UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission file number 000-22833
PACIFIC SYSTEMS CONTROL TECHNOLOGY, INC.
(Name of small business issuer in its charter)
Delaware | 90-0013185 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
100 Marine Parkway, Suite 325
Redwood Shores, California 94065
(Address of Principal Executive Offices including Zip Code)
(650) 802-8299
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ]
Applicable only to issuers involved in bankruptcy proceedings during the past five years:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Number of shares of common stock, par value $0.0001, outstanding as of May 15, 2002 is 27,574,371.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PACIFIC SYSTEMS CONTROL TECHNOLOGY, INC.
FORM 10-QSB
For March 31, 2002
TABLE OF CONTENTS
| Part I. | Financial Information |
|
Item 1. | Financial Statements | |
Balance Sheets as of March 31, 2002 and December 31, 2001 | 3 | |
Statements of Operations for the three periods ended March 31, 2002 and 2001 | 4 | |
Statements of Cash Flows for the three month periods ended March 31, 2002 and 2001 | 5 | |
Notes to Financial Statements | 6 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
Part II. | Other Information |
|
Item 1. | Legal Proceedings | 14 |
Item 2. | Changes in Securities and Use of Proceeds | 14 |
Item 3. | Defaults Under Senior Securities | 14 |
Item 4. | Submission of Matters to a Vote of Security Holders | 14 |
Item 5. | Other Information | 14 |
Item 6. | Reports on Form 8-K | 14 |
Signatures |
|
PART I
Item 1. Financial Information - (unaudited)
PACIFIC SYSTEMS CONTROL TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
March 31 December 31
2002 2001
------------ ------------
(unaudited) (audited)
ASSETS
Current Assets
Cash $ 13,298 $ 504,554
Accounts receivable 54,722 172,736
Prepaid expenses 2,448 2,448
Other assets 300,000 300,000
Note receivable 393,000 -
------------ ------------
Total current assets 763,468 979,738
Property and equipment, net 36,559 121,796
Investments 471,082 471,082
------------ ------------
Total Assets $ 1,271,109 $ 1,572,616
============ ============
LIABILITIES
Current liabilities
Accounts payable and
accrued expenses $ 303,003 $ 634,783
Advances from related parties 821,745 810,745
Other - 74,168
Related party payable 332,954 -
Notes payable 117,185 185,852
------------ ------------
Total current liabilities 1,574,887 1,705,548
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value;
10,000,000 shares authorized $ - $ -
Common stock, $0.0001 par value;
100,000,000 shares authorized 2,758 2,758
Additional paid-in capital 28,281,222 28,960,103
Accumulated deficit (28,587,758) (29,095,793)
------------ ------------
Total Stockholders' Equity (303,778) (132,932)
------------ ------------
$ 1,271,109 $ 1,572,616
============ ============
The accompanying notes are an integral part of these financial statements.PACIFIC SYSTEMS CONTROL TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three-month Periods Ended
-----------------------------
March 31 March 31
2002 2001
------------- -------------
(unaudited) (unaudited)
REVENUE
Licensing fee - -
Other - 132
------------- -------------
Total revenue - 132
------------- -------------
COSTS AND EXPENSES
Cost of sales - Film income - -
Film cost amortization and reserve - -
Selling - -
Salaries and payroll taxes 24,599 -
Rent 14,407 29,105
General and administrative 59,839 65,301
------------- -------------
Total costs and expenses (98,845) (94,406)
------------- -------------
OTHER INCOME (EXPENSES)
Inter-company interest expense, net - 30,000
Interest expense (1,000) (1,211)
Other income 7,670 -
------------- -------------
Total other income (expenses) 6,670 28,789
------------- -------------
LOSS FROM OPERATIONS BEFORE
PROVISION FOR INCOME TAXES (92,175) (65,485)
PROVISION FOR INCOME TAXES - -
------------- -------------
NET LOSS (92,175) (65,485)
============= =============
Weighted average number of
shares outstanding 27,574,371 25,578,706
============= =============
Basic and diluted loss per share $(0.003) $(0.003)
============= =============
The accompanying notes are an integral part of these financial statements.
PACIFIC SYSTEMS CONTROL TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Three Month
Ended Ended
-------------- --------------
March 31, 2002 March 31, 2001
-------------- --------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (92,175) $ (65,485)
Adjustments to reconcile net loss
to net cash used for operating activities
Depreciation and amortization 1,676 1,112
(Increase) decrease in
Accounts receivable (14,986) -
Prepaid expenses and other - (5,205)
Due from subsidiary - (141,923)
Increase (decrease) in
Accounts payable and accrued expenses (22,564) (76,566)
Other (1,540) (3,746)
-------------- --------------
Net cash used for operating activities (129,589) (291,813)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment - (3,125)
Increase in note receivable (393,000) -
Increase in other investments - (30,000)
-------------- --------------
Net cash used for investing activities (393,000) (33,125)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock options - 300,000
Proceeds on loans from related parties 50,000 18,000
Payments on notes payable (18,667) (2,501)
-------------- --------------
Net cash provided by financing activities 31,333 315,499
-------------- --------------
NET DECREASE IN CASH (491,256) (9,439)
CASH, beginning of period 504,554 20,510
-------------- --------------
CASH, end of period $ 13,298 11,071
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 1,000 $ 1,211
============== ==============
Foreign and state income taxes $ - $ -
============== ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Long-term debt converted to equity $ - $ 2,000,000
============== ==============
Common stock and warrants issued related
to redemption of debentures $ - $ 2,078,391
============== ==============
Distribution of investment in subsidiary to
shareholders $ 12,199,785 $ -
============== ==============
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
For the three-month period ended March 31, 2002
Note 1 - Nature of Operations and Spin-off of Subsidiary
Basis of Presentation and Consolidation - The consolidated financial statements include the accounts of Pacific Systems Control Technology, Inc. (the "Company") and its wholly owned subsidiary, America's Best Karate ("ABK"), which owns 100% of PeopleNet International Corporation (formerly known as American Champion Media, Inc. or "AC Media") until February 8, 2002 when AC Media was effectively spun-off from the Company and became an independent entity, and American Champion Marketing ("AC Marketing"), which is a wholly owned subsidiary of AC Media. There was no activity in AC Marketing during 2001 and the three-month period ended March 31, 2002. All significant intercompany accounts and transactions have been eliminated in consolidation.
In August 2001, the Company changed its name from American Champion Entertainment, Inc. to Pacific Systems Control Technology, Inc. AC Media also changed its name to PeopleNet International Corporation ("PeopleNet").
Spin-off - On June 22, 2001, the Company approved a plan to spin-off PeopleNet to the shareholders as a tax-free distribution. Under the plan, each stockholder of the Company receives one share of PeopleNet stock for every 17 shares of common stock held as of the record date of January 16, 2002. Subsequent to and as part of the spin-off, PeopleNet issues 374,587 shares of common stock, with registration rights, to ECapital, an unrelated party, in exchange for the worldwide exclusive rights to market and distribute ChiBrow, a safe web browser software for children for three years. The related party note payable to PeopleNet is also converted to common stock. The spin-off became effective in January 2002 and all shares were distributed to the above parties on February 8, 2002. As part of this plan, the advances PeopleNet made to ABK were offset against the amounts due to the Company and the net amount were converted to additional paid-in-capital of PeopleNet.
Nature of Operations - The Company is engaged in the development and sales of utilities meter products and technology. This is a new line of business for the Company. The Company expects to generate revenues from these operations beginning in 2002.
Going Concern - Management's plans and the ongoing operations of the Company are expected to require working capital during 2002. The Company has experienced continuing losses from operations. The Company is also changing its principle lines of business with respect to the manufacture and distribution of utility metering devices. In addition, PeopleNet was spun-off in February 2002. These factors cause substantial doubt about the ability of the Company to continue as a going concern. Management will be required to obtain additional capital to fund the ongoing operations during the remainder of 2002. In December 2000, Holley has signed stock purchase agreements with the Company to purchase additional shares from the Company. In 2001, 135,000 shares were purchased under these agreements. Although Holley has not purchased substantial shares from the Company during 2001, it has advanced approximately $800,000 as well as additional capital contributions of $300,000 to the Company for its daily operations.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of operations. The continuation of the Company as a going concern is dependent upon the success of obtaining additional capital and, thereafter, on attaining profitability. There can be no assurance that management will be successful in the implementation of its plan. The financial statements do not include any adjustments in the event the Company is unable to continue as a going concern.
Note 2 - Summary of Significant Accounting Policies
Revenue Recognition - There was no revenue generated from the development and sales of utilities meter products and technology for the year ended December 31, 2001 and for the three-month period ended March 31, 2002.
Concentrations of Risk - Financial instruments which potentially subject the Company to concentrations of credit risk are cash and accounts receivable. The Company places its cash with financial institutions deemed by management to be of high credit quality. The amount on deposit in any one institution that exceeds federally insured limits is subject to credit risk.
Cash and Cash Equivalents - The Company considers certain highly liquid instruments purchased with original maturities of three months or less to be cash equivalents.
Property and Equipment - Property and equipment is stated at cost. Depreciation for furniture and fixtures and certain equipment is computed using the straight-line method over an estimated useful life of five years. Leasehold improvements are amortized using the straight-line method over the term of the respective leases.
Fair Values of Financial Instruments - The carrying values of cash, receivables, accounts payable and short-term borrowings approximate fair value due to the short maturity of these instruments. The carrying values of long-term obligations approximate fair value since the interest rates either fluctuate with the lending banks' prime rates or approximate market rate. None of the financial instruments are held for trading purposes.
Basic Loss Per Share - Basic loss per share is based on the weighted average outstanding shares issued. Because the Company has a net loss, the common stock equivalents would have an anti-dilutive effect on earnings per share. Accordingly, basic earnings per share and diluted earnings per share are the same.
Income Taxes - Income taxes are accounted for using an asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between financial statement and tax basis of assets and liabilities at the applicable enacted tax rates. Generally accepted accounting principles require a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company and its Subsidiaries file a consolidated tax return.
Reclassifications - Certain reclassifications have been made to the 2001 amounts to conform to the current presentation.
Use of Estimates, Risks and Uncertainties - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Note 3 - Basis of Reporting
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for completed financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the financial position of the Company on March 31, 2002 and the results of its operations and its cash flows for the three months periods ended March 31, 2002 and 2001. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes for the year ended December 31, 2001 included in the Company's Form 10-KSB as filed with the SEC on April 15, 2002.
Note 4 - Other Assets
Other assets consist of a deposit paid to an outside vendor as part of the commitment for the purchase of metering devices as disclosed in Note 8. The deposit will be refunded to the Company if the vendor fails to comply with the specified parameters established by the Company. The deposit will be accounted for as part of the cost of the completed meters.
Note 5 - Note Receivable
The Company loaned $393,000 to a company owned by the Company's largest shareholder. The loan is unsecured, non-interest bearing and expected to be re-paid in 2002.
Note 6 - Advances from Related Parties
The advances from related parties are non-interest bearing and are unsecured.
Note 7 - Lease Commitments
In October 2001, the Company relocated its headquarters and entered into a 40-month non-cancelable lease with monthly rent of approximately $4,000, subject to increases at each anniversary. The Company's old office is still under the 4-year non-cancelable lease, with monthly rent of approximately $6,000, which the Company signed in July 2000. The old office lease expires in August 2004. The amounts paid under these leases during the year ended December 31, 2001 was $72,000.
The future minimum lease payments under these operating leases are as follows.
2002 $ 120,000
2003 126,000
2004 106,000
2005 21,000
---------
$ 373,000
=========
The Company subleases the old office under a non-cancelable operating lease, expiring in August 4, 2004. Rental income earned under this lease totaled to $5,000 for the year ended December 31, 2001.
The future minimum rental income under this operating lease is as follows:
2002 $ 38,000
2003 76,000
2004 52,000
---------
$ 166,000
=========
Note 8 - Commitments and Contingencies
In February 2001, the Company signed a 5-year contract with a company in China to deliver up to 1,000,000 units of electronic, multi function meters over a 5-year period. The Company will purchase the meters in U.S. and resells to the purchaser. The contract is expected to generate a total of approximately $200,000,000 for the Company over the next five years.
In August 2001, the Company signed an agreement with a product development and manufacturing company to develop meters based on agreed specifications. The Company agreed to purchase a minimum of 50,000 units of such developed products in 2002 upon successful compliance with the specifications. The entire project will cost $2 million. $300,000 was paid when the agreement was signed. The remaining will be paid in $700,000 and $1,000,000 installments upon the completion of two milestones agreed by both parties. Upon completion of the product, the Company shall have the exclusive rights at no cost to sell the product in China and non-exclusive right at no cost to sell the product worldwide.
In February 2001, a complaint was filed by Chuck Nelson in Court of Common Pleas, Mahoning County in Youngstown, Ohio against the Company for a percentage of the total purse amounts paid to boxers in the Company produced boxing event in China in April 2000, and for a percentage of the television revenue generated thereof. The Company denies all of the rights claimed by Chuck Nelson and will vigorously defend against all of Mr. Nelson's claims.
In October 2001, the Company filed a complaint against a former employee in licensing and marketing activities for breach of contract, breach of fiduciary duty and unjust enrichment, among other causes of action, seeking declaratory relief from the court. A counter claim from the employee was filed in April 2002 naming the Company including all of its subsidiaries as the defendants in the cross-complaint. The Labor Commission of California in December 2001 issued a judgment against the Company including all of its subsidiaries in the amount of $69,170.58 in favor of the employee. This amount has been accrued as of December 31, 2001.
As the parent company, Pacific Systems has agreed to indemnify all of its subsidiaries including PeopleNet from the liabilities of these two cases including expenses, fees or judgment.
The Company may be contingently obligated under the following commitments through PeopleNet, which was spun-off as disclosed in Note 1.
On December 27, 2000, PeopleNet entered into a worldwide distribution agreement with respect toThe Adventures with Kanga Roddytelevision program with World Channel, Inc. Under the agreement, World Channel will have the exclusive rights for exhibition, distribution, process and reproduction and all commercial exploitation of the program for a period of five years. The agreement requires World Channel to make five annual installments of $600,000 on or before the end of each of the years 2001 through 2005. For the year ended December 31, 2001, the Company recognized $450,000 film income in relation to this distribution agreement, $193,000 of which was collected before year-end. Management did not recognize film income for the fourth quarter of 2001 based on management's evaluation of collectibility of the amounts due under the agreement. A 50% reserve on the remaining receivable was also established as of December 31, 2001. Because current year collection activity raises substantial doubt with r espect to amounts due in future years under this agreement and because there are currently no other agreements in place, the Company has reserved the remaining unamortized film costs for "The Adventures With Kanga Roddy" television program.
In June 2001 the Company signed an agreement with ECapital Group, Inc. ("ECapital") to purchase the exclusive licensing and marketing rights to ChiBrow, a safe web browser software for children. Under the terms of the agreement, upon the effectiveness of the spin-off of the Company from PSCT, the Company will issue 375,000 shares of common stock, with registration rights, to ECapital in exchange for the worldwide exclusive rights to market and distribute ChiBrow for three years (see Note 1). The Company intends to file a registration statement for such shares immediately after the effectiveness of the spin-off transaction. Pursuant to the terms of the agreement, the Company shall retain 35% of all revenues generated from such marketing efforts and the balance shall be paid to ECapital. (See Note 19)
Note 9 - Industry Segments
The Company operates in one segment, utilities metering devices. All assets are located in the United States of America.
Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations
Forward Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" from liability for forward-looking statements. Certain information included in this Form 10-QSB and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by or on behalf of the Company) are forward-looking, such as statements relating to operational and financing plans, capital uses and resources, competition, and demands for the Company's products and services. Such forward-looking statements involve important risks and uncertainties, many of which will be beyond the control of the Company. These risks and uncertainties could significantly affect anticipated results in the future, both short-term and long-term, and accordingly, such results may differ from those expressed in forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, changes in external competitive market factors or in the Company's internal budgeting process which might impact trends in the Company's results of operations, unanticipated working capital or other cash requirements, changes in the Company's business strategy or an inability to execute its strategy due to unanticipated change in the industries in which it operates, and various competitive factors that may prevent the Company from competing successfully in the marketplace. The following discussion may contain forward-looking statements that are subject to risks and uncertainties. For a discussion of factors that could cause actual results to differ, please see the discussion contained herein. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequence events or circumstances. Readers are also encouraged to review the Company's publicly available filings with the Securities and Exchange Commission.
The following section discusses the significant operating changes, business trends, financial condition, earnings and liquidity that have occurred in the three-month period ended March 31, 2002. This discussion should be read in conjunction with the Company's financial statements and notes appearing elsewhere in this report.
Critical Accounting Policies
In the ordinary course of business, the company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results. The Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate. Although historically, actual results have not significantly deviated from those determined using the necessary estimates inherent in the preparation of financial statements, future actual results may vary significantly. Estimates and assumptions include, but are not limited to, customer receivables, long-term asset lives, contingencies and litigation. The Company has also chosen certain accounting policies when options were available, including:
- The intrinsic value method, or APB Opinion No. 25, to account for our common stock incentive awards; and
- We record an allowance for credit losses based on estimates of customers' ability to pay. If the financial condition of our customers were to deteriorate, additional allowances may be required.
- We will adopt SFAS 142, Goodwill and Other Intangible Assets, in fiscal year 2002. We have not yet evaluated the effects of these changes.
These accounting policies are applied consistently for all years presented. Our operating results would be affected if other alternatives were used. Information about the impact on our operating results is included in the footnotes to our consolidated financial statements.
Results of Operation
The Company was formed in February 1997 and has a wholly owned subsidiary, ABK, which had no activities in the year 2001 nor the three-month period ended March 31, 2002. ABK wholly owned AC Media until February 8, 2002 when AC Media was effectively spun-off and became an independent entity with its name changed to PeopleNet International Corporation. In March 2000, the Company signed a Stock Exchange Agreement with BA Networks for the acquisition of 80% of the common stock of BA Networks. The Company's shareholders approved of the acquisition at the Company's Annual Meeting of Shareholders held on September 27, 2000. The owners of BA Networks have agreed to sell an 80% interest in BA Networks to the Company. According to commerce regulation of China, such exchange of ownership needs to be incorporated into a co-operative joint venture ("CJV"). On October 28, 2000 BA Network signed a letter of intent with the Company to set up a "CJV" in China into which all of BA Networks' assets will be transferred. The CJV will be owned 80% by the Company and 20% by BA Networks. The establishment of CJV was approved by the Beijing Municipal Government on December 1, 2000 and the business license was granted on December 20, 2000. As of March 31, 2002, the transfer of assets from BA Networks has not yet been made. Since the Company does not have control of BA Networks until the transfer of assets occurs, the investment in BA Networks is being accounted for as a deposit under the cost method of accounting as of December 31, 2001 at the original purchase price of $450,000. Upon completion of the transfer of assets the acquisition will be accounted for under the purchase method of accounting. The operations of BA Networks are conducted exclusively in the People's Republic of China ("PRC"). It is at least reasonably possible that the activities of BA Networks, which are conducted in the People's Republic of China, may be disrupted in the near term from factors outside the control of the Company such as from negative effects of economic and political forces.
Revenues
During the three-month period ended March 31, 2002, our main focus was on the spin-off of our subsidiary, PeopleNet International Corporation, which was effectively completed as of February 8, 2002. Upon the spin-off, our shareholders received one share of PeopleNet International Corporation common stock for every seventeen shares of our common stock held as of the record date of January 16, 2002. We had insignificant amount of revenues for this three-month period.
Costs and Expenses
During the three-month period ended March 31, 2002, we incurred $24,599 in salaries and payroll expenses, $14,407 for rent, and $59,839 in general and administrative expenses which included legal and accounting expenses. Interest expense for the period was $1,000.
As a result of foregoing factors, our net loss was ($92,175) for the three-month period ended March 31, 2002 as compared to ($65,485) for the same period in 2001. Net loss per share was unchanged at ($0.003) for this period as compared to the same period in 2001, while weighted average number of shares increased to 27,574,371 from 25,578,706 of the same period last year.
Liquidity and Capital Resources
Stockholders' equity decreased to a negative ($303,778) at March 31, 2002 due to the spin-off distribution of PeopleNet from the Company as of February 8, 2002.
Cash decreased for the three months ended March 31, 2002 by ($491,256) primarily due to a loan to another company that is owned by our largest shareholder Holley Holdings USA. Cash utilized for operations for the three months ended March 31, 2002 was ($129,589). Cash from financing activities was an increase of $31,333.
The Company has historically financed its operating and capital outlays primarily through sales of common stock, loans from stockholders and other third parties and bank financing. The Company's largest shareholder, Holley Holding USA, has provided the funds to the Company in terms of an unsecured loan with no interests, for the Company operational needs. However, there is no assurance that Holley Holding USA will continue to assist the Company in the future.
A payable in the amount of $332,954 was set up to account for payables that were included in the financial statements of PeopleNet International Corporation as a result of the spin-off transaction. As part of the spin-off the Company agreed to reimburse PeopleNet for these liabilities.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In February 2001, a complaint was filed by Chuck Nelson in Court of Common Pleas, Mahoning County in Youngstown, Ohio against the Company for a percentage of the total purse amounts paid to boxers in the Company produced boxing event in China in April 2000, and for a percentage of the television revenue generated thereof. The Company denies all of the rights claimed by Chuck Nelson and will vigorously defend against all of Mr. Nelson's claims.
In October 2001, the Company filed a complaint against a former employee in licensing and marketing activities for breach of contract, breach of fiduciary duty and unjust enrichment, among other causes of action, seeking declaratory relief from the court. A counter claim from the employee was filed in April 2002 naming the Company including all of its subsidiaries as the defendants in the cross-complaint. The Labor Commission of California in December 2001 issued a judgment against the Company including all of its subsidiaries in the amount of $69,170.58 in favor of the employee. This amount has been accrued as of December 31, 2001. Pacific Systems Control Technology has agreed to indemnify all of its subsidiaries including PeopleNet from the liabilities of these two cases including expenses, fees or judgment.
With the exception of the foregoing, no lawsuits or proceedings are currently pending against the Company.
Item 2. Changes in Securities and Use of Proceeds. None
Item 3. Defaults Under Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
In January 2002, the Company's majority shareholders approved the spin-off distribution of a subsidiary, an increase in the authorized number of shares of our common stock to 100,000,000, an increase in the authorized number of shares of our preferred stock to 10,000,000 and increase number of shares available for grant pursuant to the Company's 1997 Employee Stock Option Plan from 1,750,000 to 10,000,000 and the Company's 1997 Non-Employee Directors Stock Option Plan from 200,000 to 500,000.
Item 5. Other Information. None
Item 6. Reports on Form 8-K.
There were no reports on Form 8-K filed during the three-month period ended March 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf on May 20, 2002 by the undersigned, thereunto duly authorized.
PACIFIC SYSTEMS CONTROL TECHNOLOGY, INC.
(Registrant)
By: /s/ Anthony K. Chan
- ------------------------------
Anthony K. Chan
Chief Executive Officer