preferred stock would have been or will be
convertible as of the record date(s) to the dividends which were paid or will be
paid on the Series A preferred stock during such 12-month period.
RECENT SALES OF UNREGISTERED SECURITIES
We made the following unregistered sales of securities during the year ended
July 31, 2002:
On August 22, 2001, the Board of Directors authorized the issuance of 900,000
shares of restricted common stock to Patrick Galvin. The Company received net
proceeds of $200,000 from the sale of these shares. Each of the shares issued
carried a warrant to purchase one additional share of AMCI's common stock for
$0.27 per share 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 Jerry D. Kennett, MD. The Company received
net proceeds of $200,000 from the sale of these shares. Each of the shares
issued carried a warrant to purchase one additional share of AMCI's common stock
for $0.10 per share 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 Jerry D. Kennett, MD. The Company received
net proceeds of $200,000 from the sale of these shares. Each of the shares
issued carried a warrant to purchase one additional share of AMCI's common stock
for $0.10 per share for a period of five years.
On December 14, 2001, the Board of Directors authorized the issuance of 117,647
shares of restricted common stock to Lindy Amyx and John Robinson in settlement
of accounts payable for consulting services in the amount of $20,000.
On December 28, 2001, the Board of Directors authorized the issuance of
2,000,000 shares of restricted common stock to Jerry D. Kennett, MD. The Company
received net proceeds of $200,000 from the sale of these shares. Each of the
shares issued carried a warrant to purchase one additional share of AMCI's
common stock for $0.10 per share for a period of five years.
On January 15, 2002, the Board of Directors authorized the issuance of an option
to purchase 37,500 shares of restricted common stock at $0.15 per share to Ralph
McNelis, 85,715 shares to John Robinson and 214,285 shares to Lindy Amyx, in
payment of consulting services performed for the Company.
On January 22, 2002, the Board of Directors authorized the right to issue
1,000,000 shares of restricted common stock on or before February 1, 2002 to
ARKAD Co., LLC. The Board also issued the same investor the right to purchase an
additional 1,000,000 shares of restricted common stock on or before March 31,
2002 only if the first purchase occurred.
On January 31, 2002, ARKAD Co., LLC exercised the first stock purchase. The
investor was credited with $68,384, which represented a prior note from AMCi,
including accrued interest. A promissory note was signed for the remainder
$31,616. The note carries interest at a rate equal to the 30 day LIBOR and is
payable in full on or before April 30, 2002. As of July 31, 2002, $15,000
remains unpaid and is in default. Each of the shares issued carried a warrant to
purchase an additional share of the AMCI's common stock for $.10 for a period of
five years. This note was outstanding and unpaid as of July 31, 2002.
On January 31, 2002, ARKAD Co., LLC exercised the right to purchase an
additional 1,000,000 shares of restricted common stock. The investor issued a
promissory note to the Company for the entire $100,000. The note carries
interest at a rate equal to the 30 day LIBOR and is payable in full on or before
April 30, 2002. Each of the shares issued carried a warrant to purchase an
additional share of AMCI's common stock for $.10 for a period of five years.
This note was outstanding, unpaid and in default as of July 31, 2002.
On February 26, 2002, the Board of Directors authorized the issuance of 71,000
shares of restricted common stock to Lindy Amyx, an individual independent
consultant, in settlement of an account payable for consulting services in the
amount of $4,260.
8
On March 1, 2002 the Board of Directors authorized the issuance of 5,800,000
shares of restricted common stock to Jerry D. Kennett, MD pursuant to Dr.
Kennett exercising all of his outstanding warrants. We received net proceeds of
$100,000 from the exercise of these warrants along with a promissory note in the
amount of $150,000. The promissory note was to be paid only if the investor did
not make an additional $750,000 investment in the Company. On April 29, 2002 the
same investor did make the additional investment, as described below, thus the
promissory note was not due the Company.
On March 15, 2002, Rodney R. Schoemann, Sr. the holder of the Company's $875,000
convertible debentures converted all debt to AMCI's restricted common stock.
1,377,551 shares were converted at $0.49 per share pursuant to a November 9,
2000 Convertible Note Agreement, and 909,090 shares were converted at $0.22 per
share pursuant to a Convertible Note Agreement dated April 18, 2001. The holder
also exercised all available options and warrants associated with these
convertible notes as follows: Two (2) 175,000 share options dated December 28,
2000 were exercised at a price of $.05 per share; 502,500 warrants were
exercised at a price of $.05 per share pursuant to an agreement dated April 7,
2000; 352,941 warrants were exercised at a price of $.05 per share pursuant to
an agreement dated June 7, 2000; 1,377,551 warrants were exercised at a price of
$.05 per share pursuant to an agreement dated November 9, 2000 and 909,090
warrants were exercised at a price of $.05 per share pursuant to an agreement
dated April 18, 2001. AMCi received net proceeds of $30,633 from the options
exercised and warrants, after paying in full a short-term note owed to the note
holder of $125,000 plus accrued interest of $18,971.
On March 16, 2002, the Board of Directors authorized the issuance of 301,300
shares of restricted common stock to Savitar Farms, LLC in full settlement of a
promissory note in the amount of $30,130.
On April 3, 2002, the Board of Directors authorized the issuance of 189,979
shares of restricted common stock to AlphaCom, Inc. a current shareholder, in
partial settlement of a $75,000 promissory note payable due to AlphaCom dated
October 5, 2000. The balance of the note as of July 31, 2002 is $38,512.
On April 29, 2002 the Board of Directors authorized the issuance of 1,000,000
shares of restricted common stock to Jerry D. Kennett, MD. The Company received
net proceeds of $750,000 from the sale of these shares. The investor will have
the option to purchase additional shares for a period of five years as follows:
1,000,000 shares of common stock at a price of $1.00 per share; 1,000,000 shares
of common stock at a price of $1.50 per share; and 1,000,000 shares of common
stock at a price of $2.00 per share.
On May 21, 2002, the Board of Directors authorized the issuance of an option to
purchase 100,000 shares of restricted common stock at $0.13 per share to Steve
Bishop in payment of consulting services performed for the Company.
All of the foregoing securities issued by the Company were issued in reliance
upon the exemption from registration under Section 4(2) of the Securities Act of
1933 as not involving a public offering or Regulation D thereunder.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis of our financial condition and results of
operation should be read in conjunction with the "Selected Financial Data" and
our financial statements and the related notes thereto. This discussion contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from historical or anticipated results.
RESULTS OF OPERATIONS
We had a net loss of $1,690,707 (or $.05 per share) on revenues of $679,166 for
the year ended July 31, 2002, compared to a net loss of $2,777,036 (or $.13 per
share) on revenues of $282,055 for the year ended July 31, 2001. The decrease in
net loss was primarily attributable to the decrease in interest expense, and a
decrease in selling, general and administrative expenses for the year ending
July 31, 2002 as discussed below.
Gross profit for the year ended July 31, 2002, was $96,659 (14% of sales)
compared to $93,540 (33%) for the year ended July 31, 2001. The cost of sales
for fiscal year 2001 consisted primarily of hardware units and airtime sold
while costs of sales for 2002 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 $1,855,914 for the year ended
July 31, 2002, compared to $2,373,978 for the year ended July 31, 2001. The
decrease in selling, general and administrative expenses is primarily due to a
decrease in the number of employees and officers, and an overall decrease in
operating expenses for the fiscal year ended July 31, 2002.
We earned $679,166 from sales revenue in 2002 compared to $282,055 in 2001. The
increase in revenue was derived primarily from the sale of hardware and airtime
to new and existing customers.
As of July 31, 2002, we had available income tax net operating loss
carryforwards of approximately $13,335,800, tax credits of $17,543 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.
9
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, 2002.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We understand that cash equivalents on hand at July 31, 2002, 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 $1,010,416 for fiscal year
2002 and $1,562,223 for fiscal year 2001. Due to our focus on product
development, we have not been profitable since our re-organization in 1998. We
expect this to continue but 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 may 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, 2002, 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 February 2003, and in the interim the
Company will need an additional $1 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 our 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 paid compensation to our officers and directors $724,778 for the year ending
July 31, 2001 when we only had revenues of $282,055. Of this amount, we incurred
an equity related charge of $201,800 for the year ended July 31, 2001. We also
paid compensation to our officers and directors of $507,875 for the year ending
July 31, 2002 when we had revenues of $679,166. We paid this compensation with
funds raised from our financing activities, the majority of which was from the
sale of our common stock. We are expecting a significant increase in our
revenues in future years and believe we need to compensate our management team
currently in order to retain them for the future growth of the Company.
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 $1,443,234 for the year ended July 31,
2002, compared to $1,660,959 for the year ended July 31, 2001. The decrease in
net cash used in operating activities resulted primarily from the fact that for
the year ended July 31, 2002, our salaries and general operating expenses
decreased by $518,064 compared to the year ended July 31, 2001.
Net cash used in investing activities was $246,620 for the year ended July 31,
2002 compared to $175,457 for the year ended July 31, 2001. The increase in net
cash used in investing activities resulted primarily from the first deposit paid
towards equipment to be used in our South American operations.
Net cash provided by financing activities was $1,735,545 for the year ended July
31, 2002, compared to $1,735,452 for the year ended July 31, 2001. We raised
roughly the same amount of cash from financing activities for the year ended
July 31, 2002 as we did for the year ended July 31, 2001.
If we are unable to raise additional funds before December 2002, 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.
10
FORWARD LOOKING INFORMATION
This Form 10-KSB contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. For this purpose any
statements contained in this Form 10-KSB that are not statements of historical
fact should be considered by you to be forward-looking statements. Words such as
"may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors, many
of which are not within our control. These factors include, but are not limited
to, economic conditions generally and in the industries in which our customers
participate; competition within our industry, including competition from much
larger competitors; technological advances which could render our products less
competitive or obsolete; failure by us to successfully develop new products or
to anticipate current or prospective customers' product needs; price increases
or supply limitations for components purchased by us for use in our products;
and delays, reductions, or cancellations of orders previously placed with us.
Item 7. Financial Statements
Our financial statements are included below (with an index listing all such
statements) in response to this item.
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT 12
FINANCIAL STATEMENTS
Balance Sheets 13
Statements of Operations 14
Statements of Deficiency in Assets 15
Statements of Cash Flows 16
NOTES TO FINANCIAL STATEMENTS 17 to 26
11
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. and Subsidiary as of July 31, 2002 and 2001, 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 auditing standards generally accepted
in the United States of America. 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. and Subsidiary at July 31, 2002 and 2001, and the
results of its operations and its cash flows for the years then ended
in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 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
September 28, 2002
Member:
Florida Institute of Certified Public Accountants
American Institute of Certified Public Accountants - Private Companies and SEC
Practice Sections
AGI Accounting Group International [LOGO]
12
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARY
BALANCE SHEETS
--------------------------------------------------------------------------------
July 31, 2002 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................... $ 49,875 $ 4,184
Accounts receivable, less allowance for doubtful
accounts of $21,574 and $14,204 .................. 114,772 53,030
Inventories........................................ 101,405 37,758
Prepaid expenses................................... 582 8,224
Advances to employees ............................. 1,389 3,000
Short-term portion of non-compete agreement........ -- 35,000
Note Receivable ................................... 100,000 --
Deposits on equipment.............................. 250,000 --
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS................................. 618,023 141,196
--------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET.......................... 86,214 145,409
--------------------------------------------------------------------------------
OTHER ASSETS
Securities in closely-held corporation............. 3,040 3,040
Security deposits.................................. 7,879 12,753
Other assets....................................... 760 760
Deferred income tax asset, less valuation
allowance of $5,699,021 and $5,704,427........... -- --
--------------------------------------------------------------------------------
TOTAL OTHER ASSETS................................... 11,679 16,553
--------------------------------------------------------------------------------
TOTAL ASSETS......................................... $ 715,916 $ 303,158
================================================================================
LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES
Accounts payable.................................... $ 436,859 $ 320,950
Accounts payable - related parties ................. 71,651 32,885
Accrued payroll and related taxes................... 210,348 79,361
Accrued liabilities................................. 76,550 101,717
Accrued warranty expense ........................... 15,000 --
Current portion of capitalized lease obligations.... 3,921 9,547
Notes payable to related parties.................... 99,972 99,972
Note payable to stockholder......................... 808,512 285,000
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES............................. 1,722,813 929,432
--------------------------------------------------------------------------------
Long-term portion of capitalized lease obligations.... 3,519 7,440
Long-term portion of interest payable ................ - 53,506
Convertible notes .................................... - 875,000
--------------------------------------------------------------------------------
TOTAL LONG TERM LIABILITIES .......................... 3,519 935,946
--------------------------------------------------------------------------------
TOTAL LIABILITIES..................................... 1,726,332 1,865,378
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 11)
DEFICIENCY IN ASSETS
Preferred stock, $.001 par value, 10,000,000 shares
authorized; 1,000,000 shares issued and
outstanding 1,000 --
Common stock, $.001 par value, 60,000,000 shares
authorized; 44,781,977 and 23,723,328 shares
issued and outstanding........................... 44,782 23,723
Additional paid-in capital......................... 20,714,110 15,878,655
Accumulated deficit................................ (19,155,308) (17,464,601)
Stock subscription receivable ..................... (2,615,000) --
--------------------------------------------------------------------------------
TOTAL DEFICIENCY IN ASSETS........................... (1,010,416) (1,562,223)
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS........... $ 715,916 $ 303,155
================================================================================
See accompanying notes.
13
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
For the Years Ended July 31, 2002 2001
--------------------------------------------------------------------------------
REVENUES............................................. $ 679,166 $ 282,055
COST OF REVENUES..................................... 582,507 188,515
--------------------------------------------------------------------------------
GROSS PROFIT......................................... 96,659 93,540
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Compensation to officers and directors (cash)...... 507,875 522,978
Compensation to officers and directors (stock options) -- 201,800
Consulting - others................................ 372,492 279,645
Professional....................................... 101,837 169,128
Employee salaries (cash)........................... 264,472 444,558
Employee salaries (stock options).................. -- 29,900
Employee benefits and payroll taxes................ 112,714 160,764
Travel............................................. 64,826 121,186
Telephone and utilities............................ 35,813 44,100
Depreciation and amortization...................... 66,109 136,772
Equipment and property rental...................... 86,267 85,721
Bad debt expense................................... 60,613 22,935
Computer and internet expense...................... 77,998 45,404
Engineering supplies............................... 35,000 --
Other.............................................. 69,898 109,087
-------------------------------------------------------------------------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 1,855,914 2,373,978
--------------------------------------------------------------------------------
LOSS FROM OPERATIONS................................. (1,759,255) (2,280,438)
OTHER INCOME (EXPENSES)
Interest expense................................... (73,884) (280,742)
Amortization of loan costs......................... -- (41,875)
Loss on disposal of property and equipment......... (6,392) (74,199)
Gain on sale of SAT Trac software 100,000 --
Miscellaneous income............................... 69,241 3,760
Impairment of assets .............................. (20,417) (103,542)
--------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSES)........................ 68,548 (496,598)
--------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES............................. (1,690,707) (2,777,036)
INCOME TAXES......................................... -- --
--------------------------------------------------------------------------------
NET LOSS............................................. (1,690,707) (2,777,036)
================================================================================
NET LOSS PER COMMON SHARE
BASIC .......................................... $ (0.05) $ (0.13)
DILUTED .......................................... $ (0.05) $ (0.13)
================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC ............................................. 34,112,548 22,249,332
DILUTED ........................................... 34,112,548 22,249,332
================================================================================
See accompanying notes.
14
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARY
STATEMENTS OF DEFICIENCY IN ASSETS
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
--------------------------------------------------------------------------------
Additional Stock Total
Common Stock Paid-in Accumulated Subscriptions Deficiency
Description Shares Amount Capital Deficit Receivable in Assets
--------------------------------------------------------------------------------
Balance -
July 31, 2000 21,402,284 $21,402 $14,099,236 $(14,687,565) $ -- $ (566,927)
--------------------------------------------------------------------------------
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 -- -- 163,166 -- -- 163,166
Stock options
issued for
services and
payment of debt -- -- 878,883 -- -- 878,883
Net loss for
the year -- -- -- (2,777,036) -- (2,777,036)
--------------------------------------------------------------------------------
Balance -
July 31, 2001 23,723,328 $23,723 $15,878,656 $(17,464,601)$ -- $(1,562,223)
--------------------------------------------------------------------------------
Sale of
capital stock 8,800,000 8,800 3,490,200 -- $(2,615,000) 885,000
Warrants and
options
exercised 9,292,082 9,292 373,237 -- -- 382,529
Common stock
exchanged for
services 188,647 189 24,071 -- -- 24,260
Conversion of
debt to
equity 2,777,920 2,778 947,946 -- -- 950,724
Net loss for
the year -- -- -- (1,690,707) -- (1,690,707)
--------------------------------------------------------------------------------
Balance -
July 31,2002 44,781,977 $44,782 $20,714,110$(19,155,308)$(2,615,000)$(1,010,417)
================================================================================
--------------------------------
Preferred Stock
Description Shares Amount
--------------------------------
Balance -
July 31, 2000 -- $ --
---------------------------------
Sale of
common stock -- --
Common stock
issued for
interest -- --
Common stock
exchanged for
services -- --
Common stock
issued for
payment of
accounts
payable -- --
Debt discount -- --
Stock options
issued for
services and
payment of debt -- --
Net loss for
the year -- --
--------------------------------
Balance -
July 31, 2001 -- --
--------------------------------
Sale of
capital stock 1,000,000 1,000
Warrants and
options
exercised -- --
Common stock
exchanged for
services -- --
Conversion of
debt to
equity -- --
Net loss for
the year -- --
--------------------------------
Balance -
July 31, 2002 1,000,000 $ 1,000
================================
See accompanying notes.
15
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the Years Ended July 31, 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................ $(1,690,707) $(2,777,036)
Adjustments to reconcile net (loss) to net
cash used used by operating activities:
Depreciation and amortization................. 70,491 137,217
Amortization of loan costs.................... -- 41,875
Provision for bad debts....................... 60,613 12,640
Loss on disposal of property and equipment.... 6,392 74,199
Common stock exchanged for services and in
payment of accounts payable ................ 24,260 68,191
Stock options issued in consideration for past
services.................................... -- 231,700
Common stock issued as interest .......... 121,670 8,500
Amortization of debt discount ................ -- 163,166
Write down of impaired asset ................. 20,417 103,542
(Increase) decrease in assets:
Accounts receivable........................... (122,355) (41,771)
Inventory..................................... (63,647) (16,597)
Prepaid expenses.............................. 7,642 (1,710)
Notes receivable.............................. (100,000) --
Increase (decrease) in liabilities:
Accounts payable.............................. 115,909 94,158
Accounts payable - related parties............ 38,767 32,885
Accrued payroll and related taxes............. 130,987 35,212
Accrued liabilities........................... (25,167) 119,364
Accrued warranty expense...................... 15,000 --
Interest payable ............................. (53,506) 53,506
--------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES................. (1,443,234) (1,660,959)
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts
Proceeds from disposal of property and equipment... -- 400
--------------------------------------------------------------------------------
RECEIPTS FROM INVESTING ACTIVITIES.................... -- 400
--------------------------------------------------------------------------------
Disbursements
Acquisition of property and equipment.............. (3,105) (167,511)
Advances to employees ............................. 1,611 (3,000)
Security deposits on equipment..................... (250,000) --
Security deposits ................................. 4,874 (5,346)
--------------------------------------------------------------------------------
DISBURSEMENTS FROM INVESTING ACTIVITIES............... (246,620) (175,857)
--------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES................. (246,620) (175,457)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Proceeds from notes payable to officers............. -- 139,500
Proceeds from related parties ...................... 30,130 85,000
Proceeds from note payable stockholder.............. 750,000 200,000
Proceeds from issuance of common stock, net......... 885,000 708,000
Proceeds from issuance of convertible notes, net ... -- 830,000
Proceeds from stock options exercised............... 274,604 --
--------------------------------------------------------------------------------
RECEIPTS FROM FINANCING ACTIVITIES..................... 1,939,734 1,962,500
--------------------------------------------------------------------------------
Disbursements
Payments on notes due related parties............... -- (27,849)
Payments on notes payable to stockholders........... (194,642) --
Payments on notes payable to officers............... -- (175,000)
Payments on capitalized leases...................... (9,547) (24,199)
--------------------------------------------------------------------------------
DISBURSEMENTS FROM FINANCING ACTIVITIES................ (204,189) (227,048)
--------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 1,735,545 1,735,452
--------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... 45,691 (100,964)
CASH AND CASH EQUIVALENTS - BEGINNING.................. 4,184 105,148
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - ENDING.....................$ 49,875 $ 4,184
================================================================================
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest..........................................$ 6,346 $ 12,601
Income taxes......................................$ -- $ --
===============================================================================
In addition to amounts reflected above, common stock or common stock
options were issued for:
Notes payable to related parties..................$ 30,130 $ 88,183
Note payable to officer...........................$ -- $ 129,992
Advances to officer reduced accrued liabilities...$ -- $ 14,080
Reduction of accounts payable.....................$ -- $ 13,500
Convertible debt..................................$ 875,000 $ --
================================================================================
See accompanying notes.
16
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2002 AND 2001
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.
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.
The Company's wholly-owened subsidiary, AMCi International, Inc. was
incorporated in Delaware on May 13, 2002.
BASIS OF PRESENTATION The accompanying consolidated financial statements
include the accounts of American Millennium Corporation, Inc. (AMCI)
and its wholly-owned subsidiary, AMCI International, Inc. (AMCI Int'l).
All significant intercompany accounts and transactions of American Millennium
Corporation and Subsidiary (the Company) for the years presented have been
eliminated in consolidation.
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.
PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation of
property and equipment is calculated based on the estimated useful lives
ranging from five to seven years, using the straight-line method.
Major improvements which improve or extend the lives of the respective
assets are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred. 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.
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.
17
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE Concentrations of credit
risk with respect to receivables results from the fact that approximately 42% of
accounts receivable at July 31, 2002, was due from three customers.
Approximately 38% of revenues from the sale of our products and services are to
two customers. One customer consisted of 28% which provided approximately
$187,000 of our total revenues and the other customer consisted of 10% which
provided total revenues of approximately $69,000.
Risks associated with industry concentrations are limited due to the COmpany
providing the majority of its products and services to the gas and oil industry.
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 do not limit the Company.
The Company is economically dependent on Vistar Datacom, Inc. for whom it is a
value-added reseller. Vistar Datacom, Inc. provides satellite service for the
Company's monitoring devices and are also the suppliers for the main
component of the Company's subscriber communicators. We purchased approximately
$353,000 of hardware and $66,000 of satellite airtime from Vistar Datacom during
the year ended July 31, 2002.
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. Advertising expense
was $1,136 and $2,820 for the years ended July 31, 2002 and 2001, respectively.
COMPUTER SOFTWARE DEVELOPED FOR INTERNAL USE The Company follows 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. 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.
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.
18
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS In July 2001, the Financial Accounting
Standards Board issued Financial Accounting Standard No. 142 (SFAS 142),
"Goodwill and Other Intangible Assets". The standard includes
provisions for the reassessment of the useful lives of existing recognized
intangibles and the reclassification of certain intangibles out of previously
reported figures. The provisions of SFAS 142 will be effective for fiscal years
beginning after December 15, 2001. The impact of SFAS 142 on the financial
statements has not yet been determined.
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.
NOTE 2. RELATED PARTY TRANSACTIONS
On August 8, 2001 a stockholder advanced the Company $30,130 in the form of a
short term unsecured promissory note bearing interest at the rate of 8% per
annum. On March 16, 2002, the Board of Directors authorized the issuance of
301,300 shares of restricted common stock to Savitar Farms, LLC in full
settlement of the promissory note.
The Company's CEO and President resigned effective September 30, 2001. On
October 1, 2001 the Board of Director's elected a new CEO and President. The
former CEO remained on the Board of Directors and has been serving as Vice
Chairman.
On April 3, 2002, the Board of Directors authorized the issuance of 189,979
shares of restricted common stock to AlphaCom, Inc., a current shareholder, in
partial settlement of a $75,000 promissory note payable, dated October 5, 2000,
plus accrued interest of approximately $24,285. The balance of the note,
including interest is $38,512 at July 31, 2002.
On July 31, 2002, the Company entered into an agreement with Bruce Bacon,
an officer and director of the Company, whereas in exchange for foregiveness
of unreimbursed expenses in the amount of $5,175 due Mr. Bacon, the company
sold certain furniture and fixtures with a net book value of $4,175 and
the rights to a security deposit of $1,000.
NOTES PAYABLE 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.
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, 2002, this note is still
outstanding.
During the year ended July 31, 2001 several officers of the Company
advanced funds to the Company totaling $139,500.
On June 24, 2002, a stockholder advanced $750,000 to the
Company in the form of a 60-day unsecured promissory note bearing interest at
the rate of twelve percent per annum. The $750,000 was applied as part
of the amount for the stockholder purchasing 1,000,000 shares of
Series A Non-Voting Cumulative Preferred Stock on October 11, 2002.
Operating expenses of the Company were paid by various officers during the years
ended July 31, 2002 and 2001. These amounts were $71,651 and $32,885,
respectively. These amounts are reflected on the financial statements as
"Accounts payable - related parties."
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
========
19
NOTE 2. RELATED PARTY TRANSACTIONS (CONTINUED)
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, 2002.
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 per 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, 2002.
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, 2002.
On October 1, 2001, the President and CEO, was granted an option to purchase
1,000,000 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.
These options remain unexercised as of July 31, 2002.
NOTE 3. NON-COMPETE AGREEMENT IMPAIRMENT
On December 19, 2001, the Board of Directors authorized the termination of the
Company's employment contract with Robert Buntin. The Company has recognized a
loss on impairment of assets of $20,417 and $103,542 during the years ended
July 31, 2002 and 2001, respectively, relating to this termination.
This amount represents the unamortized amount of a $150,000 non-compete
agreement with Mr. Buntin dated July 18, 2000.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
2002 2001
--------------------------------------------------------------------------------
Office furniture and equipment $ 114,135 $ 124,083
Computer software 24,090 115,190
Demonstrator subscriber communicators 18,900 18,900
Subscriber communicators leased to customer 4,228 4,228
--------------------------------------------------------------------------------
161,353 262,401
Accumulated depreciation ( 75,139) ( 116,992)
--------------------------------------------------------------------------------
Property and equipment, net $ 86,214 $ 145,409
================================================================================
Depreciation expense for the years ending July 31, 2002 and 2001, amounted to
$55,908 and $102,217, respectively. Of these amounts, $55,306 and $101,402 are
included in other selling, general and administrative expenses for July 31, 2002
and 2001, respectively; and $602 and $815 are included in cost of revenues for
July 31, 2002 and July 31, 2001, respectively.
NOTE 5. 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 subject to
a transfer restriction granting a right of first refusal in favor of Archibald
and other stockholders in Archibald. The investment is recorded at the cost
of $3,040. The fair value of this investment as of July 31, 2002 is not
readily available.
NOTE 6. NOTE RECEIVABLE
On June 28, 2002, the Company entered into an agreement with Interlink
Logistics, Inc. where the Company disposed of its Sat-Trac Application Software.
Under the terms of the agreement, the Company transfered all rights, title and
ownership of the software to Interlink in return for a note receivable in the
amount of $100,000. As of October 31, 2002, $33,000 of this note has been paid.
As additional consideration, the Company is to also receive a 20% equity
ownership in Interlink Logistics, Inc., and a royalty based on revenues
generated by the Sat-Trac Software of one half of the net margins earned by
Interlink.
20
NOTE 7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued liabilities consisted of the following:
2002 2001
--------------------------------------------------------------------------------
Professional fees $ 34,250 $ 20,000
Consulting - officers 29,167 44,077
Employee benefits -- 3,135
Interest 3,687 --
Other accrued expenses 9,446 9,401
--------------------------------------------------------------------------------
$ 76,550 $ 76,613
================================================================================
NOTE 8. COMMON STOCK
On August 1, 2000 the Board of Directors authorized the issuance of 70,000
shares of the Company's unregistered common stock in settlement of an amount due
of $54,691 to an independent consultant.
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.
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 May 16, 2001 the Board of Directors authorized the issuance of 33,750 shares
of the Company's unregistered common stock in settlement of an amount due of
$13,500 to an independent consultant.
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 $200,000 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 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 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 $200,000 from the sale of these shares. Each of
the shares issued carried a warrant to purchase one additional share of the
Company's common stock for $0.27 per share 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 $200,000 from the sale of these shares. Each of
the shares issued carried a warrant to purchase one additional share of the
Company's common stock for $0.10 per share 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. The Company received
net proceeds of $200,000 from the sale of these shares. Each of the shares
issued carried a warrant to purchase one additional share of the Company's
common stock for $0.10 per share for a period of five years.
On December 14, 2001, the Board of Directors authorized the issuance of 117,647
shares of restricted common stock to two individual independent consultants in
exchange for consulting services in the amount of $20,000.
21
NOTE 8. COMMON STOCK (CONTINUED)
On December 28, 2001, the Board of Directors authorized the issuance of
2,000,000 shares of restricted common stock to one private investor. The Company
received net proceeds of $200,000 from the sale of these shares. Each of the
shares issued carried a warrant to purchase one additional share of the
Company's common stock for $0.10 per share for a period of five years.
On January 22, 2002, the Board of Directors authorized the right to issue
1,000,000 shares of restricted common stock on or before February 1, 2002 to one
private investor. The Board also issued the same investor the right to purchase
an additional 1,000,000 shares of restricted common stock on or before March 31,
2002 only if the first purchase occurred.
On January 31, 2002, the investor excercised the first stock purchase. The
investor was credited with $68,384, which represented a prior note from the
Company, including accrued interest. A promissory note was signed for the
remainder $31,616. The note carries interest at a rate equal to the 30 day LIBOR
and is payable in full on or before April 30, 2002. In April 2000, $16,616 plus
accrued interest was received for partial payment of note. As of July 31, 2002,
$15,000 remains unpaid and is in default. Each of the shares issued carried a
warrant to purchase an additional share of the Company's common stock for $.10
for a period of five years.
On January 31, 2002, the above investor exercised the right to purchase an
additional 1,000,000 shares of restricted common stock. The investor issued
a promissory note to the Company for the entire $100,000. The note carries
interest at a rate equal to the 30 day LIBOR and is payable in full on or
before April 30, 2002. Each of the shares issued carried a warrant to
purchase an additional share of the Company's common stock for $.10
for a period of five years. This note was outstanding, unpaid and in
default as of July 31, 2002.
On February 26, 2002, the Board of Directors authorized the issuance of 71,000
shares of restricted common stock to Lindy Amyx, an individual independent
consultant, in exchange for consulting services in the amount of $4,260.
On March 1, 2002 the Board of Directors authorized the issuance of 5,800,000
shares of restricted common stock to one private investor pursuant to the
investor exercising all of his outstanding warrants. The Company received
net proceeds of $100,000 from the exercise of these warrants along
with a promissory note in the amount of $150,000. The promissory
note was to be paid only if the investor did not make an additional
$750,000 investment in the Company. On April 29, 2002 the same
investor did make the additional investment, as described below,
thus the promissory note was not due the Company.
On March 15, 2002, the holder of the Company's $875,000 convertible debenditures
converted all debt to the Company's restricted common stock. 1,377,551 shares
were converted at $0.49 per share pursuant to a November 9, 2000 Convertible
Note Agreement, and 909,090 shares were converted at $0.22 per share pursuant to
a Convertible Note Agreement dated April 18, 2001. The holder also exercised all
available options and warrants associated with these convertible notes as
follows: Two (2) 175,000 share options dated December 28, 2000 were exercised at
a price of $.05 per share; 502,500 warrants were exercised at a price of $.05
per share pursuant to an agreement dated April 7, 2000; 352,941 warrants were
exercised at a price of $.05 per share pursuant to an agreement dated June 7,
2000; 1,377,551 warrants were exercised at a price of $.05 per share pursuant to
an agreement dated November 9, 2000 and 909,090 warrants were exercised at a
price of $.05 per share pursuant to an agreement dated April 18, 2001. The
Company received net proceeds of $30,633 from the options exercised and
warrants, after paying in full a short term note owed to the note holder of
$125,000 plus accrued interest of $18,971.
On March 16, 2002, the Board of Directors authorized the issuance of 301,300
shares of restricted common stock to Savitar Farms, LLC in full settlement of A
promissory note.
On April 3, 2002, the Board of Directors authorized the issuance of 189,979
shares of restricted common stock to AlphaCom, Inc., a current shareholder, in
partial settlement of a $75,000 promissory note payable, dated October 5, 2000,
plus accrued interest of approximately $24,285.
On April 29, 2002 the Board of Directors authorized the issuance of 1,000,000
shares of restricted common stock to one private investor. The Company received
net proceeds of $750,000 from the sale of these shares. The investor
will have the option to purchase additional shares for a period of five years as
follows: 1,000,000 shares of common stock at a price of $1.00 per share;
1,000,000 shares of common stock at a price of $1.50 per share; and 1,000,000
shares of common stock at a price of $2.00 per share.
To the same investor, the Company issued 1,000,000 shares of Series A Non-Voting
Cumulative Preferred Stock, to LISEN, LLC (the "Purchaser") for $2,500,000. Dr.
Jerry D. Kennett, a beneficial owner of more than 10% of the Company's
outstanding capital stock, is a member of the Purchaser. Holders of the Series A
Preferred Stock are entitled to receive cumulative dividends on each share of
Series A Preferred Stock at an annual rate of 12% of the original issue price
per share, payable quarterly. Each share of Series A Preferred Stock is
convertible into a number of shares of Common Stock equal to the original issue
price, divided by the greater of (i) 30% less than the mean between the closing
sales or bid price, as the case may be, of the Common Stock, as reported by the
National Quotation Bureau, Inc. or the OTC Bulletin Board for the 20 consecutive
trading days immediately prior to the date of conversion, or (ii) $0.50 per
share.
22
NOTE 8. COMMON STOCK (CONTINUED)
As additional consideration to the Purchaser, the Company agreed to transfer
2,400,000 common shares of NSI Global, Inc. ("NSI"). The closing price per NSI
common share on the Toronto Stock Exchange was $0.15 Canadian on October 11,
2002. Also, under the Stock Purchase Agreement, the Purchaser is entitled to 25%
profit participation in the Company's profits derived from the Vistar License
for South America for the term of the Vistar License.
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, 2002, 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 for
the year ended July 31, 2001 relating to the granting of these options. As of
July 31, 2002, none of the options have been exercised.
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
$1.00 per share, which was more than 100% of the market price on the dates the
options were granted. Accordingly, no compensation expense was recorded in the
current fiscal year relating to these options. The options vest after one year
of service and have a maximum term of 3 years. At July 31, 2001, 600,000 shares
were reserved for future issuance under the plan.
NOTE 9. INCOME TAXES
The Company did not provide any current or deferred federal or state income
tax provision or benefit for any of the periods presented because it has
experienced operating losses in the past few years. A valuation
allowance equal to the income tax benefit has been established since
the Company does not consider the realization of such assets likely. The
income tax benefit is zero for both periods presented.
A reconciliation of income benefit provided at the federal statutory rate
of 35% to income tax benefit follows:
2002 2001
--------------------------------------------------------------------------------
Income tax benefit computed at federal
statutory rate ($ 591,747) ($ 971,962)
Accrued officers' salaries 69,585 ( 113,209)
Compensation cost from stock options -- 81,095
Impairment loss 7,146 36,750
Other 6,625 15,312
Losses not benefited 508,391 952,040
--------------------------------------------------------------------------------
$ -- $ --
================================================================================
Deferred income taxes and benefits for 2002 and 2001 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
2001 Changes 2002
--------------------------------------------------------------------------------
Deferred tax assets:
Accrued officers' compensation $ -- $ 69,585 $ 69,585
Allowance for bad debts 4,971 2,580 7,551
Stock options offered as compensation 81,095 -- 81,095
Unamortized portion of non-compete
agreement 57,167 ( 4,084) 53,083
Net operating loss carryforwards 4,241,964 425,570 4,667,534
Capital loss carryforwards 815,035 -- 815,035
Charitable contributions -- 131 131
--------------------------------------------------------------------------------
5,200,232 493,782 5,694,014
Investment credit carryforwards 3,836 ( 3,836) --
Research credit carryforwards 17,543 -- 17,543
--------------------------------------------------------------------------------
5,221,611 489,946 5,711,557
Valuation allowance (5,207,267) ( 497,160) (5,704,427)
--------------------------------------------------------------------------------
Deferred tax asset 14,344 ( 7,214) 7,130
--------------------------------------------------------------------------------
Deferred tax liabilities:
Excess book depreciation over
tax depreciation 14,344 ( 7,214) 7,130
--------------------------------------------------------------------------------
Deferred tax liability 14,344 ( 7,214) 7,130
--------------------------------------------------------------------------------
Net deferred tax asset (liability) $ -- $ -- $ --
================================================================================
23
NOTE 9. INCOME TAXES (CONTINUED)
For the year ended July 31, 2002, the Company generated, for U.S. income tax
purposes, a net operating loss of approximately $1,452,500, resulting in a total
loss carryforward of approximately $13,335,800. Capital loss carryforwards at
July 31, 2002, were $2,328,670. These loss carryforwards expire at various dates
through the year 2022.
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.
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, 2002, $3,836 of tax credits expired. Remaining tax
credits total $17,543 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 $1,690,707 and $2,777,036 for the years ending July 31, 2002
and 2001, respectively.
In addition, the Company has used substantial working capital in its operations.
As of July 31, 2002 and 2001, current liabilities exceed current assets by
$1,104,790 and $788,236, respectively. Cash used by operations for the years
ended July 31, 2002 and 2001, amounted to $1,436,749 and $1,660,959,
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 preferred
stock and/or common stock through public or private offerings 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.
NOTE 11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES The Company's corporate headquarters is 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 does not expect to renew this lease in December 2002 but
move their offices to another location in Golden, Colorado.
The Company also leases office equipment under non-cancelable leases expiring at
various times through May 2003, with monthly payments of $1,071.
Future minimum lease payments under all operating leases for years subsequent to
July 31, 2001 are as follows:
2003 $ 24,436
2004 1,501
----------
$ 25,937
==========
Total rental expense, primarily from office space and equipment, was $86,267 and
$75,721 for the years ended July 31, 2002 and 2001, respectively.
24
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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:
2002 2001
---------- ---------
Lease payments, payable in monthly
installments totaling $408 and $1,658,
respectively, inclusive of imputed
interest at a rate of 11.6%, maturing at
various dates through May 2004. $ 7,440 $ 16,987
Current obligations under capital leases ( 3,921) ( 9,547)
---------- -----------
Long-term obligations under capital leases $ 3,519 $ 7,440
========== ===========
Future minimum lease payments under capital leases for years subsequent to July
31, 2002 are as follows:
2003 4,890
2004 4,076
----------
$ 8,966
Amount representing interest (1,526)
----------
Present value of future minimum lease payments $ 7,440
==========
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. Vistar Datacom provides a
one-year warranty 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.
REGIONAL OPERATOR AGREEMENT On April 22, 2002 the Company signed a Regional
Operator Agreement with Vistar Telecommunucations, Inc. appointing the Company
the regional operator for South America for distribution of the Vistar
technology.
The term of the agreement is ten years, with two five year renewal options, and
is exclusive for all of South America except for Columbia and Venezuela, where
AMCI Int'l will be able to sell non-exclusively. AMCI Int'l will provide Vistar
MT2000 terminals and airtime to customers in South America. AMCI Int'l will
acquire the terminals from Vistar Telecomm and will purchase bulk airtime from a
commercial satellite provider.
Under the terms of the agreement, the Company will purchase Earth Station
Equipment from Vistar Telecom for $1,500,000. The Company made the first payment
of $250,000 on July 15, 2002. The second payment of $500,000 was paid on August
6, 2002 and the remaining $750,000 was paid on August 23, 2002.
The terms of the agreement also call for the Company to purchase 500 DGS
Terminals from Vistar Telecom for a total purchase price of $275,000. $68,750 of
this amount was paid on August 6, 2002 and $68,750 was paid on August 23, 2002
with the balance due February 6, 2003.
On February 26, 2002, Robert Buntin, a former employee, brought a suit against
us in U.S. District Court in the District of Nevada seeking damages in excess of
$250,000 and injunctive relief. The suit relates to our termination of Mr.
Buntin's employment agreement on December 19, 2001 and claims that the
termination was the result of an alleged inability by pay his salary and not his
gross neglect of duties under the agreement. The suit also alleges that we
misrepresented our ability to register stock issued to him in connection with
our acquisition of Compugraphics in July 2000.
On June 23, 2002, Potter Financial brought a suit against us in U.S. District
Court in the Southern District of Florida, Miami Division, seeking damages of an
unstated amount. The suit alleges that in connection with a consulting agreement
between the parties, we agreed to grant Potter Financial options to purchase
800,000 shares of our Common Stock and that we did not provide any freely
tradeabletradable shares underlying these options.
25
NOTE 12. SUBSEQUENT EVENTS
On August 11, 2002 the Company signed a Distribution and Support Agreement with
Telespazio Brasil (Telespazio), a leading tracking and monitoring firm in
Brazil. Under the agreement, Telespazio was appointed the distributor and
support party for AMCI Int'l's products and services in South America.
At the same time as the regional operator agreement was executed, AMCI
also signed a share agreement with NSI, the parent company of Vistar
Telecomm, under which the parties exchanged various rights to acquire interest
in both the regional operator business and in each others company. AMCI agreed
to provide warrants to purchase 1,500,000 shares of AMCi common stock to NSI
as well as an option to acquire ten percent of the regional operator business
in South America. NSI agreed to a sale of NSI stock to AMCI immediately and
also provided for four future options to acquire NSI stock.
These transactions will solidify the relationship between the parties and
provide the incentive to work together to exploit the South America market in
the best possible fashion. Additionally, AMCi has the opportunity to participate
in the future growth of NSI as it expands its Vistar presence worldwide.
26
Item 8. Changes in and Disagreements With Accountants On Accounting
and Financial Disclosure
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(A) of the Exchange
Act
EXECUTIVE OFFICERS OF THE COMPANY
Our executive officers, some of whom are also our directors are as follows:
Name, Age Position with Year First
the Company Became Director
Garrett L. Thomas, 57 President and CEO 2001
Ronald J. Corsentino, 33 Chief Financial Officer,
Treasurer and Secretary - -
Bruce R. Bacon, 44 Vice President, Chief Technology 1998
Officer
Steve Watwood, 54 Vice President 1997
Andrew F. Cauthen, 59 Director 1999
Shirley Harmon, 55 Director 1999
Garrett L. Thomas has been a Director and the Company's President and
CEO since October 2001. From 1999 to 2001, Mr. Thomas was the CEO of QUAKE
Global, Inc. 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 served as VP and General
Counsel to TriTeal Corporation, a software development enterprise, from 1997 to
1998. From 1987 to 1997 Mr. Thomas served as General Counsel for the federal
subsidiary of 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.
Mr. Thomas received his Juris Doctor from Georgetown University and also a
Masters in Law from George Washington Law School.
Ronald J. Corsentino has been Controller since June of 2000, CFO and
Treasurer since July 2001 and Secretary since September 2002. From June of 1993
to June of 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.
Bruce R. Bacon has been a Director and the Company's CTO and VP of
Engineering since August of 1998. From 1996 to 1998, Mr. Bacon served as 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. Mr. Bacon
has broad experience in field service, customer technical support, in-house
technical training, new product development, and manufacturing operations. 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.
Steve Watwood has been a Director since August of 1997. He served as
the Company's President from August 1997 to September of 1999 and has been the
VP of Business Development since September of 1999. Mr. Watwood owned and
operated a successful commercial and residential construction company for 24
years where he was directly responsible for project development, business
planning, and management. During that period, Mr. Watwood owned a solar power
technology company and was an early pioneer in designing and installing
photovoltaic systems into remote locations.
Andrew F. Cauthen has been a Director since September of 1999. He
served as the Company's President and CEO from September of 1999 to September of
2001. From 1997 to 1999, Mr. Cauthen served as a consultant with various
enterprises. Mr. Cauthen currently serves as an Executive Vice President with US
Health Advisors since October of 2002.
Shirley M. Harmon has been a Director since September of 1999. She has
served as the Company's Secretary from September of 1999 to September 2002. Ms.
Harmon retired from the United States Department of Navy in 1995. Ms. Harmon was
a civilian employee with 28 years in the financial division. Ms. Harmon has held
various positions and titles during this employment, which include the
following: Budget Analyst, and Management and Budget Analyst for the Ship Parts
Control Center, financial evaluating and executing various budget programs.
After leaving the Department of Navy, Ms. Harmon took a position with a private
trust.
27
Item 10. Executive Compensation
The following table summarizes the executive compensation for the fiscal years
ended July 31, 2002, 2001 and 2000 earned by or paid to our chief executive
officer, our three executive officers who received total salary and bonus for
the fiscal year ended July 31, 2002 in excess of $100,000 and our former chief
executive officer:
Long Term
Annual Compensation Compensation
--------------------- --------------------
Name and Other Securities
Fiscal Salary Annual Underlying Other
Principal Position Year ($) Compensation Options (#) Compensation
----------------------- ----- -------- ------------ ----------- ------------
Garrett L. Thomas (1) 2002 $132,500 -- 1,000,000 $ 432(2)
President 2001 -- -- -- --
Chief Executive
Officer 2000 -- -- -- --
Director
Steve Watwood 2002 103,250 -- -- 103(3)
VP Business Development 2001 96,000 -- 1,715,040 --
Chairman of the Board 2000 96,000 -- -- --
Director
Bruce R. Bacon 2002 103,250 -- -- 8,489(4)
VP of Engineering 2001 96,000 -- 1,373,099 8,400
Chief Technology
Officer 2000 96,000 -- -- 3,500
Director
Ronald J. Corsentino 2002 103,250 -- -- 55(5)
Chief Financial Officer 2001 78,000 -- 290,000 --
Treasurer 2000 10,000 -- -- --
Secretary
Andrew F. Cauthen (6) 2002 30,000 -- -- --
Director 2001 180,000 -- 486,491 --
2000 120,000 $27,000(7) 1,200,000 --
(1) Garrett Thomas was appointed President and CEO October 1, 2001.
Mr. Thomas' annualized salary for 2002 was $180,000.
(2) Represents premiums paid for term life insurance. (3) Represents
premiums paid for term life insurance.
(4) Includes $89 in premiums paid for term life insurance and $8,400
for use of Mr. Bacon's Golden, Colorado townhouse.
(5) Represents premiums paid for term life insurance.
(6) Andrew Cauthen resigned as President and CEO effective September 30,
2001.
(7) On October 31, 1999, Andrew F. Cauthen was granted 100,000 shares of
Common Stock. The closing price of the Company's Common Stock on
October 29, 1999 was $0.27.
Any increase in officer compensation would be predicated on prevailing industry
standards and our existing financial situation. The Board of Directors may
authorize an increase in the compensation of our executive officers without a
vote of Shareholders.
We did not make any bonus cash payments to our executive officers; however, we
may, in the future, develop programs which may include bonus payments.
We do not compensate our Directors for their participation. We do not have
employment agreements with any of our executive officers. However, we may, in
the future, need to compete for the services of our executive officers, at which
time, the Board of Directors may adopt and require our executive officers to
execute employment agreements.
OPTION GRANTS IN LAST FISCAL YEAR
The following options table reflects our long-term compensation in the
form of individual grants of stock options made during the last completed fiscal
year to each of the executive officers named in the summary compensation table.
The exercise price may be paid in cash, check, shares of our common stock valued
at fair market value on the exercise date or a cashless exercise procedure
involving a same-day sale of the purchased shares.
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise of
Options Employees in Base Price Expiration
Officer Granted (#) Fiscal Year ($/Sh) Date
----------------- ------------- ---------------- ----------- ----------
Garrett L. Thomas 1,000,000 (1) 100% $0.19 10-01-2004
(1) Option grant was fully vested and exercisable on the date of grant.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUE
Number of Securities Underlying
Unexercised Options at Fiscal Year End
Name
Exercisable Unexercisable
Garrett L. Thomas 1,000,000 --
Stephen F. Watwood 1,715,040 --
Bruce R. Bacon 1,373,099 --
Ronald J. Corsentino 290,000 --
Andrew F. Cauthen 1,686,491 --
No options were exercised last fiscal year by any of the persons named in the
summary compensation table. No options held by any of the persons named in the
summary compensation table were in-the-money at the end of the Company's 2002
fiscal year.
EMPLOYMENT AGREEMENTS
On October 1, 2000, the Board of Directors adopted a policy whereby all our
officers and directors will only be paid 80% of their current salary in cash.
The remainder of their salary will be accrued. All officers and directors
settled their outstanding accrued compensation on April 30, 2001 by receiving
options to purchase our common stock at an exercise price of $.10 when the
market value of the stock was $.29. Amounts that have accrued since April 30,
2001 remain unpaid and will be settled upon approval by the Board of Directors.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth the aggregate information regarding our equity
compensation plans in effect as of July 31, 2002. Each of our equity
compensation plans is an individual stock option agreement within the meaning of
"employee benefit plan" under Rule 405 under the Securities Act of 1933. For
more information on the individual stock options granted during the fiscal years
ended July 31, 2002 and July 31, 2001, see Note 7 to our Financial Statement in
Item 7 of this Report.
Equity Compensation Plan Information
--------------------- -------------------- -------------------- --------------
Number of securities Weighted-average Number of
to be issued upon exercise price of securities
exercise of outstanding options, remaining for
outstanding options, warrants and rights future issuance
warrants and right under equity
compensation
plans
(excluding
securities
reflected in
column (a))
Plan Category (a) (b) (c)
--------------------- -------------------- -------------------- ---------------
Equity compensation
plans approved by
security holders -- -- --
--------------------- -------------------- -------------------- --------------
Equity compensation
plans not approved by
security holders 9,600,600 $0.19 --
--------------------- -------------------- -------------------- --------------
Total 9,600,600 $0.19 --
--------------------- -------------------- -------------------- --------------
30
The following table sets forth certain information known with respect to the
beneficial ownership of our common stock as of November 13, 2002 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
44,781,977 shares of common stock issued and outstanding on November 13, 2002.
Shares of common stock subject to stock options which are currently exercisable
or will become exercisable within 60 days after November 13, 2002 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.
Percent
Name and Address Shares of Ownership of
of Beneficial Owner Common Stock (1) Class (2)
------------------------------ ------------------- ---------------
Garrett L. Thomas 1,000,000 (3) 2.18% (3)
2195 Coast Avenue
San Marcos, CA 92069
Andrew F. Cauthen 1,704,376 (4) 3.67% (4)
14007 Lochshire Street
Houston, TX 77077
Stephen F. Watwood 2,811,442 (5) 6.05% (5)
17835 RCR 29
Oak Creek, CO 80467
Bruce R. Bacon 1,438,099 (6) 3.12% (6)
1001 8th Street
Golden, CO 80401
Ronald J. Corsentino 290,000 (7) *
1010 South Josephine Street
Denver, CO 80209
Shirley M. Harmon 151,872 (8) *
1947 NW 102nd Blvd.
Wildwood, FL 34785
Global Investments Ltd., Trustee 2,500,000 5.58%
Anthony Hulme, Director
Victoria House
P.O. Box 1066 The Valley, Anguilla
BWI
Jerry D. Kennett, MD 21,600,000 (9) 40.92% (9)
2801 Peppertree Lane
Columbia, MO 65201
GCD Investments, LLC 2,601,174 5.81%
Gordon C. Dumont, Managing Member
4821 Sheridan Avenue
Metairie, LA 70002
All Executive Officers
and Directors as a Group 7,395,789 (10) 14.34% (10)
(6 persons)
*Holds less than 1% of the outstanding shares.
(1) Unless otherwise indicated below, each person named in the table has
sole voting and investment power with respect to all shares
beneficially owned, subject to applicable community property laws.
(2) All shares of common stock subject to options, warrants, conversion
privileges or other rights currently exercisable or exercisable within
60 days after July 31, 2002, are deemed to be outstanding for the
purpose of computing the percentage of ownership of the person holding
such options, warrants, conversion privileges or other rights, but are
not deemed to be outstanding for computing the percentage of ownership
of any other person. Percentage of ownership is based on 44,781,977
shares of common stock outstanding as of October 1, 2002.
(3) Includes options for the purchase of 1,000,000 shares. Mr. Thomas is
the President, CEO, and a director of the Company.
31
(4) Includes options for the purchase of 1,686,491 shares. Mr. Cauthen is a
director of the Company.
(5) Includes options to Mr. Watwood's wife Phyllis Watwood for the purchase
of 661,652 shares and an option to Mr. Watwood to purchase 1,715,040
shares. Mr. Watwood is the Vice President of Business Development and a
director of the Company.
(6) Includes options for the purchase of 1,373,099 shares. Mr. Bacon is the
Vice President of Engineering, Chief Technology Officer and a director
of the Company.
(7) Includes options for the purchase of 290,000 shares. Mr. Corsentino is
the Chief Financial Officer, Treasurer and Secretary of the Company.
(8) Includes options for the purchase of 71,372 shares.
(9) Includes options for the purchase of 3,000,000 shares. Also includes
5,000,000 shares of common stock issuable upon conversion of 1,000,000
shares of Series A Non-Voting Cumulative Preferred Stock owned by
LISEN, LLC. Dr. Kennett is a member of LISEN, LLC. Each share of Series
A preferred stock is convertible at any time by the holder into a
number of shares of common stock equal to the original issue price,
$2.50, as adjusted, divided by the greater of (i) 30% less than the
mean between the closing sales or bid price, as the case may be, of the
common stock, as reported by the National Quotation Bureau, Inc. or the
OTC Bulletin Board for the 20 consecutive trading days immediately
prior to the date of conversion, or (ii) $0.50 per share. Dr. Kennett
disclaims beneficial ownership of the shares owned by LISEN, LLC,
except to the extent of his pecuniary interest therein.
(10) Includes options held by such officers and directors for the purchase
of an aggregate of 6,797,654 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who
beneficially own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership on Form 3 and changes in ownership on
Form 4 or 5 with the Securities and Exchange Commission ("SEC"). Such officers,
directors and 10% shareholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) forms that they file. To the Company's
knowledge, based solely upon review of the copies of such reports and certain
representations furnished to it, no persons subject to Section 16(a) failed to
file on a timely basis reports required by Section 16(a) during the fiscal year
ended July 31, 2002, except for Garrett L. Thomas, Ronald J. Corsentino, Andrew
F. Cauthen, Rodney R. Shoemann, Sr. and Jerry D. Kennett, M.D. Mr. Thomas, the
Company's President and CEO, failed to file a Form 3 and filed a late Form 5.
Mr. Corsentino, the Company's Chief Financial Officer, Treasurer and Secretary,
failed to file a Form 3 and filed a late Form 5. Mr. Cauthen, a director of the
Company, failed to file a Form 5. Mr. Shoemann, a 10% stockholder, failed to
file a Form 3 and a Form 4 for an acquisition of shares of Common Stock of the
Company and filed a late Form 5. Dr. Kennett, a 10% stockholder, failed to file
a Form 3 and Form 4s for six acquisitions of shares of Common Stock of the
Company and filed a late Form 5.
Item 12. Certain Relationships and Related Transactions
On June 24, 2002, Jerry D. Kennett, MD advanced us $750,000 in the form of a
60-day unsecured promissory note bearing interest at the rate of twelve percent
per annum. As of July 31, 2002, this note is still outstanding.
32
Item 13. Exhibits and Reports On Form 8-K
(A) Exhibits
3.1 Articles of Incorporation, as amended (incorporated by reference to
Exhibits 3(i), (ii), (iii) and (iv) to the Company's Amendment No. 3
to Registration Statement on Form SB-2 filed November 28, 2001)
3.2 Bylaws (incorporated by reference to Exhibit 3(v) to the Company's
Amendment No. 3 to Registration Statement on Form SB-2 filed
November 28, 2001)
4.1 Statement of Determination for Series A Non-Voting Cumulative Preferred
Stock (incorporated by reference to the Company's Current Report on
Form 8-K filed October 25, 2002)
10.1 Agreement and Plan of Merger dated May 27, 1998 (incorporated by
reference to the Company's Current Report on Form 8-K filed June 11,
1998, File No. 000-10841-D)
10.2 Globalwave Distribution Agreement dated as of June 7, 2000 between the
Company and Vistar Datacom Inc. (incorporated by reference to Exhibit
10(i) to the Company's Amendment No. 3 to Registration Statement on
Form SB-2 filed November 28, 2001)
10.3 Lease Agreement dated as of December 1, 1999 between the Company and
Sucia Corporation (incorporated by reference to the Company's Amendment
No. 3 to Registration Statement on Form SB-2 filed November 28, 2001)
10.4 Preferred Stock Purchase Agreement dated as of October 11, 2002 between
the Company and LISEN, LLC (incorporated by reference to the Company's
Current Report on Form 8-K filed October 25, 2002)
10.5 Registration Rights Agreement dated as of October 11, 2002 between
the Company and LISEN, LLC (incorporated by reference to Form 8-K
filed October 25, 2002)
99.1 Certifications pursuant to U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(B) No reports were filed on Form 8-K for the quarter ended July 31, 2002.
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 13, 2002 By: /s/ Garrett L. Thomas
----------------------
Garrett L. Thomas
Director
President and
Chief Executive Officer
Dated: November 13, 2002 By:/s/ Ronald J. Corsentino
------------------------
Ronald J. Corsentino
Director
Treasurer, Secretary and
Chief Financial Officer
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 13, 2002 By: /s/ Bruce R. Bacon
------------------
Bruce R. Bacon
Director
Vice President of Engineering
and Chief Technology Officer
Dated: November 13, 2002 By: /s/ Stephen F. Watwood
-----------------------
Stephen F. Watwood,
Director
Vice President of Business
Development
Dated: November 13, 2002 By: /s/ Shirley M. Harmon
----------------------
Shirley M. Harmon
Director
Dated: November 13, 2002 By: /s/ Andrew F. Cauthen
---------------------
Andrew F. Cauthen
Director
33
CERTIFICATIONS
I, Garrett L. Thomas, certify that:
1. I have reviewed this annual report on Form 10-KSB of American Millennium
Corporation, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
Date: November 13, 2002 /s/ Garrett L. Thomas
---------------------
Garrett L. Thomas
President and
Chief Executive Officer
I, Ronald J. Corsentino, certify that:
1. I have reviewed this annual report on Form 10-KSB of American Millennium
Corporation, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
Date: November 13, 2002 /s/ Ronald J. Corsentino
------------------------
Ronald J. Corsentino
Treasurer, Secretary and
Chief Financial Officer