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AMERICAN PHOENIX GROUP, INC.
930 East Arques Avenue
Sunnyvale, California 94086-4552
INFORMATION STATEMENT
This Information Statement is furnished by the Board of Directors of
American Phoenix Group, Inc., a Delaware corporation (the "Company"), to inform
the stockholders of the Company of the approval of certain corporate actions.
This Information Statement and the accompanying materials will be mailed on or
about _____________, 1997 to holders of record of Common Stock, par value $.001
("Common Stock") and to holders of record of Series A through D Preferred Stock,
par value $01 (collectively, the "Preferred Stock"), of the Company as of the
record date. The record date for determining stockholders entitled to receive
this Information Statement has been established as the close of business on
March 17, 1997. On that date, the Company had outstanding and entitled to vote
28,846,076 shares of Common Stock and 8,000,000 shares of Preferred Stock which
is entitled to vote together with the Common Stock on the matters set forth
herein. Specifically, this Information Statement relates to the following
corporate actions:
1. Stockholders' approval of an amendment to the Company's Certificate
of Incorporation effectuating a one for two reverse stock split of the
issued and outstanding shares of Common Stock.
2. Stockholders' approval of an amendment to the Company's Certificate
of Incorporation increasing the number of shares of Common Stock the Company
is authorized to issue to 100,000,000.
3. Stockholders' approval of an amendment to the Company's Certificate
of Incorporation increasing the number of shares of Preferred Stock the
Company is authorized to issue to 60,000,000.
4. Stockholders' approval of an amendment to the Company's Certificate
of Incorporation changing the Company's name to TAL Wireless Networks, Inc.
During February 1997, holders of 15,289,551 shares of Common Stock and
5,221,463 shares of Preferred Stock (or 55.7% of the total entitled to vote on
the matters set forth herein) consented in writing without a meeting to the
matters set forth herein. As a result, the corporate actions were approved by
the majority required by law and no further votes will be needed. Unless
expressly stated otherwise, numbers of shares do not account for the
contemplated reverse stock split described herein.
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THE COMPANY
INTRODUCTION
American Phoenix Group, Inc., a Delaware corporation ("American
Phoenix" or the "Company") was incorporated in Delaware in May 1994 under the
name Kushi Macrobiotics Corp. The Company is primarily engaged in providing,
through local affiliates, wireless data communications services to customers who
are located principally in developing economies thereby taking advantage of the
increasing demand for alternatives to wire line services in those locations.
The Company was initially engaged in the business of marketing premium
macrobiotic food products. Because the Company's marketing strategies were
unsuccessful, it determined to abandon this business and search for a suitable
merger or acquisition candidate. As a result of its search efforts, effective
September 26, 1996, the Company emerged as the surviving entity in a merger with
American Phoenix Group, Inc., a Nevada corporation ("APG"), and adopted that
company's name. Immediately prior to consummation of the merger, the Company
spun off its food business to its stockholders.
TAAL SHARE EXCHANGE
General
In November 1996, pursuant to an Agreement and Plan of Reorganization
(the "TAAL Agreement"), the Company purchased all issued and outstanding shares
of Tetherless Access Asia Limited, an Australian company ("TAAL"), in
consideration for the issuance of Common Stock and Preferred Stock giving the
shareholders of TAAL (the "TAAL Shareholders") control of the Company (the
"Share Exchange"). In connection with this transaction, the Company sold
substantially all of its assets. It is currently expected that the proceeds of
these sales will be used for the financing of the Company's business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Security Ownership of Certain Beneficial Owners and Management"
and "Certain Relationships and Related Transactions." TAAL and American Phoenix
are together hereinafter sometimes referred to as the "Company."
Issuance of Securities
Under the TAAL Agreement, the TAAL Shareholders were issued 4,000,000
shares of Common Stock and an aggregate of 8,000,0000 shares of Preferred Stock
(the "Preferred Stock") in four series. Each share of Preferred Stock in each
series is automatically convertible, unless converted earlier at the discretion
of the Board of Directors, into three shares of Common Stock, as follows: Series
A on June 1, 1997; Series B on June 1, 2000; Series C December 1, 2000; and
Series D on June 1, 2001. The Preferred Stock has voting rights on an as
converted basis and will vote together with the holders of the Common Stock. The
number of shares of Preferred Stock issuable under the TAAL Agreement and the
number of shares of Common Stock issuable upon conversion of the Preferred Stock
have been adjusted for the reverse stock split described herein. See "Amendments
to the Certificate of Incorporation-Reverse Stock Split." As a result of the
TAAL Agreement and the stock issuances thereunder, the TAAL Shareholders
acquired absolute control of the affairs of the Company.
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In connection with the issuance of the Preferred Stock, the TAAL
Shareholders have each agreed to waive the right to cast more than one vote per
share of Preferred Stock until the implementation of the increase in the shares
of Preferred Stock the Company is authorized to issue. Immediately upon the
increase in the authorized number of shares of Preferred Stock, the Company will
issue an additional 16,000,000 shares of Preferred Stock. In addition, the
Company will amend the terms of the Preferred Stock to provide that each share
of Preferred Stock will be convertible into one share of Common Stock and,
accordingly, will carry one vote. As a result, the TAAL Shareholders will become
the beneficial owners of an aggregate of 24,000,000 shares of Preferred Stock.
See "Amendments to the Certificate of Incorporation--Increase in the Number of
Authorized Shares of Preferred Stock."
Reconstitution of the Board
The parties to the TAAL Agreement agreed that the TAAL Shareholders
would be entitled to designate a majority of the members of the Board of
Directors of the Company. Of the current members of the Board, Messrs. Davis and
Hubbard will remain on the Board. Mr. DiCarlo has already resigned and Mr.
France is expected to resign. The TAAL Shareholders have designated Richard
Redett and Timothy Todhunter to become directors. See "Management."
Sale of Assets
In connection with the consummation of the TAAL Agreement, the Company
sold substantially all its assets, as follows:
1. The Company sold its interest in Marine Turbine Australia Pty. Ltd.
("MTA") to Rubywell Pty. Ltd., a principal stockholder of the Company
("Rubywell"), and the entity from whom the Company acquired the MTA shares
in 1995. In consideration for its reacquisition of MTA and the settlement of
certain debt outstanding, Rubywell has agreed to pay to the Company
royalties on sales by MTA. In addition, Rubywell assigned to the Company a
promissory note in the principal amount of $1,500,000 in complete and full
settlement of MTA's indebtedness to the Company. Payments aggregating
$500,000 have been made to date. An installment in the amount of $500,000
that was due on January 31, 1997 has not been received.
2. The Company sold its interest in the note portfolio acquired from
P.R. Finance & Investment Ltd. (the "Note Portfolio") to Capital Finance
Corporation Pty, Ltd. ("Capital Finance") in consideration for a promissory
note in the amount of $8,600,000 payable in installments. To date one
installment in the amount of $500,000 has been received. The Company has
granted Capital Finance extensions on a $3,000,000 installment that was due
on December 15, 1996 and a $2,000,000 installment that was due on January
31, 1997.
3. The Company sold its interest in Barlile Corp., Ltd. to Clouden Pty.
Ltd, as Trustee for Finance Investment Trust in consideration for $156,000
payable in two installments of $78,000. To date, the second payment which
was due on February 28, 1997, has not been received.
The Company intends to use the proceeds from the sale of these assets
to finance the expansion of its business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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NASDAQ APPLICATION
The Company's Common Stock and Redeemable Purchase Warrants were traded
on the Nasdaq SmallCap Market ("Nasdaq") under the symbols APHX and APHXW,
respectively.
The rules of Nasdaq provide that any Nasdaq-listed company that
experiences a change in control and a change in its business or financial
structure must comply with the criteria for initial listing, which are more
stringent than the requirements for continued listing. In connection with the
Share Exchange, on November 13, 1996, the Company filed an application for
listing on Nasdaq which is pending.
On March 17, 1997, the Company was notified that, pending complete
review of its initial listing application, effective March 18, 1997, the
Company's securities would not continue to be listed on Nasdaq due to various
concerns expressed in Nasdaq's notification to the Company. The Company wishes
to summarize Nasdaq's principal concerns and set forth its responses thereto.
Nasdaq expressed concerns that the transactions involving the
dispositions of the Company's assets in connection with the Share Exchange were
not at "arms-length" and were not "in accordance with just and equitable
principles of trade." The Company strongly disagrees and believes that during
the course of the pending review it will demonstrate to Nasdaq that the
transactions were at arms length. The Company's decision regarding the
dispositions of its assets was reached by the unanimous vote of the directors
who had no interest in the assets being disposed of or the companies purchasing
the assets.
Nasdaq expressed concern about an alleged "lack of fully audited
financial statements." Audited financial statements of the Company and of TAAL
have been provided as at June 30, 1996. The audited financial statements of TAAL
were prepared in accordance with applicable Australian accounting principles,
rather than U.S. generally accepted accounting principles ("GAAP"). TAAL is an
Australian company based in Melbourne, Australia, and the financial statements
were prepared prior to the consummation of the TAAL Agreement. The Company is
advised by its auditors that GAAP is substantially similar to applicable
Australian accounting principles. The financial statements contained in the
Company's Quarterly Report on Form 10-QSB for the three and six months ended
December 31, 1996 were prepared in accordance with GAAP and all of the Company's
future financial statements will be prepared in accordance with GAAP.
Nasdaq expressed concern that the Company is not currently in
compliance with the initial inclusion bid price requirement of $3 per share. In
the 86 trading days commencing with the TAAL Transaction, the bid price
exceeded $3 per share for 61 trading days. The Company has publicly announced
its intention to implement a one for two reverse split of its stock. The Company
believes that, upon implementation of the reverse split, the bid price
requirement of $3 per share will be satisfied.
Nasdaq expressed concern regarding certain individuals with
"disciplinary histories" who were previously associated or had relationships
with the Company. All of these individuals have resigned their positions or
terminated their relationships with the Company, as the case may be.
THE COMPANY'S BUSINESS
Background
Tetherless Access Limited, a California corporation ("TAL US"), was
formed in 1990. In September 1996, TAAL acquired all of the assets of TAL US and
assumed certain of its liabilities. The objective of TAL US was, and the
objective of the Company is, the creation of low cost medium speed wireless data
communications by obviating the need for wire lines in geographic locations,
particularly in developing economies outside the United States, where such lines
are either non-existent or costly to install. The Company believes that there is
a growing need for medium speed wireless services as a result of the following
factors:
- rapid improvements in the performance, and a reduction in the price, of
personal computers resulting in an increase in the demand for these products
by multi-branch businesses;
- the growing need to adapt to the increased speed of data communications as
a result of the emergence of the Transport Control Protocol/Internet
Protocol ("TCP/IP") which is a set of protocols for the transmission of data
used in the Internet and which has become the dominant international
standard for data communications; and
- the desire for continuing modernization of existing business systems in
developing economies.
Particularly in developing economies, conventional wireline
communications companies are not always able to meet the increased demand for an
improvement in the data communications infrastructure for a number of reasons.
First, many locations are too thinly populated to justify the capital
investments required to create such an infrastructure. Second, many of the
existing wirelines are unsuitable for higher speed data communications. Finally,
many of these companies have had long term relationships with existing customers
to whom they provide highly priced services that are extremely profitable. As a
consequence, they usually lack the incentive to reduce the prices required to
make their services attractive and widely available.
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An additional impetus to the growth of the wireless business has been
the proliferation of technology associated with wireless indoor local area
networks and of mobile telephones, which have lead to a sharp reduction in the
price of wireless networking technologies. Therefore, wireless technology has
become a cost effective alternative to conventional wireline systems in many
suburban and rural areas around the world.
The Company believes that the combination of these circumstances has
created a valuable business opportunity that it intends to exploit fully.
TAAL Business
The Company develops and operates public wireless data communications
services in cooperation with partners that are principally located in developing
economies. Its principal customers are multiple-branch businesses in
metropolitan areas that are in need of establishing electronic links between the
various branches and their customers and suppliers by forming an internal
"intranet," or that require high speed access to the Internet.
The Company's primary focus is on medium speed communications ranging
from 56kbps to 2mbps through Company installed and operated public networks. The
Company believes that many businesses require this speed for data communication
purposes. For example, many banks utilize client/server software based around
PC's that require interbranch data communications at such speeds. In addition,
businesses generally require this speed to access the Internet.
The Company believes that connecting clients through public networks
presents important business opportunities for two reasons. First, connecting
networks across metropolitan areas requires specific skills that in-house MIS
departments at business organizations do not usually possess. Generally, the
Company and its local affiliates are capable of providing cost-efficient
services by connecting multiple branches of a business across a metropolitan
area utilizing the special skills required for such assignments. Second, by
installing a network across an area of this size, the Company believes that it
can provide important cost savings by connecting multiple customers to the same
public network.
Services
The Company through its local affiliates provides wireless data
communications services using the TCP/IP protocol at speeds of up to 450 kilo
bits per second. Specifically, the Company links customers to the Internet and
connects multiple customer sites together. The Company's services are provided
by the installation of networks which have a structure similar to a cellular
telephone communications system. The speed, range, and other properties of the
service depend on the particular system used by the customer. The Company
currently has two customer premises systems available:
SUBSPACE 2001(TM) wireless routers that use direct-sequence spread
spectrum and TCP/IP technology. These routers allow the user to create links
to network base sites up to 30 kilometers away. The average user will
operate the system at a speed of 110kbps.
SUBSPACE 2002(TM) wireless routers that use frequency hopping spread
spectrum and TCP/IP technology. These routers allow the user to create links
to network base sites located up to 20 kilometers away. The average user
will operate the system at a speed of 450kbps.
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In public networks, the services provided through the Company's
affiliates are sold in packages consisting of a customer premises wireless
router and an installation kit that will cost the user approximately $2,500.
Installation and public monthly access fees vary by country, but the Company
believes that they are competitive with prices generally charged by local
telephone companies.
The Company, through its affiliates, generally initiates the planning
and installation of the public networks. Once the network has been installed,
the Company or its local affiliates will usually provide the services associated
with public utilities, including customer services, equipment maintenance and
billing.
Sales and Marketing
The Company anticipates that it will primarily target customers located
in developing countries, especially in Asia, the Pacific Rim, the Indian
subcontinent and Africa.
To date, the Company has focused its efforts principally on making
preparations and laying the groundwork for its operations in those locations
where the Company is and will be operating public wireless data networks.
Included in such preparations are identifying suitable local partners, usually
telecommunications companies or Internet service providers, and securing the
necessary regulatory approvals such as operating licenses, spectrum allocation
and tariff approvals.
The Company usually operates through joint ventures with local partners
in each country to create public wireless metropolitan data communications
systems. Generally, such joint ventures provide public wireless metropolitan
internetworking systems, or private internetworks in which geographically
dispersed branches of a single business organization can communicate. Pursuant
to such arrangements, the Company will generally provide the management
expertise, technology and capital required to launch and sustain the networking
systems. The local joint venture partners will usually provide personnel and the
relationships with local government officials that are a prerequisite to the
success of the Company's business on a local level as well as working capital.
The Company has initiated, among others, the following projects:
- A joint venture with a local telecommunications company in Manila,
Philippines. This network provides high-speed wireless public access to the
Internet and private intranet services to customers that include a major
bank, a chain of fast food restaurants and government agencies;
- A joint venture with a local internet service provider in Buenos Aires,
Argentina. This internetwork provides high-speed wireless public access to
the Internet and private intranet services to customers that include a major
bank and the local offices of multinational corporations;
- A joint venture with a branch of the Chinese People's Liberation Army in
cooperation with the Beijing Tourism Administration that is developing a
wireless internet in Beijing to provide Internet and booking services to
hotels; and
- Service agreements with a major retailer and a bank in Australia to link
their rural and fringe urban branches to their respective national
inter-branch computer networks.
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TAAL currently maintains offices in Sunnyvale, California; Melbourne,
Australia; Beijing and Shenzhen, China; Buenos Aires, Argentina; Manila,
Philippines; and Cape Town, South Africa.
Network Equipment Development
The Company is a communications service provider. As a result,
development of network equipment is not considered part of its core business.
Nevertheless, as a consequence of the current lack of availability of equipment
required to access and operate the wireless data communications networks, the
Company engages third parties to develop the radio technology and hardware
necessary for the Company's services to operate. The Company also designs its
own computer software and internetworking systems.
The Company cooperated with Cylink Corporation to modify and
manufacture the radio technology required for the operation of the SubSpace
2001. The radio technology used in the SubSpace 2002 was modified by RDC
Communications to fit the Company's specifications.
The Company anticipates that uniform standards will emerge in the wide
area data communications industry that are likely to lead to an increase in the
supply of suitable equipment. Therefore, it will be less involved in the
development of products required to access and operate its networks.
Competition
Among the Company's principal competitors are the traditional
telecommunications companies that provide wire line services. The Company will
usually benefit to the extent that these companies are unable to deliver wire
lines at competitive prices and without the usual waiting time. As a result, the
Company believes that it is able to compete effectively with these companies,
especially in developing economies.
In developing economies there are a number of operators that provide
wireless network services, most notably data communications via the GSM mobile
telephone networks, that are potential competitors of the Company's services.
However, most of these services are of limited bandwidth, costly and usually
targeted at mobile users.
Additional potential competitors include a number of wireless network
operators, including Advanced Radio Technologies, National Digital Network and
Winstar. These companies utilize a new generation of low cost high speed point
to point microwave equipment. However, these companies operate almost
exclusively in the United States.
The Company utilizes a technology that is generally well-known and
understood. Therefore, there can be no assurance that other companies will not
enter this market and compete effectively with the Company.
PROPERTIES
In September, 1995, TAL US entered into a three-year Second Sublease for
approximately 15,000 square feet of office and warehouse space located in
Sunnyvale, California. The lease currently calls for a monthly payment of
$12,000. Commencing September 1997, monthly payments will be increased to
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$12,750. The Second Sublease is subject and subordinate to a Master Lease dated
October, 1985. In addition, TAL US pays to the sublandlord TAL US's pro rata
share (18.16%) of all costs and expenses of every kind and nature which may be
imposed, at any time, on the sublandlord for the premises pursuant to the Master
Lease or the Sublease (except for Base Rent) including, but not limited to,
additional rent, property taxes, common area maintenance, HVAC, and utilities.
In August 1996, the Company entered into a five-year lease for 2,134 square
fee of office space located in Irvine, California. The lease calls for monthly
payments of $3,777.
In August 1995, the Company entered into a five-year lease for 4,000 square
feet of office space located in Stamford, Connecticut. The lease provides for
monthly payments of approximately $5,000, escalating to $6,000 during the fifth
year of the agreement. The Company moved into the facility in October 1995 and
moved out in September 1996. In September 1996, the Company entered into an
agreement with a subtenant to sublet the office space from the Company for
substantially the same terms and for the same period as the Company's lease with
the landlord. The subtenant will pay rent directly to the landlord during the
term of the agreement. The Company remains liable for performance on the lease
if the subtenant defaults on the agreement.
In August 1995, the Company entered into a five-year lease for 27,000 square
feet of warehouse space located in Parsippany, New Jersey. The lease calls for
monthly payments of approximately $10,000 during the term of the lease. The
Company occupied such space beginning in September 1995 and moved out in April
1996. In April 1996, the Company entered into an agreement with a subtenant to
sublet the warehouse from the Company for substantially the same terms and for
the same period as the Company's lease with the landlord. The subtenant will pay
rent directly to the landlord during the term of the agreement. The Company
remains liable for performances on the lease if the subtenant defaults on the
agreement.
LEGAL PROCEEDINGS
American Phoenix Group, Inc. v. Daniel J. Doud. On August 2, 1995, APG filed
a complaint against Daniel J. Doud ("Doud") in the Superior Court of the State
of California, County of Los Angeles, Case No. BC132728, alleging, inter alia,
Breach of Contract, Breach of Promissory Note, Fraud, Deceit and Negligent
Misrepresentation. The dispute involves the 1993 sale by APG of all of the
issued and outstanding common shares of ECI Construction Services, Inc.
("ECICS"), then a wholly owned subsidiary of APG, for a purchase price of
$750,000 (the "Sale"). Doud agreed to purchase ECICS for $750,00 and executed a
written promissory note in favor of APG. The Sale also required Doud to deliver
500,000 shares of common stock of APG ("Shares") beneficially owned by him to a
collateral account for ECICS"s bonding company, Golden Eagle Insurance Company,
to satisfy a bond which was guaranteed by Doud and APG. In March 1994, and
continuing to the present, Doud has failed to pay to the Company $750,000
pursuant to the written promissory note and to deliver the Shares into the
collateral account. The Company seeks payment under the promissory note and
other relief. Doud has requested arbitration of this controversy.
In 1994, APG rescinded the acquisition of 99.52% of the equity of ECI
France, S.A. formerly known as Handtop France, S.A. Although the transaction was
rescinded, the Company established a liability of $526,000 for obligations to
Banque de Neuflixe, Schlumlberger Mallet and Credit Lyonnais ("Banks"), whereby
the Banks advanced funds to ECI France, S.A. secured by a guarantee from the
Company. On
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May 16, 1995, Credit Lyonnais was awarded a court judgment in France against the
Company for approximately $300,000 principal amount plus interest from July 28,
1994.
Daniel J. Doud v. American Phoenix Group, Inc. On November 8, 1995, Daniel
J. Doud ("Doud") filed a complaint against APG in the Superior court of the
State of California, County of Los Angeles Case No. SC039240 alleging inter
alia, breach of contract, breach of promissory note and unjust enrichment. Doud
further alleges that he entered into an Employment Agreement dated March 1, 1994
with APG whereby APG agreed to pay Doud $84,000 per year plus certain benefits,
including a signing bonus; $4,200 for reimbursable costs of health insurance;
$8,100 for moving expenses; $67,000 for travel expenses; and $4,200 for auto
allowance in exchange for Doud's future services to be rendered for APG. Doud
also asserts that on November 9, 1993, he entered into a Business Loan Agreement
with Handtop Technologies, S.A. to receive $325,000 plus interest at the rate of
8.5 percent per annum with a maturity date of June 30, 1994, and that his
obligation was subsequently assigned to and undertaken by APG. APG disputes the
validity of the employment agreement, the validity of the business loan
agreement and disputes that Doud rendered any services to APG. The Company has
numerous defenses to this complaint and intends to vigorously defend this
action.
The Company is also party to various suits and claims incidental to its
business. In the opinion of management, the ultimate disposition of these
proceedings will not have a material adverse effect on the Company's financial
position or results of operations.
Threatened Claims
On July 6, 1995, the Franchise Tax Board of the State of California ("FTB")
served APG with a Notice of Corporation Tax Deficiency demanding that APG pay
$93,434.65 in delinquent income taxes for the period August 1990, August 1992
and August 1993, file all past due returns and pay the total of all tax,
penalties and interest due for each of the above referenced years. These
assessments arise from federal income tax amounts assessed by the FTB. The
Company disputes that any of this assessment is due. In addition to other
remedies, the FTB has suspended the Company's foreign corporation qualification
in California.
In August 1995 APG entered into an employment agreement with its then
President, Wallace N. Seward. The agreement provided for an annual base salary
of $120,000. In the event of a termination by the Company other than for cause
or due to death or disability, the Company was to pay a sum of $250,000. The
Company has not made any payments under the agreement. Mr. Seward has advised
the Company in writing of his claim in the sum of $500,000. The Company believes
that it is close to settling this matter.
CHANGE IN ACCOUNTANTS
On October 30, 1996, the Company dismissed Israeloff, Trattner & Co. as its
independent accountants ("Israeloff"). This action had been approved by the
Company's Board of Directors. Israeloff's reports on the Company's financial
statements for the years ended December 31, 1994 and 1995 contained "going
concern" qualifications. Otherwise, during the past two years Israeloff did not
issue a report on the Company's financial statements that either contained an
adverse opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
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During the period of their engagement from September 1994 until October 30,
1996, there were no disagreements between the Company and Israeloff on any
matter of accounting principles or practices, financial statement disclosure, or
audit scope and procedure, which disagreement, if not resolved to the
satisfaction of Israeloff, would have caused them to make reference to the
subject matter of the disagreement in connection with any report that was to
have been, or will be, prepared for the Company.
On October 30, 1996 the Company's Board of Directors appointed Hollander
Gilbert & Co. ("Hollander") as its independent accountants. Prior to such
engagement, the Company did not consult with Hollander regarding the application
of accounting principles to a specified transaction, or the type of audit
opinion that may be rendered with respect to the Company's financial statements.
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AMENDMENTS TO ARTICLES OF INCORPORATION
The Board of Directors of the Company and the holders of a majority of the
shares entitled to vote thereon have adopted by written consent in lieu of a
meeting a proposal declaring advisable amendments to the Articles of
Incorporation of the Company to (i) effectuate a one for two reverse stock split
of the Company's currently issued and outstanding Common Stock (the "Reverse
Stock Split"), (ii) increase the number of shares of Common Stock the Company is
authorized to issue to 100,000,000, (iii) increase the number of shares of
Preferred Stock the Company is authorized to issue to 60,000,000, and (iv)
change the Company's name to TAL Wireless Networks, Inc. (collectively, the
"Amendments"). The Company is currently authorized to issue 50,000,000 shares of
Common Stock, $.001 par value and 10,000,000 shares of Preferred Stock. As of
the date hereof, there are issued and outstanding 28,846,076 shares of Common
Stock and 8,000,000 shares of Preferred Stock. The Amendments will become
effective upon the filing of a certificate of amendment to the Company's
certificate of incorporation with the Delaware Secretary of State. It is
anticipated that the filing will take place on or about ___________, 1997.
REVERSE STOCK SPLIT
The Board of Directors of the Company and a majority of the Common Stock
entitled to vote thereon have approved a one for two reverse stock split (the
"Reverse Stock Split"). Adoption of the Reverse Stock Split will reduce the
presently issued and outstanding shares of Common Stock from 28,846,076 to
approximately 14,423,038 (as a result of rounding, the actual number may be
slightly higher). The Company believes that the decrease in the number of shares
of Common Stock outstanding as a consequence of the proposed Reverse Stock Split
should increase the per share price of the Common Stock, which may encourage
greater interest in the Common Stock and possibly promote greater liquidity for
the Company's stockholders. However, the increase in the per share price of the
Common Stock as a consequence of the proposed Reverse Stock Split may be
proportionately less than the decrease in the number of shares outstanding. In
addition, any increased liquidity due to any increased per share price could be
partially or entirely off-set by the reduced number of shares outstanding after
the proposed Reverse Stock Split. Nevertheless, the proposed Reverse Stock Split
could result in a per share price that adequately compensates for the adverse
impact of the market factors noted above. There can, however, be no assurance
that the favorable effects described above will occur, or that any increase in
per share price of the Common Stock resulting from the proposed Reverse Stock
Split will be maintained for any period of time.
No fractional shares will be issued. All fractional interests resulting from
the Reverse Stock Split will be increased to the next higher whole number of
shares. The Company believes that the approximate total number of beneficial
holders of the Common Stock of the Company is in excess of 1,500. After the
Reverse Stock Split the Company estimates that it will continue to have
approximately the same number of stockholders.
The number of issued shares after the Reverse Stock Split is
approximate. Except for changes resulting from the Reverse Stock Split, the
rights and privileges of holders of shares of Common Stock will remain the same,
both before and after the proposed Reverse Stock Split.
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The Reverse Stock Split will also affect the number of shares of Common
Stock issuable upon exercise of outstanding warrants. However, the number of
shares of Common Stock issuable upon conversion of the Preferred Stock disclosed
herein has been adjusted for the Reverse Stock Split.
There can be no assurance that the market price of the Common Stock
after the proposed Reverse Stock Split will be proportionately greater than the
market price before the proposed Reverse Stock Split, or that such price will
either exceed or remain in excess of the current market price.
Federal Income Tax Consequences
The following information is based on discussions with counsel. No
opinion of counsel has been obtained. Stockholders are advised to consult with
their own tax advisors for more detailed information relating to their
individual federal state and local tax circumstances.
1. The proposed Reverse Stock Split will be a reorganization
described in section 368(a)(1)(E) of the Internal Revenue Code of 1986, as
amended (the "Code").
2. The Company will recognize no gain or loss as a result of the
proposed Reverse Stock Split.
3. Stockholders will recognize no gain or loss to the extent that
currently outstanding shares of Common Stock are exchanged for new shares of
Common Stock pursuant to the proposed Reverse Stock Split.
4. The tax basis of the new Common Stock received in exchange for
Common Stock pursuant to the proposed Reverse Stock Split will be the same as
the stockholders' basis in the stock exchanged. Therefore, the new shares of
Common Stock in the hands of a stockholder will have an aggregate basis for
computing gain or loss equal to the aggregate basis of shares of Common Stock
held by that stockholder immediately prior to the proposed Reverse Stock Split.
5. Stockholders whose fractional interests will be rounded up to
the next whole number of shares will recognize gain equal to the difference
between the fractional amount of shares owned by them and the whole number of
shares they receive pursuant to the proposed Reverse Stock Split. Assuming that
such stockholders have held their Common Stock as a capital asset and have held
their stock for more than one year, the gain recognized upon the receipt of the
whole shares in lieu of fractional shares will be capital gain.
INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company is currently authorized to issue 50,000,000 shares of
Common Stock of which as of the date hereof a total of 28,846,076 were
outstanding. An increase in the authorized shares of Common Stock to
100,000,0000 will enable the Company to issue to the TAAL Shareholders shares
upon conversion of the Preferred Stock in connection with the TAAL Agreement.
See "Share Exchange between the Company and TAAL." In addition, sufficient
shares will be readily available for use in any acquisition or financing, upon
the exercise of outstanding warrants or upon the exercise of stock options, if
granted.
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Shares that are presently authorized but not issued and outstanding are
issuable at any time and from time to time, by action of the Board of Directors
without further authorization from the Company's stockholders, except as
otherwise required by applicable law or rules and regulations to which the
Company may be subject, to such persons and for such consideration as the Board
of Directors determines. This will permit the Company to consider financings,
acquisitions or other transactions which may require the issuance of shares of
Common Stock. The Company is not currently considering any financing
transactions which would involve the issuance of Common Stock and, other than in
connection with the Share Exchange, the Company has no commitments which would
require the issuance of any shares of Common Stock.
Current holders of Common Stock of the Company have no preemptive
rights to acquire or subscribe to any of the shares of Common Stock which are
authorized but not issued and outstanding. Voting rights afforded to shares of
Common Stock upon their issuance would have a dilutive effect on the voting
power of the outstanding Common Stock of the Company. Issuance of any of such
additional shares of Common Stock could also have a dilutive effect on
stockholders' equity in the Company.
INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK
The Company is currently authorized to issue 10,000,000 shares of
Preferred Stock of which as of the date hereof 8,000,000 were outstanding as a
result of the issuances under the TAAL Agreement. Each outstanding share of
Preferred Stock is convertible into three shares of Common Stock. The Preferred
Stock has voting rights on an as converted basis and will vote together with the
holders of the Common Stock. The number of shares of Preferred Stock issuable
under the TAAL Agreement and the number of shares of Common Stock issuable upon
conversion of the Preferred Stock have been adjusted for the reverse stock split
described herein.
In connection with the issuance of the Preferred Stock, the TAAL
Shareholders have each agreed to waive the right to cast more than one vote per
share of Preferred Stock until the implementation of the increase in the shares
of Preferred Stock the Company is authorized to issue. Immediately upon the
increase in the authorized number of shares of Preferred Stock, the Company will
issue an additional 16,000,000 shares of Preferred Stock. In addition, the
Company will amend the terms of the Preferred Stock to provide that each share
of Preferred Stock will be convertible into one share of Common Stock and,
accordingly, will carry one vote. As a result, the TAAL Shareholders will become
the beneficial owners of an aggregate of 24,000,000 shares of Preferred Stock.
An increase in the authorized shares of Preferred Stock to 60,000,000
will enable the Company to issue to the TAAL Shareholders the balance of the
16,000,000 shares of Preferred Stock in four series they are entitled to receive
under the TAAL Agreement as set forth above. In addition, shares of Preferred
Stock will be readily available for use in any acquisition or financing or upon
the exercise of options, if granted.
Shares of Preferred Stock that will be authorized but not issued are
issuable at any time and from time to time, by action of the Board of Directors
without further authorization from the Company's stockholders, except as
otherwise required by applicable law or rules and regulations to which the
Company may be subject, to such persons and for such consideration as the Board
of Directors determines. This will permit the Company to consider financings,
acquisitions or other transactions which may require the issuance of shares of
Preferred Stock. The Company is not currently considering
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any financing transactions which would involve the issuance of Preferred Stock
and, other than in connection with the Share Exchange, the Company has no
commitments which would require the issuance of any shares of Preferred Stock.
The issuance of preferred stock by the Board of Directors could
adversely affect the rights of the holders of Common Stock. For example, such
issuance could result in a class of securities outstanding that would have
preferences with respect to voting rights and dividends and in liquidation over
the Common Stock, and could (upon conversion or otherwise) enjoy all of the
rights appurtenant to Common Stock. The authority possessed by the Board of
Directors to issue preferred stock could potentially be used to discourage
attempts by other to obtain control of the Company through a merger, tender
offer, proxy contest or otherwise by making such attempts more difficult or more
costly to achieve. Other than under the TAAL Agreement, there are no agreements
or understandings regarding the issuance of preferred stock.
CHANGE OF NAME
As a result of the Share Exchange, the Company will be controlled by
the TAAL Shareholders In addition, it is engaged in TAAL's business. To more
accurately reflect its new direction, the Board of Directors and a majority of
the Shares entitled to vote thereon have determined that the Company should
change its name to "TAL Wireless Networks, Inc."
VOTE REQUIRED
Under Delaware law any amendments to the Company's certificate of
incorporation require the affirmative vote or consent of a majority of the
shares entitled to vote thereon. Shares entitled to vote on the matters set
forth herein include the Common Stock and the Preferred Stock which votes
together with the Common Stock. The required majority was obtained by written
consent in lieu of a meeting with respect to all Amendments and no further votes
will therefore be required. The Board of Directors does not intend to solicit
any proxies or consents from any other stockholders in connection with this
action.
STOCKHOLDERS ARE URGED TO READ THE AMENDMENTS, THE TEXT OF WHICH IS
ATTACHED AS ATTACHMENT A TO THIS INFORMATION STATEMENT.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto included elsewhere
herein. As a result of the merger with Tetherless Access Asia Limited ("TAAL")
which for accounting purposes was treated as a reverse acquisition, the Company
adopted the fiscal year end of TAAL. As a consequence, the results for the years
ended June 30, 1996 and 1995 are those of TAAL.
Overview
The Company is primarily engaged in providing, through local
affiliates, wireless data communications services to customers who are located
principally in developing economies thereby taking advantage of the increasing
demand for alternatives to wire line services in those locations.
On October 24, 1996, the Company entered into an agreement to acquire
all of the capital stock of TAAL in exchange for shares of Common Stock and
Preferred Stock to be issued to the TAAL Shareholders. On a fully diluted basis,
the shareholders of TAAL are the beneficial owners of 60% of the Company's
Common Stock. The TAAL transaction was consummated on November 13, 1996. As a
condition to closing, the Company was required to sell its business assets and
make the proceeds generated from such disposition available to fund the business
of TAAL. As a result, the Company's MTA/Masling subsidiary and its Barlile and
note portfolio investments were sold for a total consideration of approximately
$10.3 million in promissory notes.
Results of Operations for the three and six month period ended December
31, 1996 and 1995
Total revenues during the three and six months ended December 31, 1996,
were approximately $244,000 and $352,000, respectively, compared to $203,000 and
$241,000 in the comparable periods in 1995. TAAL's principal source of revenue
historically has been sales of wireless network hardware. The Company has
changed its mission to that of a network service provider. The Company derives
revenues from recurring fees charged to users of the Company's wireless network
systems. As a result, the Company's receipt of revenues from providing network
services will be delayed while the Company builds and installs networks and
obtains subscribers. In addition, the Company expects to allocate substantially
all available revenues into working capital and investment into business
expansion. Consequently, due to these front end expenditures in building a
network infrastructure, the Company's management does not expect the Company to
realize positive cash flow for several years until the network infrastructure
has been established.
Total general and administrative expenses were approximately $1,652,000
and $2,569,000 for the three and six months ended December 31, 1996, compared to
$883,000 and $1,510,000 in the comparable periods in 1995. The increased general
and administrative expenses reflect key management and other personnel additions
at the Company's operating locations and in the corporate headquarters located
in Sunnyvale, CA.
The Company recorded interest income of approximately $142,000 during
the three and six months ended December 31, 1996. This income reflects the
amortization of the present value discount recorded for certain notes received
in payment of the Company's disposition of assets in November 1996.
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The remaining discount balance at December 31, 1996 of $84,000 will be fully
amortized by February 28, 1997.
During the last six months ended December 31, 1996, the Company
incurred total interest expense of approximately $59,000, reflecting accrued
interest on a $2.2 million note payable. The Company expects to pay the note and
accrued interest with the issuance of common stock during the three months
ending March 31, 1997.
Results of Operations for the fiscal years ended June 30, 1996 and 1995
Total revenues during the fiscal year ended June 30, 1996 were
$575,245. There were no revenues during the fiscal year ended June 30, 1995.
Total selling and administrative expenses for the year ended June 30,
1996 were $3,649,382 compared to $1,542,699 for the year ended June 30, 1995.
This increase was due to hiring of additional management and other personnel at
the Company's operating locations and at its corporate headquarters located in
Sunnyvale, California.
The Company recorded interest income of $10,582 compared to $19,440 in
1995. The decrease in interest income was due to the Company's decreased cash
position in 1996.
The Company had working capital of $422,218 at June 30, 1996, an
increase of $230,198 over the $192,020 working capital at June 30, 1996. The
increase in working capital was principally due to cash received from the sale
of the Company's securities.
Liquidity and Capital Resources
The Company had working capital of approximately $9.9 million at
December 31, 1996, an increase of over $9.5 million over the $420,000 working
capital deficit at June 30, 1996. The increase in working capital is principally
due to approximately $8.1 million net assets ($10.3 million gross proceeds less
$2.2 million related debt) to be realized from the disposition of its
discontinued operations. At December 31, 1996, the Company had total cash of
approximately $873,000 and $9.7 million notes receivable due by February 28,
1997.
The Company is in various stages of implementing wireless networks in
Argentina, Australia, New Zealand, China, Philippines and Alaska. Provided that
the $10.3 million generated by its sale of assets is received, the Company
believes that its existing capital resources are likely to be sufficient to fund
the planned costs of developing existing networks, launch new network systems,
and meet operating expenses for the next 12 months. The planned use of the
proceeds from the sale of the Company's assets during the next 12 months
includes: $2.4 million for working capital which primarily will be allocated to
the purchase of inventory; $2 million for capital equipment expenditures for
network systems; $2.6 million costs associated with installing and developing
network systems; $700,000 for product development; $1.2 million for sales and
marketing costs; and $1.4 million for overhead and general corporate purposes.
However, if for any reason these funds were unavailable to the Company, the
Company's plan of operation would be materially and adversely affected.
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The Company has received a loan of $2,000,000 from a bank, guaranteed
by one of its shareholders. The proceeds of the loan will be used to fund its
operations for the short term until the notes issued to the Company in
connection with the disposition of its assets have been paid.
To provide additional capital, the Company recently commenced a private
placement of up to $7.5 million in Common Stock at $3.00 per share. The
investors will also receive warrants to purchase a total of 1,500,000 shares of
Common Stock. To date the Company has received approximately $1,000,000 in this
private placement. There can be no assurance that this private placement will be
completed in its entirety.
In connection with the Company's disposition of its notes portfolio in
November 1996, the Company received a promissory note in the principal amount of
$8.6 million from Capital Finance Corporation Pty. Ltd. ("Capital Finance"). The
Company received an initial payment of $500,000. Payments of $2 million and $3
million that were due on December 15, 1996 and January 31, 1997, respectively,
have not been received. At Capital Finance's request, the Company granted
Capital Finance an extension until April 30, 1997. Although the Company believes
that Capital Finance will satisfy its obligations to the Company, there can be
no assurance that payments will be made. If for any reason Capital Finance does
not pay off the notes, the Company's liquidity and ability to fund its future
operations is likely to be substantially reduced.
In connection with the sale of certain shares of the Company's Common
Stock by Rubywell Pty. Ltd. ("Rubywell") to Budbox, Inc. ("Budbox"), Rubywell
assigned Budbox's promissory note in the amount of $1.5 million in payment of
sums owed to the Company by Rubywell. The Company received the first two
payments totaling $500,000. At the request of Budbox, the Company granted it an
extension until April 30, 1997. The Company is confident that Budbox will meet
its obligations to the Company. The Company does not expect the non-payment to
have a material adverse impact on its working capital or liquidity, assuming the
Company receives the loan from a shareholder as described above, or receives the
payments under the notes in connection with the disposition of its assets.
In connection with the sale of the Company's interest in Barlile Corp.,
Ltd. to Clouden Pty. Ltd., as Trustee for Finance Investment Trust, the Company
received two promissory notes in the amount of $78,000 each. To date, the second
payment which was due on February 28, 1997, has not been received.
In September 1996, the Company loaned $200,000 to Vancouver Development
Company ("VDC") in exchange for which it received a promissory note from VDC
payable on or about November 11, 1996. The loan is currently in default. The
loan was made in connection with purported agreements entered into in November
1995 which provided for the acquisition of VDC by the Company and the employment
of its principal. These purported agreements have since been rescinded.
From time to time the Company seeks to use equity financing to
consummate acquisitions or to meet its outstanding obligations. The Company
negotiated the payment of a note with an approximate balance of $2.3 million by
issuing approximately 856,000 shares of the Company's Common Stock at $2.75 per
share, effective November 30, 1996. In addition, the Company negotiated the
payment of approximately $1.7 million in accrued fees and expenses to various
parties, which were incurred during the year ended August 31, 1996, by issuing
shares of Common Stock.
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MANAGEMENT
OFFICERS AND DIRECTORS
The following sets forth the name and age, present position(s) with the
Company, principal business occupations and committee service for the last five
years of each person who is presently a director or executive officer of the
Company, as well as all of the TAAL designees. Under the TAAL Agreement, the
TAAL Shareholders have the right to designate a majority of the Company's Board
of Directors. On __________, 1997, the TAAL-designated individuals will by Board
action be elected to the Company's Board of Directors. Stockholders are not
voting on the initial election of these individuals. Mr. France is expected to
resign from the Board.
NAME AGE POSITION TO BE HELD
John Davis 41 Chief Executive Officer and Director
Jay W. Hubbard 72 Director
Daniel A. France 48 Director
John Davis has practiced as an attorney in Australia for the past 18
years and has specialized in commercial and tax jurisdictions. Since 1988, he
has also been a Director and Chief Executive Officer of Kamisha Corporation
Limited, a licensed securities dealer in Australia. Mr. Davis is on the Board of
various other companies which are active in managed futures, property
syndication, agribusiness, finance and technology industries.
Jay W. Hubbard is a native of California, who served in the United
States Marine Corps. from 1940 to 1975 as an Infantry Officer (WWII) and as a
Fighter Attach Pilot (Korean and Vietnam Wars). Mr. Hubbard retired as Brigadier
General in December 1972. Mr. Hubbard is a graduate of the National War college
and holds an M.S. in International Affairs from The George Washington
University. He has post-military experience in residential development and
served as a Consultant-Interim Chief Executive Officer/Chief Operating Officer
steering public companies through Chapter 11 reorganizations.
Daniel A. France was a co-founder of the Company and served as its Vice
President/Finance and Chief Financial Officer from 1994 to February 1997. Mr.
France is a CPA, beginning his career in public accounting with Peat, Marwick,
Mitchell & Co., in June 1973. From 1976 until 1989, Mr. France held senior
accounting and financial positions with CBS (June 1976 to April 1981), the RCA
Corporation (May 1981 to January 1986) and Citibank, N.A. (January 1986 to March
1987). From April 1988 until May 1992, he served as Vice President/Finance of
Sonin, Inc., a privately-held manufacturer of electronic tools. Mr. France was
the Chief Financial Officer of Natural Child Care, Inc. from May 1992 until
September 1993. Following its mergers with Winners All International, Inc., he
maintained its accounting records on a part-time basis until August 1994. He
also maintained the accounting records of Light Savers USA, Inc. from February
1994 until December 1994 when he resigned to devote full time to the Company.
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TAAL's designees to the Company's Board are:
NAME AGE POSITION TO BE HELD
Richard J. Redett 51 Chief Financial Officer, Secretary and Director
Timothy L. Todhunter 63 Director
Richard Redett was the founder and has been a principal of The Redett
Management Group, a corporate consulting firm specialized in corporate
turnarounds, mergers and acquisitions and debt restructuring, since its
inception in 1978. Prior thereto, he held executive positions with Danis
Industries Corporation and was a management consultant with Deloitte & Touche
LLP. Mr. Redett holds a Bachelor of Science in Industrial Management and an MBA
from the University of Cincinnati.
Timothy Todhunter was a director TAAL prior to the consummation of the
Share Exchange. In addition, he has been the Chairman of Access Systems Pty Ltd,
a multimedia software company, since 1994, and a director of the following
entities: The Australia Institute, a policy research organization, since 1995,
Australian Retirement Fund, since 1990, Hotel Leisure and Tourism Trust of
Australia, a trust engaged in developing and managing assets in the leisure and
tourism industry, of which he has been Chairman since its inception in 1996, JGL
Investments Group Retirement Fund since 1990, ISPT Pty Ltd, a real estate
holding company since 1994. Mr. Todhunter was the President of the Council of
Textile and Fashion Industries of Australia from 1993 until 1996. Mr. Todhunter
holds a Masters degree from Cambridge University, England, and is a fellow at
the Australian Institute of Management.
BOARD OF DIRECTORS
Each director is elected at the Company's annual meeting of
stockholders and holds office until the next annual meeting of stockholders, or
until his successor is elected and qualified. At present, the Company's bylaws
require no fewer than one director. The bylaws permit the Board of Directors to
fill any vacancy and the new director may serve until the next annual meeting of
stockholders or until his successor is elected and qualified. Officers are
elected by the Board of Directors and their terms of office are, except to the
extent governed by employment contracts, at the discretion of the Board.
COMPENSATION OF DIRECTORS
It is contemplated that the Company's directors will be compensated for
attending Board meetings. The amounts of such compensation are to be determined.
EMPLOYMENT AGREEMENTS
In June 1996, the Company entered into a two-year employment agreement
with Daniel France, its former Chief Financial Officer. The agreement is
automatically renewable for one year periods. The agreement provides for a base
annual salary of $115,000, subject to adjustment based on the Consumer Price
Index and merit increases as recommended by the Board of Directors. The
agreement also provides for a performance bonus. In addition, the agreement
entitles Mr. France to a monthly car allowance of $600 and, for a period of six
months, a monthly housing allowance of $1,500. Mr. France also received a one
time relocation allowance of $25,000 in connection with the Company's move from
Connecticut
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to California. The Company is currently negotiating a termination of Mr.
France's employment agreement.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company during the two fiscal years ended June 30, 1996 (i) to its Chief
Executive Officer and (ii) to the three highest paid employees of the Company
whose cash compensation exceeded $100,000 per year in any such year (other than
the individuals listed in the table, no employee of the Company received
compensation in excess of $100,000):
SUMMARY COMPENSATION TABLE(1)(2)(3)
ANNUAL COMPENSATION
-------------------
(A) (B) (C) (D) (E)
YEAR ENDED ALL OTHER
NAME/PRINCIPAL POSITION JUNE 30 SALARY($) BONUS COMPENSATION
- ----------------------- ------- --------- ----- ------------
Michio Kushi 1996 $52,000 -- --
Chief Executive Officer(4) 1995 $30,333 -- --
Dan Almagor 1996 $90,000 -- --
Chief Executive Officer(5) 1995 -- -- --
Daniel A. France 1996 $77,138 $ 9.702 --
Chief Financial Officer 1995 $43,750 -- --
Rodney C. Lewis 1996 $77,138 $ 4,851 --
VP, Sales and Marketing(6) 1995 $43,750 -- --
(1) The above compensation does not include the use of an automobile and
other personal benefits, the total value of which do not exceed as to
any named officer or director or group of executive officers the lesser
of $50,000 or 10% of such person's or persons' cash compensation.
(2) Pursuant to the regulations promulgated by the Securities and Exchange
Commission, the table omits columns reserved for types of compensation
not applicable to the Company.
(3) None of the individuals listed in the table above received any
long-term incentive plan awards during the fiscal year.
(4) Mr. Kushi became CEO on April 26, 1996 and resigned effective September
26, 1996.
(5) Mr. Almagor became CEO on December 22, 1995 and resigned on April 26,
1996.
(6) Consists of employment contract settlement payments accrued at August
31, 1995 and paid in September 1996.
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STOCK OPTION PLANS
The Company's stockholders and Board of Directors have adopted a Stock
Bonus Plan (the "Bonus Plan") for the Company's employees and consultants. The
Company has reserved an aggregate of 100,000 shares of Common Stock for issuance
pursuant to the Bonus Plan. The Board of Directors and stockholders of the
Company also have adopted a Stock Option Plan (the "Option Plan," together with
the Bonus Plan, the "Plans") as an incentive for, and to encourage share
ownership by, the Company's officers, directors and other key employees and/or
consultants. The Option Plan provides that options to purchase a maximum of
250,000 shares of Common Stock (subject to adjustment in certain circumstances)
may be granted under the Option Plan. The Option Plan also allows for the
granting of stock appreciation rights ("SARs") in tandem with, or independently
of, stock options. Any SARs granted will not be counted against the 250,000
limit. The Company has orally agreed with the underwriter of its initial public
offering not to grant any SARs for two years after its initial Public Offering
and until the Company has a profitable quarter.
The purpose of the Option Plan is to make options (both "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"), and non-qualified options) and "stock
appreciation rights" (with non-qualified options only) available to certain
officers, directors and other key employees and/or consultants of the Company in
order to give such individuals a greater personal interest in the success of the
Company and, in the case of employees, an added incentive to continue and
advance in their employment.
The Plans are administered by the majority vote of a Committee (the
"Committee") appointed by the Board of Directors and comprised of at least two
members of the Board who, in the case of the Option Plan, are not eligible to
receive options, other than pursuant to a formula, it being intended that such
plan shall qualify under Rule 16b-3 as promulgated pursuant to the Securities
Exchange Act of 1934, as amended. The Committee will designate those persons to
receive grants under the Plans and determine the number of shares and/or
options, as the case may be, to be granted and the price payable for the shares
of Common Stock thereunder. The price payable for the shares of Common Stock
under each incentive stock option will be fixed by the Committee at the time of
the grant, but most be not less than 100% (110% if the person granted such
option owns more than 10% of the outstanding shares of Common Stock) of the fair
market value of Common Stock at the time the option is granted.
The Company agreed with the underwriter of its initial public offering
that, until August 11, 1997, it will not issue any securities under any of the
Plans at less than the fair market value of the Common Stock on the date of
grant. The Company also agreed that, until such date, it will not register more
than 100,000 shares of Common Stock underlying the options issuable under the
Option Plan, provided, that unless otherwise consented to by the underwriter of
its initial public offering, any options granted which will be exercisable into
registered stock must provide that the options will not be exercised for six
months following the date of grant and an aggregate of not more than 25,000
options can vest during each of the first two years following the date of this
Prospectus.
No options or SARs were granted during the last fiscal year under the
Plans. However, subsequent to the end of the most recent fiscal year, the Board
has resolved to grant options to a number of employees, consultants and other
persons associated with the Company.
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the fiscal year ended June 30, 1996, its officers,
directors and greater than ten-percent beneficial owners complied with their
Section 16(a) filing requirements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 11, 1997, information
regarding the beneficial ownership of the Company's Common Stock based upon the
most recent information available to the Company for (i) each person known by
the Company to own beneficially more than five (5%) percent of the Company"s
outstanding Common Stock, (ii) each of the Company's officers and directors and
(iii) all officers and directors of the Company as a group. The "as adjusted"
columns set forth the number of shares of Common Stock (and the percentage of
total outstanding) that will be beneficially owned by the afore-mentioned
persons giving effect to the issuance of the Preferred Stock in connection with
the acquisition by the Company of TAAL and the issuance of 48,000,000 shares of
Common Stock upon conversion of the Preferred Stock (which number for purposes
hereof has not been adjusted for the Reverse Stock Split). See "Business--
General, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Certain Relationships and Related Transactions."
Unless otherwise indicated, each stockholder's address is c/o the Company, 930
East Arques Avenue, Sunnyvale, California 94086-4552.
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SHARES OWNED BENEFICIALLY SHARES OWNED BENEFICIALLY
AND OF RECORD (1) AS ADJUSTED (2)
-------------------------- -------------------------
Name and Address No. of Shares % of Total No. of Shares % of Total
- ---------------- -------------- ---------- ------------- ----------
John Davis (3) 169,384 * 335,336 *
Patrick N. DiCarlo 2,096,070 7.3 2,096,070 2.7
Daniel France 265,046 * 265,046 *
Jay Hubbard 21,335 * 21,335 *
Consortium Investments Group 1,849,899 6.4 4,848,686 5.9
Level 7
575 Bourke Street
Melbourne, Australia 3000
P.R. Finance & Investment Ltd. 3,413,600 11.8 3,413,600 4.4
2001 Leeward Highway
Providenciales
British West Indies
Rubywell Pty. Ltd. 1,706,800 5.9 1,706,800 2.2
Level 20
307 Queen Street
Brisbane, Australia
Greenchip Emerging Growth (4) 1,045,032 3.6 13,585,411 17.9
Level 15
600 Bourke Street
Melbourne, Australia 3000
Greenchip Investment Ltd. (4) 1,045,032 3.6 13,585,411 17.9
Level 15
600 Bourke Street
Melbourne, Australia 3000
All Officers and Directors as a 455,765 1.6 612,717 *
Group (3 persons) (3)
- --------------------
* Less than 1%
(1) Includes shares issuable within 60 days upon the exercise of all
options and warrants. Shares issuable under options or warrants are
owned beneficially but not of record.
(2) The shares of Common Stock issuable upon conversion of the Preferred
Stock have voting rights on an as converted basis. As a consequence,
such shares of Common Stock are deemed to be outstanding for purposes
of calculating the percentage ownership of all persons listed in the
"as
23
24
adjusted" columns. The holders of the Preferred Stock have waived their
right to cast more than one vote per share of Preferred Stock until the
implementation of the increase in the number of shares of Preferred
Stock the Company is authorized to issue.
(3) Consists of shares held by corporations of which Mr. Davis is a
director. In such capacity he shares voting power over said shares.
(4) Includes shares of Common Stock beneficially owned by the Greenchip
Emerging Growth Fund and the Greenchip Investment Ltd. Also includes
262,261 shares of Common Stock beneficially owned by Greenchip
Opportunities Ltd. The "as adjusted" column also includes 3,409,396
shares of Common Stock beneficially owned by Greenchip Opportunities
Ltd.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 13, 1996, the Company consummated the purchase of all
issued and outstanding securities of TAAL in consideration for the issuance of
4,000,000 shares of Common Stock and an aggregate of 8,000,000 shares of
Preferred Stock which were issued in four series and which are each convertible
over a period from six months to four years into three shares of Common Stock.
On a fully diluted basis, the former shareholders of TAAL will hold
approximately 60% of the Company's Common Stock. Under the terms of the
agreement, the former shareholders of TAAL have the right to appoint the
majority of the members of the Board of Directors of the Company.
John Davis, a director of the Company and of TAAL, abstained from
voting on the transaction in his capacity as a director of the Company. In
addition, he resigned his position with TAAL shortly before the transaction was
consummated.
On February 27, 1996, the Company acquired from P.R. Finance &
Investment Ltd. ("P.R. Finance") a note portfolio valued at approximately $9.7
million in exchange for 1,280,017 shares of the Company's common stock and a
promissory note for $3,000,000. Rubywell Pty. Ltd ("Rubywell") transferred its
2,133,361 shares of the Company's common stock to P.R. Finance as additional
consideration for the purchase of the loan portfolio. Both P.R. Finance and
Rubywell are principal stockholders of the Company. In November 1996, the
Company sold its interest in the note portfolio.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
In connection with the Share Exchange, certain corporations of which
John Davis is a director are entitled to receive in the aggregate 51,590 shares
of Preferred Stock. Mr. Davis is the Chief Executive Officer and a director of
the Company.
Dated: Sunnyvale, California
________________, 1997
24
25
INDEX TO FINANCIAL STATEMENTS
Tetherless Access Asia Limited
Directors' Report F-2
Balance Sheet as at June 30, 1996 F-6
Profit and Loss Statement for the Period Ended June 30, 1996 F-7
Notes to Financial Statements F-8
Independent Audit Report F-14
Tetherless Access Limited
Report of Independent Accountants F-17
Balance Sheets as of December 31, 1995 and 1994 F-18
Statements of Operations for the Years Ended
December 31, 1995 and 1994 F-19
Statements of Shareholders' Equity for the Years Ended
December 31, 1995 and 1994 F-20
Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994 F-21
Notes to Financial Statements F-22
American Phoenix Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1996 (unaudited) F-29
Condensed Consolidated Statements of Operations for
the Six Months Ended December 31, 1996 and 1995 (unaudited) F-30
Condensed Consolidated Statements of Operations for
the Three Months Ended December 31, 1996 and 1995 (unaudited) F-31
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 1996 and 1995 (unaudited) F-32
Notes to Condensed Consolidated Financial Statements F-33
F-1
26
TETHERLESS ACCESS ASIA LIMITED
DIRECTORS' REPORT
The Directors present the following report for the period 13 April 1995 (date of
incorporation) to 30 June 1996.
Directors
The names and particulars of the Directors of the Company in office at the date
of this report are:
Appointed Resigned
--------- --------
Michael John Anseli 13/4/95 30/7/95
Graeme Litfie 30/7/95
Timothy Todhunter 30/7/95
Carl Christopher Wilson 30/7/95
Bruce Pilley 13/4/95
John Bardin Davis 13/4/95
Details of Directors Experience and Qualifications
Carl Christopher Wilson - Non Executive Director
B.A., B.Comm, A.S.I.A., has over fifteen years experience in the areas of
research of industrial companies, corporate advice, stockbroking and fund
management. Mr Wilson is a Director of The Greenchip Emerging Growth Limited
Group, Greenchip Resources Limited, Greenchip Development Capital Limited,
Greenchip Investments Limited, Tetherless Access Limited (U.S.A.) and Enterprise
Solutions Limited (U.S.A.).
Timothy Lempriere Todhunter - Non Executive Director
M.A. (Hons) Cantab. and Fellow of the Australian Institute of Management.
Mr Todhunter has twenty six years experience in the Information
Technology Industry and is a director of The Australia Institute and The
Australian Retirement Fund. Mr Todhunter is the immediate past President,
Council of Textile and Fashion Industries of Australia.
Graeme Little - Non Executive Director
B.Ec., LLB has over seventeen years experience in the areas of corporate
regulation, corporate advice, stockbroking, takeovers and fund management. Mr
Little is a Director of The Greenchip Emerging Growth Limited Group, Greenchip
Resources Limited, Greenchip Development Capital Limited, Greenchip Investments
Limited and Mount Wellington Gold N.L..
Bruce Roy Pilley
Mr Pilley has extensive experience in the financial services industry,
principally as an adviser to private and public companies. He has coordinated
numerous syndications of professional investors and institutions in various
capital raisings. He was recently responsible for the coordination of
development capital funding for Enterprise Solutions Asia Pacific Limited.
27
John Bardin Davis
LL.B., B.Econ. has been principally involved as a Business and Investment
Consultant in assessing opportunities and raising investment capital both
privately and via prospectus issues. He has practised as a Solicitor in
Australia since 1978, specializing in commercial and investment law and
taxation. Mr Davis is a director of Derivative Fund Management Limited, a
licensed dealer and manager of the publicly listed Princeton Precious Metals
Fund and the Diversified Managed Futures Fund.
Directors' Meetings
Number of Meetings held Number of
Name of Director Whilst a Director Meetings Attended
---------------- ----------------- -----------------
Michael John Ansell 2 2
Graeme Little 11 10
Timothy Todhunter 11 10
Carl Christopher Wilson 11 10
Bruce Pilley 12 12
John Bardin Davis 12 12
Number of Directors meetings held during the year was 12.
Principal Activities
The principal activities of the Company include the development and production
of wireless data communication technology and investment in a U.S.A. corporation
which developed the wireless data communications technology.
Review of Operations
The Company made good progress in developing and producing a wireless
communications product which is commercially viable in the world market. A
number of potential markets and customers have been identified. Discussions with
these customers in respect of dealing in this wireless technology, are in a
number of cases relatively advanced.
Significant Changes in State of Affairs
The Company was incorporated on the 13th April 1995. This therefore is the
initial reporting period. There has been no significant changes in the Company's
state of affairs in the period ended 30 June 1996 other than the provision of
equity and debt funding to its U.S.A. investee and the other matters noted in
the Subsequent Events note on page 3.
Results of Operations
28
The net loss of the Company for the financial period ended 30 June 1996 after
the provision for tax was $651,271.
Likely Developments
It is expected that the Company will continue to expand and develop it
operations worldwide as a wholly owned subsidiary of American Phoenix Group Inc.
Dividends
The Directors do not recommend payment of a final dividend and no dividend has
been paid since the incorporation of the Company.
Significant After Balance Date Events
Since 30 June 1996, the Company has called for repayment of the loan to a
Related Body Corporate. The Related Body Corporate was unable to repay the loan.
As a result and pursuant to the loan agreement, the Company became entitled to
all the assets and liabilities of the Related Body Corporate including all
Intellectual Property.
An agreement has been negotiated between the Company's shareholders and American
Phoenix Group Inc., a U.S.A. NASDAQ listed company, whereby American Phoenix
Group Inc., will acquire all the issued shares of the Company, thereby making
the Company a 100% owned subsidiary of American Phoenix Group Inc.
Share Options
There are no outstanding share options issued by the Company.
Directors Shareholding:
Shares Owned Shares Owned
Directly Beneficially
-------- ------------
Graeme Little 0 30,459,068
Timothy Todhunter 0 1,031,439
Carl Christopher Wilson 0 30,459,068
John Bardin Davis 0 9,890,000
Bruce Pilley 0 9,890,000
No share options have been granted to any Director as a consequence of being a
Director. All options held by Directors either directly or indirectly are as a
result of options being granted on the same basis as to all other investors.
Indemnification of Directors and Officers
29
During the financial period no insurance premium was paid in respect to a
contract insuring its Directors or senior employees against a liability of a
nature that is required to be disclosed under subsection 309A(3) of the
Corporations Law.
Directors Benefits:
Other than already referred elsewhere in this report, no Director of the Company
has received or become entitled to receive a benefit (other than a benefit
included in the aggregate amount of emoluments received or due and receivable by
Directors shown in the accounts) by reasons of a contract made payable by the
Company or by a related corporation with the Director or with a firm of which he
is a member or with a company in which he has a substantial interest except any
benefit that may be deemed to accrue to Mr B. Pilley by reason of professional
consulting fees paid in the ordinary course of business to Mallar Holdings Pty
Ltd a company in which he has a beneficial holding.
Signed in accordance with a resolution of the directors
/s/ Timothy Todhunter /s/ Bruce Pilley
- ------------------------------ ------------------------------
Director Director
Date: 11th November 1996
Melbourne
30
TETHERLESS ACCESS ASIA LIMITED
BALANCE SHEET AS AT 30 JUNE 1996
1996
Notes $
CURRENT ASSETS
Cash 201,211
------------
TOTAL CURRENT ASSETS 201,211
------------
NON CURRENT ASSETS
Investments 2 4,650,672
Receivables 3 1,559,202
Property Plant and Equipment 4 25,829
------------
TOTAL NON CURRENT ASSETS 6,235,703
------------
TOTAL ASSETS 6,436,914
------------
CURRENT LIABILITIES
Creditors and Borrowings 5,000
------------
TOTAL CURRENT LIABILITIES 5,000
------------
TOTAL LIABILITIES 5,000
------------
NET ASSETS 6,431,914
============
SHAREHOLDERS' EQUITY
Share Capital 5 2,313,834
Reserves 6 4,769,351
Accumulated Losses (651,271)
------------
TOTAL SHAREHOLDERS' EQUITY 6,431,914
============
31
TETHERLESS ACCESS ASIA LIMITED
PROFIT AND LOSS STATEMENT
FOR THE PERIOD ENDED 30 JUNE 1996
1996
Notes $
Operating Revenue 7 5,111
============
Operating Profit/(Loss) Before Income Tax (651,271)
Income Tax Attributable to Operating
Profit/(Loss) 9 0
------------
Operating Profit/(Loss) After Income Tax (651,271)
Retained Profits/(Accumulated Losses)
at the beginning of the financial period 0
------------
Retained Profits/(Accumulated Losses)
at the end of the financial period (651,271)
============
32
TETHERLESS ACCESS ASIA LIMITED
NOTES TO AND FORMING PART OF THE
ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 1996
1 Statement of Accounting Policies
The principal accounting policies adopted by Tetherless Access Asia Ltd are
stated in order to assist in a general understanding of the financial
statements. These policies have been consistently applied except as otherwise
indicated.
The Company is not a reporting entity because, in the Directors' opinion, there
are unlikely to exist users who are unable to command the preparation of reports
tailored so as to satisfy specifically all of their information needs and these
financial statements are therefore "special purpose financial reports" that have
been prepared solely to meet the requirements of the members.
The financial statements have been drawn up in accordance with Schedule 5 of the
Corporations Law and applicable Accounting Standards. The company has applied
Accounting Standard AASB 1025: "Application of the Reporting Entity Concept and
Other Amendments" and therefore there is no requirement to apply other
accounting standards and other mandatory professional reporting requirements
(Urgent Issue Group Consensus Views). The Company has prepared the accounts in
accordance with all accounting standards except for AASB 1026: "Statement of
Cash Flows", AASB 1017: "Related Party Disclosures", and AASB 1005: "Financial
Reporting by Segments".
(a) Basis of Accounting
The financial statements have been prepared on the historical cost basis and
except where stated do not take into account current valuations of non-current
assets. The financial statements have been prepared on a going concern basis
which contemplates continuity of normal business activities and the realization
of assets and settlements of liabilities in the ordinary course of business. The
Directors believe this basis to be appropriate. However, as the Company is in
the developmental stage the ongoing financial viability of the Company is
dependent on further financial support from shareholders and external
financiers.
(b) Depreciation and Amortization of Property, Plant and Equipment
Items of property, plant and equipment are depreciated over their estimated
Useful lives using the straight line method.
(c) Income Tax
Income tax has been brought to account using a method of tax effect accounting
whereby income tax expense/(benefit) for the period is calculated on the
accounting profit/(loss) after adjusting for items, which as a result of their
treatment under income tax legislation, create permanent differences between
that profit/(loss) and the taxable
33
income/(loss). The tax effect of timing differences which arises from the
recognition in the accounts of items of revenue and expenses in periods
different from those in which they are assessable or allowable for income tax
purposes, are represented in the balance sheet as "future income tax benefits"
or "provision for deferred income tax", as the case may be at current tax rates.
A future income tax benefit is only carried forward as an asset where
realization of the benefit can be regarded as being assured beyond reasonable
doubt
(d) Investments
Long term investments which were not purchased for resale purposes are stated at
cost and reflected as non current assets.
(e) Comparatives
Comparative figures are not presented as the company was incorporated on 13th
April 1995 and these are the first financial statements prepared.
(f) Formation Costs
Due to the uncertainty in quantifying the benefit that is likely to accrue from
formation costs, all formation costs have been expensed during the period they
were incurred.
2 Investments
1996
$
Unlisted shares at cost:
In related bodies corporate 4,482,328
The above investment represents payments made for a 26%
interest in Tetherless Access USA Limited ("TAL USA").
TAL USA's principal activity is the
development of wireless communication products.
Investment in China Satellite Launch Agents
HK Limited - at cost 168,344
------------
4,650,672
------------
3 Receivables
1996
$
Promissory Note receivable from:
Related bodies corporate - TAL USA 294,109
Convertible Promissory Note receivable from:
Related bodies corporate - TAL USA 1,265,093
------------
34
1,559,202
------------
Refer note 11 for latest developments in regard to the TAL USA Receivables.
4 Property Plant and Equipment
1996
$
Office Furniture & Equipment 30,220
Less Accumulated Depreciation (4,391)
------------
25,829
------------
5 Share Capital
1996
$
Authorised:
2,000,000,000 Ordinary Shares at $0.05 each 100,000,000
------------
Issued:
46,276,674 Ordinary Shares at $0.05 each 2,313,834
------------
6 Reserves
1996
$
Share Premium Account
Shares were issued at various premiums throughout
the period. As at 30th June 1996 the balance
of the share premium account was 4,769,351
============
7 Operating Loss Before Tax
1996
$
Operating loss before income tax has been determined after;
(a) Crediting as revenue:
Interest - other persons 5,111
(b) Charging as expense:
Depreciation of office furniture and equipment 4,391
Audit Fee 5,000
35
Formation Costs written off 235,234
============
8 Directors Income
1996
$
Total income received or receivable by Directors
including amounts receivable from related
bodies corporate 88,000
============
Number of Directors of the Company whose total income falls within the
following bands
$0 - $9,999 5
$80,000 - $89,999 1
No payments were made in relation to retirement benefits for Directors.
9 Income Tax
The amount provided in respect of income tax expense/(benefit) differs from the
amount prima facie expense/(benefit) on operating profit(loss).
The difference is reconciled as follows.
Prima facie tax (benefit) on Operating Loss (234,457)
(Calculated at 36%)
Add Back Permanent Differences - Formation Costs
Expensed in the accounts not claimable for income tax 85,404
Current Year Tax Losses not tax recognized 149,053
------------
Income Tax Expense Benefit 0
------------
The above tax loss has not been brought to account as a future income tax
benefit as realization cannot be virtually assured.
10 Commitments
Non-cancellable operating leases not provided for with a term of more
than one year-
Payable:
Not later than one year 31,169
Later than one year but not later than 2 years 7,792
------------
38,961
36
------------
The Company is committed to pay a further HK$3,000,000 (AUS$489,540) to China
Satellite Launch Agents HK Ltd (C.S.L.A.L.) as part of the investment in China
Satellite Launch. This payment is dependant on C.S.L.A.L. achieving established
levels of national; frequencies within China, and upon the granting of specific
licences to C.S.L.A.L..
11 Significant After Balance Date Events
Since 30 June 1996, the Company has called for repayment of the loan to a
Related Body Corporate. The Related Body Corporate was unable to repay the loan.
As a result and pursuant to the loan agreement, the Company became entitled to
all the assets and liabilities of the Related Body Corporate including all
Intellectual Property.
An agreement has been negotiated between the Company's shareholders and American
Phoenix Group Inc., a U.S.A. NASDAQ listed company, whereby American Phoenix
Group Inc., will acquire all the issued shares of the Company, thereby making
the Company a 100% owned subsidiary of American Phoenix Group Inc.
37
TETHERLESS ACCESS ASIA LIMITED
STATEMENT BY DIRECTORS
As detailed in Note 1 to the Accounts, the Directors consider that the Company
is not a reporting entity as in their opinion there are unlikely to exist any
users dependent on general purpose financial statements for information which
would be useful for them in making and evaluating decisions about the allocation
of scarce resources.
These accounts are regarded as "special purpose financial reports" which have
been prepared solely to meet the reporting obligations of the Corporations Law.
In the opinion of the Directors:-
1
(a) the accompanying Profit and Loss Account and Balance Sheet are drawn up so
as to give a true and fair view of the result of the Company for the period
ended 30 June 1996, and the state of affairs of the Company as at 30 June 1996.
(b) as at the date of this statement, there are reasonable grounds to believe
that the Company will be able to pay its debts as and when they fall due.
However, as the Company is in the development stage, the ongoing financial
viability of the Company is dependant on further financial support from
shareholders and external financiers.
2 The accounts of the company have been made out in accordance with applicable
Accounting Standards to the extent indicated in Note 1 to the Accounts.
Dated at Melbourne this 11th day of November 1996. Signed in accordance with a
resolution of the Directors:
/s/ Timothy Todhunter
- ------------------------------ Director
/s/ Bruce Pilley
- ------------------------------ Director
38
Pannell Kerr Forster
Chartered Accountants
INDEPENDENT AUDIT REPORT
TO THE MEMBERS OF TETHERLESS ACCESS ASIA LIMITED
Scope
30 June 1996
We have audited the financial statements, being a special purpose financial
report, of Tetherless Access Asia Limited for the year ended 30 June 1996
comprising the Profit and Loss Account, Balance Sheet and Directors' Statement.
The company's directors are responsible for the preparation and presentation of
the financial statements and the information contained therein and have
determined that the basis of accounting used and described in Note 1 to the
financial statements is appropriate to meet the requirements of the Corporations
Law and the needs of the members. We have conducted an independent audit of the
financial statements in order to express an opinion to the members of the
company on their preparation and presentation. No opinion is expressed as to
whether the accounting policies used, and described in Note 1, are appropriate
to the needs of the members.
The financial statements have been prepared for distribution to members for the
purpose of fulfilling the directors' financial reporting requirements under the
Corporations Law. We disclaim any assumption of responsibility for any reliance
on this report or on the financial statements to which it relates to any person
other than the members, or for any purpose other than that for which it was
prepared.
Our audit has been conducted in accordance with Australian Auditing Standards.
Our procedures included examination, on a test basis, of evidence supporting the
amounts and other disclosures in the financial statements and the evaluation of
significant accounting estimates. These procedures have been undertaken to form
an opinion as to whether, in all material respects, the financial statements are
presented fairly in accordance with the accounting policies described in Note I
to the financial statements. (These policies do not require the application of
all Accounting Standards and UIG Consensus Views)
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, subject to the effects if any, on the accounts of the matters
referred to in the preceding paragraph, the financial statements of Tetherless
Access Asia Limited for the year ended 30 June 1996 are properly drawn up:
39
(a) so as to give a true and fair view, in accordance with the basis of
accounting policies described in Note 1 to the financial statements, of the
matters required by Divisions 4, 4A and 4B of Part 3.6 of the Corporations Law
to be dealt with in the financial statements;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable Accounting Standards. As the company has
applied AASB 1025: "Application of the Reporting Entity Concept and Other
Amendments", other Accounting Standards have only been applied to the extent
described in Note 1 to the financial statements. (Similarly, as the company is a
non-reporting entity, UIG Consensus Views have only been applied to the extent
described in Note 1)
/s/ PANNELL KERR FORSTER /s/ G P Andreola
- ------------------------------ ------------------------------
PANNELL KERR FORSTER G P Andreola
Chartered Accountants Partner
A Victorian Partnership 11 November 1996
Melbourne
40
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Tetherless Access, Ltd.
We have audited the accompanying balance sheets of Tetherless Access, Ltd. (a
company in the development stage) as of December 31, 1995 and 1994 and the
related statements of operations, of shareholders equity and of cash flows for
the years then ended and for the period from inception (March 29, 1990) through
December 31, 1995. 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 of these statements in accordance with generally
accepted auditing standards which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As explained in Note 7, the Directors of the Company resolved on September 15,
1996 to transfer the assets of the Company to the holders of certain secured
promissory notes in satisfaction of amounts due, due to the Company's inability
to meet its obligations under these notes.
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Tetherless Access, Ltd. (a company
in the development stage), at December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended and for the period from
inception (March 29, 1990) through December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Jose, California
December 3, 1996
42
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
DECEMBER 31,
1995 1994
ASSETS
Current assets:
Cash $ 227,000 $ 180,000
Receivable from founder (Note 3) -- 25,000
Accounts receivable 195,000 --
Inventories (Note 2) 272,000 --
Prepaid expenses and other current assets 26,000 36,000
----------- -----------
Total current assets 720,000 241,000
Property and equipment, net (Note 2) 282,000 141,000
Deposits 12,000 --
----------- -----------
$ 1,014,000 $ 382,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 157,000 $ 58,000
Accrued liabilities 207,000 70,000
Current portion of capitalized lease obligation (Note 4) 22,000 14,000
----------- -----------
Total current liabilities 386,000 142,000
----------- -----------
Capitalized lease obligation, less current portion (Note 4) 28,000 29,000
----------- -----------
Total liabilities 414,000 171,000
----------- -----------
Commitments (Note 4)
Shareholders' equity (Note 5):
Common stock, no par value, 50,000,000 shares
authorized; 11,914,321 and 9,485,000 shares
issued and outstanding 7,940,000 1,521,000
Common stock subscriptions receivable (3,599,000) --
Deficit accumulated during development stage (3,741,000) (1,310,000)
----------- -----------
Total shareholders' equity 600,000 211,000
----------- -----------
$ 1,014,000 $ 382,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
43
TETHERLESS ACCESS,LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
Period from
inception
(March 29,
1990)
Year Ended through
December 31, December 31,
1995 1994 1995
Sales $ 241,000 $ -- $ 266,000
Cost of sales 165,000 -- 165,000
----------- ----------- -----------
Gross profit 76,000 -- 101,000
----------- ----------- -----------
Operating expenses:
Selling, general and administrative 1,110,000 409,000 1,633,000
Research and development 1,400,000 742,000 2,235,000
----------- ----------- -----------
Total operating expenses 2,510,000 1,151,000 3,868,000
----------- ----------- -----------
Loss from operations (2,434,000) (1,151,000) (3,767,000)
Interest income 10,000 26,000 26,000
Interest expense (7,000) (3,000) --
----------- ----------- -----------
Net loss $(2,431,000) $(1,128,000) $(3,741,000)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
44
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (MARCH 29, 1990) THROUGH DECEMBER 31, 1995
DEFICIT
ACCUMULATED
COMMON STOCK DURING
COMMON STOCK SUBSCRIPTIONS DEVELOPMENT
SHARES AMOUNT RECEIVABLE STAGE TOTAL
Capital contribution from founders 6,000,000 $ 6,000 $ -- $ -- $ 6,000
Net loss -- -- -- (3,000) (3,000)
----------- ---------- ----------- ----------- -----------
Balance at December 31, 1990 6,000,000 6,000 -- (3,000) 3,000
Issuance of common stock for services 10,000 1,000 -- -- 1,000
Net loss -- -- -- (3,000) (3,000)
----------- ---------- ----------- ----------- -----------
Balance at December 31, 1991 6,010,000 7,000 -- (6,000) 1,000
Issuance of common stock for services 20,000 1,000 -- -- 1,000
Net loss -- -- -- (79,000) (79,000)
----------- ---------- ----------- ----------- -----------
Balance at December 31, 1992 6,030,000 8,000 -- (85,000) (77,000)
Net loss -- -- -- (97,000) (97,000)
----------- ---------- ----------- ----------- -----------
Balance at December 31, 1993 6,030,000 8,000 -- (182,000) (174,000)
Issuance of common stock for cash 3,450,000 1,500,000 -- -- 1,500,000
Issuance of common stock for services 5,000 3,000 -- -- 3,000
Services provided for common stock subscriptions -- 10,000 -- -- 10,000
Net loss -- -- -- (1,128,000) (1,128,000)
----------- ---------- ----------- ----------- -----------
Balance at December 31, 1994 9,485,000 1,521,000 -- (1,310,000) 211,000
Issuance of common stock previously subscribed 20,000 -- -- -- --
Issuance of common stock for services 28,600 20,000 -- -- 20,000
Repurchase of common stock from founder (2,500,000) (3,000) -- -- (3,000)
Issuance of common stock for cash at $0.001 per share 2,320,000 2,000 -- -- 2,000
Issuance of common stock for cash at $0.625 per share 640,000 400,000 -- -- 400,000
Common stock subscriptions at $1.25 per share -- 6,000,000 (6,000,000) -- --
Issuance of common stock subscribed 1,920,721 -- 2,401,000 -- 2,401,000
Net loss -- -- -- (2,431,000) (2,431,000)
----------- ---------- ----------- ----------- -----------
Balance at December 31, 1995 11,914,321 $7,940,000 $ 3,599,000 $(3,741,000) $ 600,000
=========== ========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
45
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
PERIOD FROM
INCEPTION
(MARCH 29,
1990)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31,
1995 1994 1995
Cash flows from operating activities:
Net loss $(2,431,000) $(1,128,000) $(3,741,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 58,000 29,000 89,000
Common stock issued in exchange for services 20,000 13,000 35,000
Changes in assets and liabilities:
Accounts receivable (195,000) -- (195,000)
Inventories (272,000) 1,000 (272,000)
Prepaid expenses and deposits 10,000 (36,000) (26,000)
Deposits (12,000) -- (12,000)
Accounts payable 99,000 43,000 157,000
Accrued liabilities 137,000 33,000 207,000
----------- ----------- -----------
Net cash used in operating activities (2,586,000) (1,045,000) (3,758,000)
----------- ----------- -----------
Cash flows from investing activities resulting from the
acquisition of property and equipment (174,000) (120,000) (301,000)
----------- ----------- -----------
Cash flows from financing activities:
Payment of loans -- (50,000) --
Receivable from founder 25,000 (24,000) --
Payables to founders -- (86,000) --
Principal payments on capitalized lease obligations (18,000) (2,000) (20,000)
Proceeds from issuance on common stock, net of
repurchases 2,800,000 1,500,000 4,306,000
----------- ----------- -----------
Net cash provided by financing activities 2,807,000 1,338,000 4,286,000
----------- ----------- -----------
Net increase in cash 47,000 173,000 227,000
Cash at beginning of period 180,000 7,000 --
----------- ----------- -----------
Cash at end of period $ 227,000 $ 180,000 $ 227,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for taxes $ 1,000 $ 1,000 $ 5,000
Interest paid 7,000 3,000 10,000
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
Acquisition of property and equipment under
capitalized lease obligation $ 25,000 $ 45,000 $ 70,000
The accompanying notes are an integral part of these financial statements.
46
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Tetherless Access, Ltd. (the "Company"), was incorporated in California on
March 29, 1990 to develop products for the wireless data communications
market. Since commencing activities in 1990, the Company has been in the
development stage and its operations have principally involved research and
development, market analysis and other business planning activities. The
Company's first revenues from product sales were generated in late 1995;
however, since such revenues are not significant, the Company is still
considered to be in the development stage at December 31, 1995.
THE FOLLOWING IS A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING
POLICIES:
LIQUIDITY AND FINANCIAL VIABILITY
The Company has accumulated a deficit of $3,741,000 for the period from its
inception through December 31, 1995. During 1995, the Company obtained a
financing commitment from certain shareholders to invest an additional
$6,000,000 in the Company in exchange for 4,800,000 shares of Common Stock,
payable in monthly installments on an as-needed basis. Through December 31,
1995, the Company had received $2,401,000 under this commitment. In March
1996, the Company obtained additional financing commitments from certain
shareholders on the same terms as above aggregating $8,000,000 including
amounts previously committed, but not yet received. The commitment expires
December 31, 1996.
In May 1996, the Company obtained financing of $1,000,000 under a secured
convertible promissory note repayable on May 2, 1998. In connection with
this note, the Company issued 1,540,000 shares to the lender in
consideration for an option to purchase 25% of the lender's outstanding
stock at a price of $0.25 (Australian dollars) and for the lender's
agreement to enter into a distribution agreement with the Company.
In June 1996, the Company obtained additional financing of $3,000,000 from
the same lender under a secured promissory note repayable on June 17, 1998.
The $1,000,000 and $3,000,000 notes were each secured by an interest in the
Company's tangible and intangible property. Both notes contained certain
covenants relating to the financial position of the Company.
On September13, 1996, the lender made demand for immediate payment of the
notes (see Note 7).
47
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reported period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of bank deposits and
accounts receivables. The Company places its cash primarily in checking and
market rate accounts. Two customers accounted for 37% and 33%,
respectively, of sales in 1995. Receivables from these customers total
$89,000 and $79,000 at December 31, 1995. The Company performs ongoing
evaluations of its customers' financial condition and maintains an
allowance for uncollectible accounts receivable based upon the expected
collectibility of all accounts receivable.
REVENUE RECOGNITION
Revenue from product sales is recognized upon product shipment provided no
significant obligations remain and collectibility is probable.
INVENTORIES
Inventories are stated at the lower of cost, using the first-in, first-out
method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets of
three to five years. Leasehold improvements are amortized over the shorter
of their estimated useful lives or the lease term.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts.
48
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Balance Sheet Components
December 31,
1995 1994
Inventories:
Raw materials $ 225,000 $ -
Finished goods 47,000 -
--------- --------
$ 272,000 $ -
========= ========
Property and equipment:
Equipment and other $ 237,000 $159,000
Furniture and fixtures 118,000 13,000
Software 16,000 -
--------- --------
371,000 172,000
Accumulated depreciation (89,000) (31,000)
--------- --------
$ 282,000 $141,000
========= ========
3. RELATED PARTY TRANSACTIONS
In March 1994, the Company loaned $25,000 to a founder in exchange for a 4%
promissory note secured by 57,500 shares of the Company's Common Stock. The
note and accrued interest were repaid in full in 1995.
During 1995, approximately $89,000 of the Company's sales were to a
shareholder. Accounts receivable at December 31, 1995 from this shareholder
were $89,000, which were paid in full in 1996.
4. COMMITMENTS
During 1995, the Company entered into a three-year noncancelable operating
lease for its facility. In 1995 and 1994, the Company entered into
agreements to lease equipment aggregating $25,000 and $45,000, respectively
which have been recorded as capitalized leases.
Rent expense on operating leases totaled $88,000 and $27,000 in 1995 and
1994, respectively.
49
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Future minimum lease payments under operating and capitalized leases are as
follows:
YEAR ENDING DECEMBER 31 OPERATING CAPITALIZED
1996 $191,000 $ 27,000
1997 146,000 25,000
1998 128,000 4,000
1999 - 3,000
2000 - 2,000
-------- ----------
Total minimum lease payments $465,000 61,000
========
Less: amount representing interest 11,000
----------
Present value of minimum lease payments 50,000
Less: current portion 22,000
----------
Long-term portion of capitalized lease obligations $ 28,000
==========
5. SHAREHOLDERS' EQUITY
In March 1990, the founders of the Company contributed certain intellectual
property and cash to the Company aggregating $4,000 and $2,000,
respectively, in exchange for 6,000,000 shares of Common Stock. In 1991 and
1992, the Company issued 10,000 and 20,000 shares of Common Stock,
respectively, valued at $0.05 per share in exchange for services. In 1994,
the Company issued 5,000 shares of Common Stock valued at $0.50 per share
to an employee in exchange for services.
In January 1994, the Company issued 3,450,000 shares of Common Stock to an
independent investor in exchange for cash of $1,500,000. The Company has
the right of first refusal to purchase the shares, except in the event of a
merger, the sale of all of the Company's assets or an initial public
offering of the Company's Common Stock.
During 1994, certain employees and consultants provided services to the
Company in exchange for a subscription for the issuance of 20,000 shares of
Common Stock. Such services were valued at $10,000, and the 20,000 shares
were issued in 1995.
During 1995, the Company issued 28,600 shares of Common Stock valued at
$20,000 to certain employees and a consultant in exchange for services
provided to the Company.
In February 1995, the Company repurchased 2,500,000 shares of Common Stock
from a founder at $0.001 per share.
50
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
A total of 2,960,000 shares of Common Stock have been sold to investors
subject to the Company's right of first refusal to purchase the shares,
except in the event of an initial public offering of the Company's Common
Stock.
During 1995, certain shareholders (see Note 1) committed to purchase
4,800,000 shares of Common Stock for $1.25 per share through March 1996.
The total amount of $6,000,000 is paid in monthly installments on an
as-needed basis. Through December 31, 1995, the Company had received
$2,401,000 and issued 1,920,721 shares of Common Stock under this
commitment.
STOCK OPTION PLAN
The 1993 Stock Option Plan (the "Plan"), as amended, authorizes the Board
of Directors to grant incentive stock options and nonstatutory stock
options to employees, directors and consultants to purchase up to 3,200,000
shares of Common Stock. Under the Plan, incentive stock options are granted
at a price that is not less than 100% of the fair market value of the stock
on the date of grant, as determined by the Board of Directors. Nonqualified
stock options are granted at a price that is not less than 85% of the fair
market value of the stock on the date of grant, as determined by the Board
of Directors.
Generally, options granted under the Plan are exercisable on and after the
date of grant. Any unvested shares which the optionee has purchased and
holds are subject to the Company's right to repurchase from the optionee at
the optionee's cost per share, in the event the optionee attempts to
dispose of such shares or in the event of the optionee's termination of
employment with or without cause. The Company's repurchase right lapses as
shares subject to an option become vested. Generally, shares subject to
options granted under the Option Plan vest at the rate of 1/4th of the
shares on the first anniversary of the grant date of the option, and an
additional 1/48th of the shares upon completion of each succeeding full
month of continuous employment thereafter until all shares are vested.
In February 1995, the Company granted to the Chairman of the Board of
Directors and Chief Executive Officer options to purchase 1,200,000 shares
at an exercise price of $0.001 per share. These options vest at the rate of
1/24th for each full month of employment after the date of the grant.
Options are exercisable for a period of ten years.
51
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
A summary of stock option activity is as follows:
SHARES OPTIONS PRICE PER
AVAILABLE OUTSTANDING SHARE
Balance as of December 31, 1993 3,200,000 - -
Granted (1,475,000) 1,675,000 $0.50
Canceled 475,000 (475,000) $0.50
---------- ---------
Balance as of December 31, 1994 2,200,000 1,000,000 $0.50
Granted (2,061,000) 2,061,000 $0.001-$1.25
Canceled 500,000 (500,000) $0.50
---------- ---------
Balance as of December 31, 1995 639,000 2,561,000 $0.001-$1.25
========== =========
At December 31, 1995, 887,541 options to purchase shares were vested.
WARRANTS
At December 31, 1995, warrants to purchase 50,000 shares of Common Stock at
$0.50 per share were outstanding. The warrants expire in 2005.
6. INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses since inception. Deferred tax
assets of approximately $1,518,000 and $522,000 at December 31, 1995 and
1994, respectively, are fully reserved due to the uncertainty of
realization and consist primarily of deferred compensation, R&D credits,
and accumulated losses.
At December 31, 1995, the Company had federal and state net operating loss
carryforwards of $3,477,000 and $3,469,000, respectively, available to
reduce future taxable income. Such carryforwards expire through 2010. The
income tax benefit from the utilization of net operating loss carryforwards
may be limited in certain circumstances including, but not limited to,
cumulative stock ownership changes of more than 50% over a three year
period. Such a change in ownership may have occurred in connection with
stock offerings in 1994 and 1995, and the Company is currently assessing
possible restrictions on the use of its net operating loss carryforward as
a result of such possible changes in ownership. There can be no assurance
that the Company's net operating loss carryforward will be available for
use in the future.
52
TETHERLESS ACCESS, LTD.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
7. SUBSEQUENT EVENTS
On September 13, 1996, the holder of the secured convertible promissory
note dated May 2, 1996 in the face amount of $1,000,000 and the secured
promissory note dated June 17, 1996 in the face amount of $3,000,000 made
demand for immediate payment of the notes. The Company's indebtedness at
September 13, 1996 under these notes was a total principal amount of
$2,215,000, plus accrued and unpaid interest.
Due to the Company's inability to pay the amounts due under the notes, the
Directors resolved on September 15, 1996 to transfer to the lender all
assets of the Company, which represented the secured collateral under the
notes, in satisfaction of the amounts outstanding. The historical cost of
the collateral transferred was less than the amounts due under the notes.
53
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 1996 AND JUNE 30, 1996
December 31, June 30,
1996 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 872,551 $ 187,957
Inventory 907,724 592,482
Accounts receivable 367,457 112,719
Prepaid expenses 24,918 29,848
Notes receivable 9,656,649
------------ ------------
TOTAL CURRENT ASSETS 11,829,299 923,006
PROPERTY AND EQUIPMENT, Net 587,606 311,515
OTHER ASSETS
Funds held in escrow 150,944
Deposits and other assets 154,416 220,584
------------ ------------
305,360 220,584
------------ ------------
$ 12,722,265 $ 1,455,105
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,360,017 $ 500,788
Reserve for rescission/guarantee 526,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,886,017 500,788
LIABILITIES TO BE SATISFIED BY THE ISSUANCE
OF SHARES OF COMMON STOCK 3,932,731
STOCKHOLDERS' EQUITY
Preferred stock - authorized 10,000,000 shares, $.01 par value,
issued and outstanding - 8,000,000 shares at December 31,
1996 and June 30, 1996 80,000 80,000
Common stock - authorized 50,000,000 shares, $.001 par value,
issued and outstanding - 24,969,371 shares at December 31,
1996 and 4,000,000 at June 30, 1996 24,969 4,000
Additional paid-in capital 15,849,288 6,921,821
Subscriptions receivable (321,540)
Accumulated deficit (8,729,200) (6,051,504)
------------ ------------
6,903,517 954,317
------------ ------------
$ 12,722,265 $ 1,455,105
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements.
54
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
REVENUES $ 352,264 $ 241,393
----------- -----------
COSTS AND EXPENSES
Cost of sales 294,309 164,455
Selling, general and administrative 2,568,754 1,509,529
Research and development 250,158 74,978
----------- -----------
TOTAL COSTS AND EXPENSES 3,113,221 1,748,962
----------- -----------
LOSS FROM OPERATIONS (2,760,957) (1,507,569)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 142,109 4,399
Interest expense (58,848)
----------- -----------
83,261 4,399
----------- -----------
NET LOSS $(2,677,696) $(1,503,170)
=========== ===========
NET LOSS PER SHARE $ (0.29) $ (0.38)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,242,343 4,000,000
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
55
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------------ ------------
REVENUES $ 243,883 $ 203,193
------------ ------------
COSTS AND EXPENSES
Cost of sales 198,270 141,286
Selling, general and administrative 1,652,441 883,318
Research and development 36,237 43,967
------------ ------------
TOTAL COSTS AND EXPENSES 1,886,948 1,068,571
------------ ------------
LOSS FROM OPERATIONS (1,643,065) (865,378)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 141,059 2,137
Interest expense (58,848)
------------ ------------
82,211 2,137
------------ ------------
NET LOSS $ (1,560,854) $ (863,241)
============ ============
NET LOSS PER SHARE $ (0.11) $ (0.22)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 14,484,686 4,000,000
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements.
56
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,677,696) $(1,503,170)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 99,186 38,476
Amortization of discount on notes receivable (132,053)
Changes in operating assets and liabilities:
Inventory (315,242) (248,076)
Accounts receivable (254,738) (194,105)
Prepaid expenses 4,930 485
Accounts payable and accrued expenses (117,626) 203,085
----------- -----------
Net cash used in operating activities (3,393,239) (1,703,305)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in other assets 176,447 (6,605)
Collection of notes receivable 728,000
Purchases of property and equipment (328,334) (197,479)
----------- -----------
Net cash used in investing activities 576,113 (204,084)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received on reverse merger 804,107
Sale of common stock 2,697,613 1,912,014
----------- -----------
Net cash provided by financing activities 3,501,720 1,912,014
----------- -----------
NET INCREASE IN CASH 684,594 4,625
CASH, beginning of period 187,957 333,574
----------- -----------
CASH. end of period $ 872,551 $ 338,199
=========== ===========
57
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. COMMENTS
The accompanying condensed financial statements are unaudited but, in
the opinion of management of the Company, contain all adjustments,
consisting of only normal recurring accruals, necessary to present
fairly the financial position at December 31, 1996, the results of
operations for the three and six months ended December 31, 1996 and
1995, and the changes in cash flows for the six months ended December
31, 1996. Certain information and footnote disclosures normally
included in financial statements that have been prepared in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although management of the Company believes that
the disclosures in these financial statements are adequate to make the
information presented therein not misleading. For further information,
refer to the financial statements and notes thereto included in the
Company's 1996 Form 10-KSB filed with the Securities and Exchange
Commission. Operating results for the six months ended December 31,
1996 are not necessarily indicative of the results that may be expected
for the year ending June 30, 1997.
2. BASIS OF PRESENTATION
On June 1, 1996, American Phoenix Group, Inc., a Nevada corporation
("APG") and Kushi Macrobiotics Corporation ("Kushi") entered into an
Agreement and Plan of Merger which provided for the merger of APG into
and with Kushi. Pursuant to the merger agreement which closed on
September 26, 1996, Kushi was the surviving corporation and all of the
issued and outstanding shares of common stock of APG were converted
into that number of shares of common stock of Kushi which constituted
85% of the issued and outstanding shares of Kushi as of the effective
time of the merger. As of August 31, 1996, APG had 38,088,869 issued
and outstanding shares of common stock which were converted into
16,251,465 shares of Kushi's shares ( a conversion ratio of .4267 for
each share of APG). Immediately after the merger, the Company had
19,119,371 issued and outstanding shares of common stock. Subsequently,
Kushi changed its name to American Phoenix Group, Inc. and adopted the
fiscal year end of APG. Although as a matter of corporate law, the
existence of APG ceased upon the merger, for accounting purposes, APG
was deemed the survivor and the merger was considered a reverse
acquisition of Kushi by APG. Prior to the effective time of the merger,
Kushi transferred substantially all of its assets and liabilities to
Kushi Natural Foods Corp. ("Kushi Foods"), an entity newly organized
for the purpose of pursuing the natural foods business of Kushi. All of
the issued and outstanding common stock of Kushi Foods were distributed
to the pre-merger stockholders of Kushi as dividends.
On October 24, 1996, the Company entered into a definitive Agreement
and Plan of Reorganization (the "TAAL Agreement"), by and among the
Company, TAAL, and other persons constituting holders of all of the
issued and outstanding capital stock of TAAL. The TAAL agreement was
closed on November 13, 1996. Consummation of the agreement has
58
resulted in a change of control of the Company. Under the terms of the
TAAL agreement, the Company acquired all of the outstanding capital of
TAAL in exchange for 4,000,000 shares of the Company's common stock and
8,000,000 shares of the Company's Preferred Stock comprised of four
separate series denominated as Series A through D. Each Series of the
Preferred stock (comprised of 2,000,000 shares each) will be
convertible into 6,000,000 shares of common stock upon the expiration
of the applicable periods. The conversion ratio applied gives effect to
a contemplated reverse split of 2:1 of the common stock . The initial
issuance of 4,000,000 shares of common stock at the closing of the
transaction represented pre-split shares. The transaction was accounted
for as a reverse acquisition whereby the Company which was the legal
acquirer was considered, for accounting purposes, to be the acquiree
since TAAL shareholders acquired majority control of the Company.
Subsequently, the Company adopted TAAL's fiscal year end of June 30.
In September 1996, TAAL foreclosed on delinquent obligations due from
its affiliate, Tetherless Access, Ltd. ("TAL USA"). Pursuant to the
foreclosure, TAAL succeeded to the assets and liabilities of TAL USA.
The objective of TAL USA was, and the objective of the Company is, the
creation of low cost medium speed wireless data communications by
obviating the need for wire lines in geographic locations, particularly
in developing economies outside the United States, where such lines are
either non-existent or costly to install. The historical financial
statements include the combined balance sheets of TAAL and TAL USA as
of June 30, 1996 and combined results of operations for the three and
six months ended December 31, 1995.
3. NOTES RECEIVABLE
Notes receivable consisted of the following at December 31, 1996:
Non-interest bearing promissory note from the sale of a loan portfolio
payable as follows: $500,000 on December 1, 1996, $3,000,000 on
December 15, 1996, $2,000,000 on January 31, 1997 and $3,100,000 on
February 28, 1997. The December 1, 1996 installment was received. The
December 15, 1996 installment was subsequently extended to January 31,
1997 with interest at 10% per annum. As of the date hereof, the January
31 installments totaling $5,000,000 had not been received. The amount
outstanding included accrued
interest of $13,151. $ 8,113,151
Non-interest bearing promissory note due in various installments as
follows: $150,000 on November 30, 1996, $350,000 on December 31, 1996,
$500,000 on January 31, 1997 and $500,000 on February 28, 1997. The
November 30 installment was received. As of the date hereof, the
December 31, 1996 and the January 31, 1997
installments had not been received. 1,350,000
59
Promissory note due on November 11, 1996. As of the date
hereof, this note is still outstanding. 200,000
Non-interest bearing promissory note of $156,000 payable in
two equal installments of $78,000 on November 21, 1996
and December 31, 1996. The November 21
installment was received. 78,000
------------
$ 9,741,151
Less imputed interest on notes receivable (84,502)
------------
$ 9,656,649
============
60
ATTACHMENT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN PHOENIX GROUP, INC.
It is hereby certified that:
FIRST: The present name of the corporation (the "Corporation") is
American Phoenix Group, Inc.
SECOND: The Corporation wishes to change its name and to that end
amends Article 1 of the Certificate of Incorporation of the Corporation is
hereby amended to read as follows:
"The name of the Corporation is Tal Wireless Networks, Inc."
THIRD: The Corporation wishes to increase the number of shares of
Common Stock and Preferred Stock it is authorized to issue and to combine the
issued and outstanding shares of Common Stock at the rate of 0.5 for one, and to
that end amends Subparagraph (a) of Paragraph 4 to read as follows:
"(a) The Corporation shall be authorized to issue the following shares:
CLASS NUMBER PAR VALUE
----- ------ ---------
Common 100,000,000 $.001
Preferred 60,000,000 $.01
At 5.00 p.m. on the date of filing of this Certificate of Amendment,
all outstanding shares of Common Stock held by each holder of record on
such date shall be automatically combined at the rate of 0.5 for one
without any further action on the part of the holders thereof or this
Corporation. No fractional shares will be issued. All fractional shares
shall be increased to the next higher number of shares."
FOURTH:The foregoing Amendment was duly adopted in accordance with the
provisions of Sections 242 and 228 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, American Phoenix Group, Inc. has caused this
Certificate of Amendment to be signed by its President and Chief Executive
Officer, under penalty of perjury, this ___ day of ____________, 1997.
_____________________
Authorized Officer