SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
DIGITRAN SYSTEMS, INCORPORATED
(Name of Registrant as Specified in its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies: N/A
2) Aggregate number of securities to which transaction applies:
N/A
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined: N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: $0.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $0.
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
PROXY STATEMENT
DIGITRAN SYSTEMS, INCORPORATED
(A Delaware Corporation)
205 West 8800 South
P.O Box 91
Paradise, Utah 84328-0091
SPECIAL MEETING OF SHAREHOLDERS
February 28, 2002
THIS PROXY STATEMENT IS BEING MAILED TO ALL SHAREHOLDERS OF RECORD IN
CONNECTION WITH THE SOLICITATION OF THEIR VOTE BY THE BOARD OF DIRECTORS OF
DIGITRAN SYSTEMS, INCORPORATED ("the Company" or "DSI") with regard to the
Special Shareholders' Meeting to be held on Thursday, February 28, 2002 at
3:00 p.m. EST at the Holiday Inn on Route 22 West in Springfield, New Jersey.
This Proxy Statement should be reviewed in connection with the Company's
Annual Report filed on SEC Form 10-KSB for the period ended April 30, 2001 and
current 10-QSB Report for the period ending October 31, 2001 all of which are
available at website of the United States Securities and Exchange Commission
identified as www.sec.gov. The SEC file number is 1-11034.
VARIOUS ITEMS OF IMPORTANT INFORMATION AND FINANCIAL STATEMENTS FOR THE
COMPANY RELATED TO THIS PROXY STATEMENT ARE SET-OUT IN THE ANNUAL REPORT ON
SEC FORM 10-KSB AND ITS MOST CURRENT 10-QSB QUARTERLY REPORT. SUCH DETAILED
INFORMATION MAY BE RELEVANT IN REVIEWING THIS PROXY STATEMENT, BUT IS NOT
NECESSARILY REPEATED IN THIS DOCUMENT.
In order to have your vote counted, you must complete, sign and provide
any additional information requested on the proxy ballot form enclosed with
this Proxy Statement. PLEASE BE SURE TO COMPLETE AND SIGN YOUR PROXY BALLOT
AND RETURN SAME IN THE ENCLOSED REPLY ENVELOPE PROVIDED FOR THIS PURPOSE.
Revocability of Proxy
A shareholder returning the enclosed proxy ballot has the power to
revoke it at any time before it is exercised and may do so by written notice
to the Secretary of the Company at the address set forth above, effective upon
receipt of such written notice, or by voting in person at the Special
Shareholders' Meeting. Attendance at the Special Shareholders' Meeting, in
and of itself, will not constitute revocation of a proxy.
1
Solicitation and Voting Procedures
The record date for the determination of shareholders entitled to vote
at the Special Shareholders' Meeting is the close of business on January 15,
2002.
As of January 15, 2002, the authorized capital stock of DSI consisted of
(i) 25,000,000 shares of Class A common stock, $0.01 par value per share, of
which 24,347,699 shares are issued and outstanding as of December15, 2001;
(ii) 5,000,000 shares of Class B common stock, $0.01 par value per share, of
which 2,000,000 shares are issued and outstanding as of January 15, 2002; and
(iii) 1,000,000 shares of Eight (8%) Percent Cumulative Preferred Stock of
which 51,500 shares were issued and outstanding as of January 15, 2002. As
provided in DSI's Articles of Incorporation, the Class A common stock carries
with it the right to vote one-tenth of a vote per share, the Class B common
stock carries with it the right to vote one vote per share and the Preferred
Stock carries with it the right to vote one-tenth of a vote per share. All
outstanding shares of DSI common stock and preferred stock are validly issued,
fully paid for and nonassessable with no personal liability attaching to the
ownership thereof, free of pre-emptive rights and free and clear of all liens,
claims and encumbrances. There are no cumulative voting provisions.
Shares entitled to vote will be determined based upon the official
shareholder record of January 15, 2002. Actual votes cast will be determined
by the physical counting of votes in person or proxy by the Inspector of
Elections to be appointed prior to the meeting by the Board of Directors. Any
dispute as to votes or entitlement to vote will be decided by majority vote of
the Board of Directors.
Quorum
As to each item to be voted upon in this Proxy, a numerical majority of
the issued and outstanding shares needed to pass such measure must be present
or voted by Proxy at the meeting, as determined by the Inspector of Elections
at the time of meeting. Each proposal to be voted upon will only be adopted
by a majority vote of shares voted at the meeting, provided a quorum
consisting of fifty (50%) percent of the 4,439,919 votes which constitute the
aggregate of all voting classes, is present.
There are no matters to be voted upon as described by this Proxy upon
which management will proceed absent majority shareholder approval as
described above.
Abstentions
Abstentions will be counted for purposes of determining both (i) the
presence and absence of a quorum for the transaction of business and (ii) the
total number of votes cast with respect to a proposal (other than the election
of directors). In the absence of controlling precedent to the contrary, the
Company intends to treat abstentions in this manner. Accordingly, abstentions
will have the same effect as a vote against the proposal.
2
Broker Non-Votes
Broker non-votes will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business, but will not
be counted for purposes of determining the number of votes cast with respect
to the particular proposal on which the broker has expressly not voted.
Accordingly, broker non-votes will not affect the outcome of the voting on a
proposal that requires a majority of votes cast.
Stock Ownership of Certain Beneficial Owners and Management
The Company knows of no person or group, except the following, which, as
of the date of this Proxy Statement, beneficially owns and has the right to
vote more than 5% of the various voting shares in the Company:
NAME AND ADDRESS
OF BENEFICIAL OWNER VOTING SHARES BENEFICIALLY OWNED1 PERCENTAGE
Julie T. Reeves
1051 North Ash Drive
Chandler, AZ 85234 600,000 13.5
Evelyn R. Call
14878 Steep Mountain Drive
Draper, UT 84020 600,000 13.5
Rigel Hulett
P.O. Box 345
Reserve, New Mexico 87830 600,000 13.5
1 For the purposes of this chart, shares are aggregated by voting rights,
thus class "A" shares are only listed at 10% of the actual number issued for
voting purposes.
Stock Ownership in the Event of Merger Approval
In the event of the approval of the proposed merger transaction with
TradinGear.com, Inc., the following will own 5% or more of the outstanding
shares in the Company:
NAME AND ADDRESS
OF BENEFICIAL OWNER VOTING SHARES BENEFICIALLY OWNED PERCENTAGE
Samuel H. Gaer
c/o TradinGear.com, Inc.
39 Broadway, Suite 740
New York, NY 10006 6,750,000 32.28
Ronald Comerchero
14 Wall Street, 11th Flr
New York, NY 10005 2,000,000 9.56
3
Marni Gaer
c/o TradinGear.com, Inc.
39 Broadway, Suite 740
New York, NY 10006 1,900,000 9.08
Global Net Financial
7284 West Palmetto Park Rd.
Suite 210
Boca Raton, FL 33433
Attn: W. Thomas Hodgson Pres/CEO
R. Goldie, COO 1,338,889 6.40
Norman Fuchs
Five Flagpole Lane
East Setauket, NY 11733 1,200,000 5.73
Bruce Frank
c/o TradinGear.com, Inc.
39 Broadway, Suite 740
New York, NY 10006 1,710,584 8.18
MATTERS SUBJECT TO SHAREHOLDER VOTE
Proposal I
Merger with TradinGear
THE FOLLOWING DESCRIPTION OF TRADINGEAR DOES NOT PURPORT TO CONTAIN ALL THE
INFORMATION NECESSARY TO EVALUATE THE FUTURE SUCCESS OF THE MERGED COMPANY.
THE DESCRIPTION INCLUDES CERTAIN ESTIMATES, PROJECTIONS AND OTHER STATEMENTS
THAT MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED IN
FEDERAL SECURITIES LAWS WITH RESPECT TO THE ANTICIPATED FUTURE PERFORMANCE OF
THE MERGED COMPANY. THESE STATEMENTS AND OTHER INFORMATION PROVIDED BY
MANAGEMENT OF TRADINGEAR HAVE BEEN PREPARED IN GOOD FAITH AND ARE BASED UPON
ASSUMPTIONS, WHICH, IN LIGHT OF CIRCUMSTANCES UNDER WHICH THEY ARE MADE, ARE
REASONABLE. NO REPRESENTATIONS ARE MADE AND NO ASSURANCE CAN BE GIVEN THAT
AFTER THE MERGER WITH TRADINGEAR THE COMPANY CAN OBTAIN THE RESULTS THAT MAY
BE IMPLIED OR PROJECTED.
This section of the Proxy Statement describes certain aspects of the
acquisition of TradinGear.com, Inc., a Delaware corporation ("TradinGear"), to
become a wholly owned subsidiary of the Company, with subsequent merger, does
not comport to be complete and is qualified in its entirety by reference to
the Reorganization Agreement which can be obtained by request from the
Company. Information concerning the business and management of TradinGear set
forth below and elsewhere has been furnished by the management of such entity.
The Reorganization Agreement provides that TradinGear will merge with
DSI Acquisition, Inc., a newly formed subsidiary of the Company for the
purpose of implementing this transaction. In turn, the Company would issue
19,154,309 post reverse split Class A shares of the Company to DSI
4
Acquisition, Inc. which would then distribute those shares to the shareholders
of TradinGear on the basis of one share of Class A common stock for one share
of TradinGear common stock.
As a condition precedent to the closing of the Reorganization
Organization, TradinGear requires that the holders of Class B common stock
which, on a post split basis, would constitute 100,000 shares, agree to
exchange the 100,000 shares of Class B common stock into Class A common stock
and thus eliminate the voting preference attributed to Class B common stock.
As an integral part of this transaction, the wholly owned subsidiary of
the Company known as Digitran, Inc., a Utah corporation, would be merged into
an Arizona corporation known as Digitran Simulation Systems, Inc. ("DSSI")
owned by the heirs of Loretta P. Trevers, the recently deceased president of
DSI. The result of this merger transaction would be that the Company would
continue to own a nine (9%) percent interest in Digitran, Inc.
Based on separate financial statements for Digitran, Inc. dated as of
April 30, 2001, there is no net asset value to be placed on the investment
made by DSI in this subsidiary. Management of the Company therefore believes
the merger with DSSI provides the best opportunity to dispose of this now
defunct subsidiary.
The Reorganization Agreement contains a number of representations made
by the Company, DSI Acquisition, Inc. and TradinGear. Among other items, each
of the entities represented that it was in good standing in its state of
domicile; that the Reorganization Agreement was duly authorized by the
respective boards of directors; that the financial information provided to the
other entities was true and correct in all material respects; that there had
been no material changes since the date of the financial information; that
there were legal or administrative actions pending or contemplated which
involved the entities or their properties, except as disclosed in the
Reorganization Agreement; and that all federal and state corporate tax returns
had been filed and all taxes paid.
The Reorganization Agreement providing for the merger was approved by
the Board of Directors of the Company, subject to this proxy vote. Assuming
approval by the shareholders of the Company holding the voting shares, the
shareholders of TradinGear will receive on a pro rata basis one share of post
reverse split Class A common stock for each of the 19,154,309 issued and
outstanding shares of TradinGear. Also in connection with this transaction,
the Company will change its name to TG FIN Holdings, Inc.
Prior to the closing of the transaction each of the entities that were
signatories to the Reorganization Agreement, were granted full access to any
material information about the entity, its business or properties. The
entities conducted their business in the same manner prior to closing as they
had done prior to executing the Reorganization Agreement.
The Company will require majority shareholder approval to complete the
terms of the merger. Upon review by counsel, Digitran Systems does not
believe any dissenting shareholders are entitled to appraisal rights under
Delaware law.
5
Business of TradinGear
TradinGear's product suite is designed for use by traders in the
following major markets: broker dealers, exchanges, e-brokerage, hedgefund,
and commodity markets. The end-to-end electronic system of TradinGear allows
broker dealers and other users to capitalize on new technology, is easily
customized and can be assembled with a variety of tools. TradinGear is a
privately held Delaware corporation.
All systems developed by TradinGear have complete risk management
engines and are production quality. Before marketing their first system,
TradinGear created a "core" library of approximately three hundred generic
trading routines and functions. The system marketed by TradinGear is designed
using a small component architecture which allows TradinGear to rapidly deploy
customized software systems which shortens the implementation schedule and
also the payment schedule. Each component in the library was mapped around
the FIX protocol, and has the ability to be custom tailored to this industry
standard for electronic financial transactions.
Current and past clients of TradinGear include the Philadelphia Stock
Exchange, several broker dealers and hedge funds. Revenue during the
calendar year 2001 is anticipated to exceed $1,000,000 and management of the
Company projects $4,000,000 in revenue during the year 2002.
Marketing Strategies
TradinGear's software is designed for use in the following markets:
broker dealers, exchanges, e-brokerage, hedgefund, and commodity markets.
TradinGear will use competitive pricing models [monthly lease arrangements,
upfront licensing] to penetrate the above mentioned markets. TradinGear
believes it can design and deploy customized software systems quicker than the
competition, that this competitive advantage has been demonstrated with their
existing customer base, and will continue due to their proprietary software
construction technique. Since speed and professionalism combination is
necessary due to the constant changes in the securities industry, TradinGear
is poised to meet these challenges.
The software package known as TGTrade is designed by TradinGear to be
the most efficient and easiest to use solution for offline broker dealers and
their clients. Online trading has and will continue to increase as security
measures improve and the public becomes more comfortable with online money
management.
The percentage of investors using online trading is also rising. A
survey by the Investment Company Institute found that in 1998 eleven (11%)
percent of investors traded equities online. The same survey in 1999 found
that eighteen (18%) percent were trading online, illustrating the public's
willingness to accept new technology as systems improve. Again, this eighteen
(18%) percent of the investing community was forced to work with the two (2%)
percent of the broker-dealer community involved in online trading. It is
believed these trends will continue well beyond the year 2001 and will allow
TradinGear to capture its share of this growing market.
6
PROPOSAL II
Change in Capitalization
And Reverse Split
In connection with the transaction with TradinGear, the Board of
Directors recommended, and your vote is solicited, to change the
capitalization of the Company. On January 15, 2002, the Board approved a
proposed amendment to the certificate of incorporation which would increase
the number of shares of Class A common stock to 50,000,000 shares, reverse
split the existing Class A shares on a twenty-one to one share basis (21:1)
and reverse split the existing Class B shares on a twenty to one share basis
(20:1), subject to shareholder approval by this proxy. The present transfer
agent for the Company is ComputerShare Investor Services, P.O. Box 1596,
Denver, Colorado 80201-1596.
PROPOSAL III
Election of New Board
As part of the proposed reorganization, the plan of merger calls for the
election of the following individuals as the new Board of Directors. These
individuals, if elected, would then appoint principal officers for the
Company. It would be anticipated that most of the initial officers might be
appointed from the new directors listed below:
Samuel H. Gaer, Age 34: Mr. Gaer has thirteen years experience in
financial markets and financial software. He started his career on Wall
Street after graduating from The Wharton School of Business in 1988. In
1989, he formed Gaer Trading Group and proceeded to build a floor brokerage
operation that would eventually merged with Millennium Futures Group in 1993.
The 1993 merger of Millennium and Uptick (the successor to Gaer Trading Group)
formed one of the largest floor brokerage operation on the New York's
Commodities Exchange (Comex), boasting every major Wall Street trading house
as a customer.
In 1995, Mr. Gaer founded AustinSoft, Inc., a developer of financial
analysis software. AustinSoft concentrated on options analysis, and won
Stocks and Commodities Magazine's Reader's Choice Awards from 1996-1999 for
the highly acclaimed Optiontrader line of software.
Mr. Gaer left the brokerage industry in 1998 to concentrate on software
development at AustinSoft. Same began trading large risk arbitrage positions
for a hedge fund and for his own account. From his experience in trading on
electronic systems for the fund came the inspiration for TradinGear.
Mr. Gaer founded TradinGear in Spring 1999 with a simple goal in mind:
to provide online traders and brokerages firms with rapid access to superior,
user-friendly technology.
Marni Gaer, Age 35: Marni Gaer has served as TradinGear's corporate
counsel since its inception. Prior to joining the Company, Ms. Gaer was Vice
President and General Counsel for International Newspaper Printing Corporation
from 1992-1999. Her responsibilities included union and labor negotiations,
7
and general corporate law. Ms. Gaer earned her JD from Brooklyn Law School in
1991 and graduated from the University of Pennsylvania with a Bachelor of Arts
in Economics in 1988. She is the wife of Samuel H. Gaer.
Ronald Comerchero, Age 48: Mr. Comerchero has twenty years experience
in the trading business. He became a Member of the New York Mercantile
Exchange in 1981, and worked as an independent floor trader until 1995.
During that time he served as a Director of the New York Mercantile Exchange,
and was Chairperson of the Arbitration Committee and Vice Chair of the
Business Conduct and Membership Committee. In 1995, he became Managing
Director of Pioneer Futures, one of the largest independent clearinghouses on
the NYMEX. In 1998, he became an Allied Member of Valhalla Partners and is
currently responsible for risk management procedures implemented at Valhalla
and (through Valhalla Management) risk management at Catalyst Trading LLC.
SUMMARY INFORMATION AS TO DIRECTORS
NAME Anticipated Number of Shares Percentage of issued and
Compensation (Beneficial & Legal) Outstanding
SAMUEL H. GAER $50,000 6,750,000 32.28
MARNI GAER $12,000 1,900,000 9.08
RONALD COMERCHERO $ 1,000 2,000,000 9.56
PROPOSAL IV
Ratification of Appointment of Independent Accountants
The Board of Directors intends to appoint Samuel Klein, CPAs as
independent certified public accountants for the Company to examine the
financial statements of the Company for the fiscal year ending December 31,
2001. The appointment of Samuel Klein, CPAs is subject to ratification of the
shareholders and a ballot soliciting your vote for such ratification is part
of these proxy materials. The present Board of Directors as well as the
nominees to be elected recommends adoption of the resolution appointing the
foregoing accounting firm as the independent auditors for the Company.
8
Board and Committee Meetings
During the fiscal year ending April 30, 2001 (the "Last Fiscal Year"),
the Board of Directors held three (3) meetings. The Board has held two (2)
meetings in calendar year 2001 to date. The Board of Directors does not have
separate sections or committees. All audits and compensation issues, as well
as other matters, are addressed as a committee of the whole.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's executive officers and persons who beneficially
own more than 10% of the Company's Common Stock to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission ("SEC"). Such persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the
Company and representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors and more than 10% stockholders were complied with during
the Last Fiscal Year and will be completed as to new shareholders promptly
upon completion of the merger.
Executive Compensation
Certain additional required information concerning remuneration, other
compensation and ownership of securities by the Directors and Officers is set-
out in the Company's Form 10-KSB Report dated April 30, 2001, which is
incorporated by reference. Since the demise of its president, Loretta P.
Trevers, no compensation has been paid to any officer or director subsequent
to April 30, 2001. New management has not been appointed and no provisions
for salary are presently determined. Anticipated compensation to be paid
management of the Company after the merger with TradinGear is set out in the
table found on page 8.
Proposed Director Remuneration
There is no current policy for compensation to be paid to directors.
Assuming the merger transaction is approved, it is contemplated that present
outside director Ronald Comerchero will receive fees in the approximate amount
of $1,000 for attending directors' meeting during the fiscal year ended April
30, 2002.
Certain Relationships and Related Transactions
Management is not presently authorized or holds any stock options or
other stock rights. No new rights or options are being created as part of the
merger.
9
Management's Stock Rights and Options
The Company is not aware of any significant relationships or
transactions that need to be reported in its Form 10-KSB and/or this proxy
statement. No new rights or options are being created as part of the merger.
Management's Recommendations
The present Board recommends your vote for all of the foregoing
proposals, but will provide in the Ballot Form space to vote for other
nominees; or to vote against or abstain from the other proposals.
Other Matters
The Special Meeting is called for the purposes set forth in the notice
thereof. The Board of Directors does not intend to present, and has not been
informed that any other person intends to present, any matters for action at
the Special Meeting other than those specifically referred to in the Notice of
Meeting and this Proxy Statement. If any other matters are properly brought
before the Special Meeting, it is the intention of the proxy holders to vote
on such matters in accordance with their judgment.
Stockholder Proposals
There were no stockholders proposals submitted for consideration at this
Special Meeting. The Company must receive stockholder proposals intended to
be considered at the next Annual Meeting of Stockholders no later than
December 31, 2001. Such proposals may be included in the next proxy statement
if they comply with certain rules and regulations promulgated by the
Securities and Exchange Commission.
Transaction of Other Business
At the date of this Proxy Statement, the only business that the Board of
Directors intends to present or knows that others will present at the meeting
is as set forth above. If any other matter or matters are properly brought
before the meeting, or any adjournment thereof, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgment.
Any stockholder may present a matter from the floor for consideration at
a meeting so long as the procedures established for such meeting and the
Bylaws are followed.
Other Information
Financial Reports & Other Important Documents
Audited statements of the Company on a combined basis with its wholly
owned subsidiary, Digitran, Inc., for the years April 30, 2000 and April 30,
2001 are contained in the SEC Form 10-KSB filed with the United States
Securities and Exchange Commission and are deemed to be incorporated in this
Proxy Statement. SEC Form 10-QSB for the period ended October 31, 2001 has
also been filed with the Commission and is deemed to be incorporated in this
10
Proxy Statement. A separate audited financial statement for the Company dated
as of April 30, 2001 is attached to this Proxy Statement as is a separate
unaudited financial statement for Digitran, Inc. dated as of April 30, 2001
compiled by the Company's internal auditors. Also attached to this Proxy
Statement are unaudited financial statements for TradinGear for calendar year
2000 and for the comparative nine month periods ended September 30, 2000 and
September 30, 2001.
Further Information
All references to each document referred to in this Proxy Statement are
qualified in their entirety by reference to the complete contents of such
document. Copies of these documents may be obtained by shareholders, without
cost, upon request from management of the Company by writing Scott Lybbert,
Secretary, Digitran Systems, Inc., 205 West 8800 South, P.O Box 91, Paradise,
Utah 84328-0091. You may also request information from management of
TradinGear by mailing a request to TradinGear.com, Inc., 390 Broadway, Suite
740, New York, New York 10006. Attention: Lawrence J. Doherty.
In order to streamline the counting of proxy votes, your proxy ballot
should be mailed to Digitran Systems, Inc., c/o Robert H. Jaffe & Associates,
8 Mountain Avenue, Springfield, New Jersey 07081.
Dated: January 15, 2002
BY ORDER OF THE BOARD OF DIRECTORS:
/S/Scott Lybbert
Scott Lybbert, Secretary
DIGITRAN SYSTEMS, INC. PROXY BALLOT
SPECIAL MEETING, FEBRUARY 28, 2002
Please complete, sign and provide any additional information on this Proxy
Ballot and return it to the Company by mail to the office of Robert H. Jaffe &
Associates, P.A., 8 Mountain Avenue, Springfield, New Jersey 07081 in the
enclosed self-addressed stamped envelope provided prior to February 22, 2002.
FOR AGAINST ABSTAIN PROPOSAL
Election of all current management
nominees to the Board of Directors. If
voting against election of all, indicate
below your individual vote.
- ---- ---- ----
YOU MAY VOTE FOR ALL CURRENT NOMINEES ABOVE; OR
YOU MAY VOTE INDIVIDUALLY AS TO EACH PROPOSED
DIRECTOR BELOW
- ---- ---- ---- Mr. Samual A. Gaer, Director and President
- ---- ---- ---- Mrs. Marni Gaer, Director
- ---- ---- ---- Mr. Ronald Comerchero, Director
OTHER MATTERS
- ---- ---- ---- Approval of Merger Transaction
- ---- ---- ---- Approval of Change In Capitalization and
Reverse Split Stock
- ---- ---- ---- Ratification to retain Samuel Klein, CPAs
as independent CPAs for the Company.
- ---- ---- ---- Grant to current management the right to
vote your proxy in accordance with their
judgment on other matters as may properly
come before the meeting.
OTHER SHAREHOLDER PROPOSALS AND/OR NOMINATIONS
(Unless otherwise indicated, your proxy will be voted in favor of any
nomination or proposal indicated below.)
(Attach sheets as necessary)
_____ Check here if you plan
to attend meeting. ----------------------------
SIGNATURE
Print Shareholder Name(s) exactly
as they appear on your Certificate: Complete If Known:
____________________________ Certificate #:__________________
____________________________ No. of Shares:__________________
Date____________________________
DIGITRAN SYSTEMS, INCORPORATED
205 West 8800 South
P.O. Box 91
Paradise, Utah 84328-0091
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
February 28, 2002
3:00 P.M. (EST)
To Our Shareholders:
Notice is hereby given of a Special Meeting of Shareholders (the
"Special Meeting") of Digitran Systems, Inc. (the " Company") to all of the
shareholders of the Company. The Special Meeting will be held at the Holiday
Inn located on Route 22 West in Springfield, New Jersey on February 28, 2002
at 3:00 p.m. Eastern Standard Time for the following purposes:
1. Approval of Merger Transaction
2. Change in Capitalization and Reverse Split Stock
3. Election of Board of Directors
4. Ratification of the appointment of the Company's independent
auditors.
Consideration and action upon such other business as may properly come
before this meeting or any adjournment thereof.
The enclosed Proxy Statement includes information relating to these
proposals.
All shareholders of record of the Company's common stock at the close of
business on January 15, 2002 are entitled to notice of and to vote at the
Special Meeting or any adjournment or postponement thereof. At least a
majority of the outstanding shares of common stock of the Company present in
person or by proxy is required for a quorum.
By Order of the Board of Directors
/s/Scott Lybbert
Scott Lybbert, Secretary
DIGITRAN SYSTEMS, INCORPORATED
FINANCIAL STATEMENTS
April 30, 2001
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . 3
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations. . . . . . . . . . . . . . . . . . . 6
Statements of Shareholders' (Deficit) . . . . . . . . . . . . . 7
Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . 8
Notes to the Financial Statements . . . . . . . . . . . . . . . 9
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Digitran Systems, Incorporated
We have audited the consolidated balance sheet of Digitran Systems,
Incorporated as of April 30, 2001, and the related statements of operations,
shareholders' deficit, and cash flows for the years ended April 30, 2001 and
2000. 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.
Except as discussed in the following paragraph, we conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digitran Systems,
Incorporated as of April 30, 2001, and the results of its operations and
its cash flows for the years ended April 30, 2001 and 2000, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring operating losses, and
has an accumulated deficit. These conditions raise substantial doubt about
its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/S/HJ & Associates
HJ & Associates
Salt Lake City, Utah
July 31, 2001
DIGITRAN SYSTEMS, INCORPORATED
Balance Sheet
ASSETS
April 30,
2001
CURRENT ASSETS
Cash $ -
Receivable from subsidiary 1,819,421
Total Current Assets 1,819,421
TOTAL ASSETS $ 1,819,421
The accompanying notes are an integral part of these financial statements.
DIGITRAN SYSTEMS, INCORPORATED
Balance Sheet (Continued)
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
April 30,
2001
CURRENT LIABILITIES
Accrued expenses $ 12,252
Current portion of notes payable (Note 2) 155,889
Total Current Liabilities 168,141
LONG-TERM LIABILITIES
Investment in subsidiary 5,207,837
Total Long-Term Liabilities 5,207,837
Total Liabilities 5,375,978
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' (DEFICIT)
Preferred stock, $0.01 par value: 1,000,000 shares
authorized, 51,500 shares issued and outstanding,
(entitled to one-tenth vote per share) 516
Common stock, $0.01 par value: 25,000,000 shares
authorized, 23,347,699 shares issued and outstanding
(entitled to one-tenth vote per share) 233,477
Class B common stock, $0.01 par value: 5,000,000 shares
authorized, 2,000,000 shares issued and outstanding
(entitled to one vote per share) 20,000
Additional paid-in capital 10,416,438
Minority interest -
Accumulated (deficit) (14,226,988)
Total Shareholders' (Deficit) (3,556,557)
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 1,819,421
The accompanying notes are an integral part of these financial statements.
DIGITRAN SYSTEMS, INCORPORATED
Statements of Operations
For the Years Ended
April 30,
2001 2000
REVENUES $ - $ -
OPERATING COSTS - -
OTHER EXPENSE
Interest expense 12,168 21,809
Loss from investment in subsidiary 603,876 55,458
Total Other Expense 616,044 77,267
OPERATING LOSS 616,044 77,267
NET LOSS (616,044) (77,267)
OTHER COMPREHENSIVE INCOME (LOSS)
Dividends on convertible preferred stock; unpaid (28,840) (29,994)
Total Other Comprehensive Income (Loss) $ (644,884) $ (107,261)
BASIC (LOSS) PER SHARE
Continuing operations $ (0.03) $ (0.00)
Total (Loss) Per Share $ (0.03) $ (0.00)
WEIGHTED AVERAGE SHARES OF COMMON STOCK 22,500,947 16,361,144
The accompanying notes are an integral part of these financial statements.
DIGITRAN SYSTEMS, INCORPORATED
Statements of Shareholders' Deficit
For the Years Ended April 30, 2001 and 2000
Preferred Stock Common Stock
Shares Amount Shares Amount
Balance at April 30, 1999 56,575 $ 566 14,126,861 $ 141,269
Shares issued for debt - - 73,142 731
Shares issued for debt -
Class B - - - -
Shares issued for services - - 8,276,471 82,765
Conversion of preferred
shares (2,925) (29) 10,700 107
Net loss for the year
ended April 30, 2000 - - - -
Balance at April 30, 2000 53,650 537 22,487,174 224,872
Conversion of preferred
shares (2,150) (21) 22,659 227
Reversal of Class B
issuance - - - -
Shares issued for services - - 392,341 3,923
Shares issued for debt - - 445,525 4,455
Net loss for the year ended
April 30, 2001 - - - -
Balance, April 30, 2001 51,500 $ 516 23,347,699 $ 233,477
CONTINUED
DIGITRAN SYSTEMS, INCORPORATED
Statements of Shareholders' Deficit
For the Years Ended April 30, 2001 and 2000
Class B Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
Balance at April 30, 1999 2,000,000 $ 20,000 $ 9,315,986 $(13,533,677)
Shares issued for debt - - 673,131 -
Shares issued for debt -
Class B 600,000 6,000 54,000 -
Shares issued for services - - 337,644 -
Conversion of preferred
shares - - (78) -
Net loss for the year
ended April 30, 2000 - - - (77,267)
Balance at April 30, 2000 2,600,000 26,000 10,380,683 (13,610,944)
Conversion of preferred
shares - - (206) -
Reversal of Class B
issuance (600,000) (6,000) (54,000) -
Shares issued for services - - 35,311 -
Shares issued for debt - - 54,650 -
Net loss for the year ended
April 30, 2001 - - - (616,044)
Balance, April 30, 2001 2,000,000 $ 20,000 $10,416,438 $(14,226,988)
The accompanying notes are an integral part of these financial statements.
DIGITRAN SYSTEMS, INCORPORATED
Statements of Cash Flows
For the Years Ended
April 30,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (616,044) $ (77,267)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on investment in subsidiary 603,876 55,458
Changes in operating assets and liabilities:
Increase in accounts payable and other current
liabilities 18,168 77,284
Net Cash Used In Operating Activities 6,000 55,475
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment - -
Net Cash Provided In Investing Activities - -
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (6,000) (55,475)
Net Cash Used by Financing Activities (6,000) (55,475)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS - -
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR - -
CASH AND CASH EQUIVALENTS AT END OF YEAR $ - $ -
The accompanying notes are an integral part of these financial statements.
DIGITRAN SYSTEMS, INCORPORATED
Notes to Financial Statements
April 30, 2001 and 2000
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
History and Business Activity
Digitran Systems, Incorporated (the Company) was formed under the
laws of the State of Delaware in March 1985 as Mark, Inc. The
Company began business operations in September 1985 when it acquired
all the outstanding shares of Digitran, Inc., and the Company
changed its name to Digitran Systems, Incorporated. In 1992,
Digitran, Inc. (a subsidiary) introduced a digital petroleum well
pressure control simulator training system. In addition, Digitran,
Inc. has developed crane training simulation systems for the
construction and maritime crane industries and a truck driving
training simulation system. In 1999, the Company started Digital
Simulation Systems, Inc., a 95%-owned subsidiary. During the year,
the Subsidiaries disposed of all fixed assets and operations except
for the petroleum services operations.
Going Concern
The Company has suffered recurring losses from operations and has a
shareholders' deficit of approximately $3,400,000 as of April 30,
2001. The Company plans are to merge with an existing operating
company. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might
result from the outcome of this uncertainty.
The Company continues to rely on the sale and exchange of its
securities to fund its operations.
Cash Equivalents
For purposes of the statement of cash flows, cash includes all cash
investment with original maturities to the Company of three months
or less.
Revenue Recognition
The Company's sole source of revenue is from its investment in
subsidiaries. Revenue from subsidiaries is recognized using the
equity method.
The Company's subsidiaries recognize revenue on the manufacture and
sale of computer driven simulation equipment. The sales can be from
existing inventory of the Subsidiaries, wherein the revenue is
recognized once the amount and collectibility are reasonably
assured. Sales may also be generated through contractual agreements
between the Subsidiaries and their customers which require the
Subsidiaries to manufacture the product and/or customize some of the
software applications for specific training scenarios. Where the
Subsidiaries are required to develop and manufacture a simulator,
the Subsidiaries contract with other entities to complete the
project. As of April 30, 2001 and 2000, there were no significant
contracts in progress.
DIGITRAN SYSTEMS, INCORPORATED
Notes to Financial Statements
April 30, 2001 and 2000
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (Continued)
For most contracts, the revenue recognized at the statement date is
the proportion of total revenue equal to the percentage of the labor
hours incurred to date on that contract compared to anticipated
final total labor hours to be incurred in completing the contract,
based on current estimates of labor hours required to complete the
contract.
Contract costs include all direct labor and benefits, material
unique to or installed in the project, and indirect costs
allocation, including employee benefits and equipment expense.
As contracts extend over one or more years, revisions in cost and
earning estimates during the course of the work are reflected in the
accounting period in which the estimates are adjusted. At the time
a loss on a contract becomes known, the entire amounts of the
estimated ultimate loss is recognized in the financial statements.
In October 1999, the Company's Subsidiaries entered into an
agreement to sell software rights. Revenue from this transaction
has been delayed and recognized as cash is received from the
purchasing company due to the low reliability of collections. As
specified by SAB 101, revenue is not to be recognized until both
earned and realized or realizable. During the year ended April 30,
2001, the Subsidiaries recognized approximately $91,000 in revenue
associated with the software sale which is equal to the amount
collected from the purchaser.
Basic Loss Per Share
Basic loss per common share is based on net loss after preferred
stock dividend requirements and the weighted average number of
common shares outstanding, including Class B common stock, during
each year after giving effect to stock options considered to be
dilutive common stock equivalents, determined using the treasury
stock method. Fully diluted net loss per common share is not
materially different from primary net loss per common share.
Concentration of Credit Risk
The Company has cash in bank and short-term investments which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is
not exposed to any significant credit risk on cash and short-term
investments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
DIGITRAN SYSTEMS, INCORPORATED
Notes to Financial Statements
April 30, 2001 and 2000
NOTE 2 - NOTES PAYABLE
Notes payable at April 30, 2001 are comprised of the following:
Note payable to investors with interest at a rate from 12% to
24% due on demand. $ 155,889
Total Notes Payable 155,889
Less current portion (155,889)
Long-term debt $ -
Future maturities of notes payable are as follows:
Year Ending Amount
2001 $ 155,889
2002 -
2003 -
2004 -
Thereafter -
$ 155,889
NOTE 3 - CAPITAL STOCK
The Company's capital stock consists of common stock, Class B common
stock and preferred stock. The common stock provides for a
noncumulative $0.05 per share annual dividend and a $0.01 per share
liquidation preference over Class B common. In addition, the
Company must pay the holders of the common stock a dividend per
share at least equal to any dividend paid to the holders of Class B
common. Holders of the common stock are entitled to one-tenth of a
vote for each share held.
Class B common may not receive a dividend until an annual dividend
of at least $0.05 is paid on the common stock. Holders of Class B
common have preemptive rights with respect to the Class B common
stock and may convert each share of Class B common into one share of
the common stock at any time. Holders of Class B common are
entitled to one vote per share held.
DIGITRAN SYSTEMS, INCORPORATED
Notes to Financial Statements
April 30, 2001 and 2000
NOTE 3 - CAPITAL STOCK (Continued)
The Series 1 Class A 8% Cumulative Convertible Preferred Stock has a
par value of $0.01 per share. As of April 30, 2001, there were
51,500 shares outstanding. Holders of preferred shares are entitled
to cumulative dividends of 8% per annum on the stated value of the
stock, designated at $7 per share. Dividends are payable semi-
annually on September 15 and March 15. No dividends have been paid
since March 15, 1993, resulting in dividends in arrears for 2001 and
2000 of approximately $239,096 and $210,256, respectively, or $4.64
and $3.92 per share, respectively. Dividends are not payable on any
other class of stock ranking junior to the preferred stock until the
full cumulative dividend requirements of the preferred stock have
been satisfied. The preferred stock carries a liquidation
preference equal to its stated value plus any unpaid dividends.
Convertibility of any preferred stock issued may be exercised at the
option of the holder thereof at three shares of common stock for
each preferred share converted. Holders of the preferred stock are
entitled to one-tenth of a vote for each share of preferred stock
held. The Company may, at its option, redeem at any time all shares
of the preferred stock or some of them upon notice to each preferred
stockholder at a per share price equal to the stated value ($7.00)
plus all accrued and unpaid dividends thereon (whether or not
declared) to the date fixed for redemption, subject to certain other
provisions and requirements.
NOTE 4 - INCOME TAXES
The income tax benefit differs from the amount computed at federal
statutory rates as follows:
For the Years Ended
April 30,
2001 2000
Income tax benefit at statutory rate $ 184,000 $ 26,000
Change in valuation allowance (184,000) (26,000)
$ - $ -
Deferred tax assets (liabilities) at April 30, 2001 are comprised of
the following:
Net operating loss carryforward $ 5,044,342
Depreciation -
Accrued commission -
Valuation allowance (5,044,342)
$ -
DIGITRAN SYSTEMS, INCORPORATED
Notes to Financial Statements
April 30, 2001 and 2000
NOTE 4 - INCOME TAXES (Continued)
At April 30, 2001, the Company has a net operating loss carryforward
available to offset future taxable income of approximately
$14,200,000, which will begin to expire in 2008. If substantial
changes in the Company's ownership should occur, there would also be
an annual limitation of the amount of NOL carryforwards which could
be utilized. No tax benefit had been reported in the financial
statements, because the Company believes there is a 50% or greater
chance the carryforwards will expire unused. The tax benefits of
the loss carryforwards are offset by a valuation allowance of the
same amount.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended April 30, 2001, the Company converted 2,150
shares of preferred stock to 22,659 shares of common stock in
accordance with the preferred stock conversion feature.
For the Years Ended
April 30,
2001 2000
Interest paid $ - $ -
Income taxes paid $ - $ -
NOTE 6 - STOCK OPTIONS AND WARRANTS
Information regarding the Company's stock options and warrants are
summarized below:
Number of
Options and Option Price
Warrants Per Share
Outstanding at April 30, 2000 1,390,962 $ 0.25 - 1.08
Granted - -
Exercised - -
Expired or canceled (165,157) 1.00
Outstanding at April 30, 2001 1,225,805 $ 0.25 - 1.08
Options and warrants exercisable at April 30, 2001 and 2000 are
1,225,805 and 1,390,962, respectively.
DIGITRAN SYSTEMS, INCORPORATED
Notes to Financial Statements
April 30, 2001 and 2000
NOTE 7 - SHAREHOLDER LITIGATION
The Company was a Defendant in a class action lawsuit filed by
certain stockholders of the Company alleging that the company
published or released false or misleading information relating to
the recognition of revenue on certain contracts and improperly
capitalizing certain simulator development costs. Following a
trial, which commenced on September 30, 1996, the Company was found
to be twenty-five (25%) percent liable to the Class Members in the
lawsuit. In addition, the Company's subsidiary, Digitran, Inc., was
also found liable for twenty-five (25%) percent of the damages, and
the Company's former President, Donald G. Gallent, was found to be
fifty (50%) percent liable. A Judgment was rendered at that time in
the amount of $13,000,000. This judgment was rendered in total
against all three defendants, without attribution of pro rata fault.
The Company reached a court approved Settlement Agreement with Class
Counsel as of July 15, 1997. The Settlement Agreement called for
Digitran (the Company) to pay the sum of $600,000 within forty-five
days of the date of the preliminary district court approval by the
United States District Court for the District of Utah, and two
additional payments of $200,000 each. The Company has paid the
payments within the due date called for in the settlement agreement.
All other parties to the action have dismissed their claims and
there will be no appeal by any party to the Company's knowledge at
this time.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there may be various other legal
actions and proceedings pending which seek damages against the
Company. Management believes that the amount, if any, that may
result from these claims, will not have a material adverse affect on
the financial statements.
DIGITRAN, INC.
FINANCIAL STATEMENTS
April 30, 2001
DIGITRAN INC.
Balance Sheet
ASSETS
April 30,
2001
CURRENT ASSETS
Cash $ 341
Total Current Assets 341
TOTAL ASSETS $ 341
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 860,348
Accrued expenses 1,995,899
Current portion of notes payable (Note 3) 532,510
Due to parent 1,819,421
Total Current Liabilities 5,208,178
LONG-TERM LIABILITIES (Note 3) -
Total Liabilities 5,208,178
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' (DEFICIT)
Common stock, $0.00 par value: 50,000 shares
authorized, 1,000 shares issued and outstanding -
Additional paid-in capital -
Accumulated (deficit) (5,207,837)
Total Shareholders' (Deficit) (5,207,837)
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 341
The accompanying notes are an integral part of these financial statements.
DIGITRAN INC.
Statements of Operations
For the Years Ended
April 30,
2001 2000
REVENUES $ - $ -
OPERATING COSTS - -
OPERATING LOSS - -
OPERATING LOSS BEFORE LOSS FROM
DISCONTINUED OPERATIONS - -
LOSS FROM DISCONTINUED OPERATIONS (Note 8) (603,877) (55,458)
NET LOSS (603,877) (55,458)
BASIC (LOSS) PER SHARE
Discontinued operations (603.88) (554.46)
Total (Loss) Per Share $ (0.02) $ (554.46)
WEIGHTED AVERAGE SHARES OF COMMON STOCK 1,000 1,000
The accompanying notes are an integral part of these financial statements.
DIGITRAN INC.
Statements of Shareholders' Deficit
For the Years Ended April 30, 2001 and 2000
Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
Balance at April 30, 1999 1,000 $ - $ - $(4,548,502)
Net loss for the year ended
April 30, 2000 - - - (55,458)
-------- --------- --------- -----------
Balance at April 30, 2000 1,000 $ - $ - $(4,603,960)
Net loss for the year ended
April 30, 2001 - - - (603,877)
-------- --------- --------- -----------
Balance, April 30, 2001 1,000 $ - $ - $(5,207,837)
The accompanying notes are an integral part of these financial statements.
DIGITRAN, INC.
Statements of Cash Flows
For the Years Ended
April 30,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (603,877) $ (55,458)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization - 62,802
Gain on disposal of assets - (504,238)
Changes in operating assets and liabilities:
Decrease in accounts receivable 74,429 173,548
Decrease in inventory - 65,397
Increase in accounts payable and other current
liabilities 493,449 170,413
Net Cash Used In Operating Activities (35,999) (87,536)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment - 94,600
Net Cash Provided In Investing Activities - 94,600
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - 245,000
Payments on notes payable - (219,334)
Net Cash Used by Financing Activities - 25,666
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (35,999) 32,730
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 35,999 3,269
CASH AND CASH EQUIVALENTS AT END OF YEAR $ - $ 35,999
The accompanying notes are an integral part of these financial statements.
DIGITRAN, INC.
Notes to the Financial Statements
April 30, 2001 and 2000
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
History and Business Activity
Digitran, Inc. is a wholly owned subsidiary of Digitran Systems,
Incorporated (the Parent). The Company began primary business
operations in September 1985 when Digitran Systems, Inc. acquired
all the outstanding shares of Digitran, Inc., and the Parent
changed its name to Digitran Systems, Incorporated. In 1992,
Digitran, Inc. introduced a digital petroleum well pressure control
simulator training system. In addition, Digitran, Inc. has
developed crane training simulation systems for the construction and
maritime crane industries and a truck driving training simulation
system. During the year, the Company disposed of all of its fixed
assets and operations except for its petroleum services operations.
Essentially, the Company discontinued its operations.
Going Concern
The Company has suffered recurring losses from operations and has a
shareholders' deficit of approximately $5,200,000 as of April 30,
2001. The Company plans are to merge with an existing operating
company. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might
result from the outcome of this uncertainty.
The Company continues to rely on the sale and exchange of its parent
company stock to fund its operations.
Revenue Recognition
The Company recognizes revenue on the manufacture and sale of
computer driven simulation equipment. Sales may be generated through
contractual agreements between the company and their customers which
require the Company to manufacture the product and/or customize some
of the software applications for specific training scenarios. Where
the Company is required to develop and manufacture a simulator, the
Company contracts with other entities to complete the project. As of
April 30, 2001 and 2000, there were no significant contracts in
progress.
DIGITRAN INC.
Notes to the Financial Statements
April 30, 2001 and 2000
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (Continued)
For most contracts, the revenue recognized at the statement date is
the proportion of total revenue equal to the percentage of the labor
hours incurred to date on that contract compared to anticipated
final total labor hours to be incurred in completing the contract,
based on current estimates of labor hours required to complete the
contract.
Contract costs include all direct labor and benefits, material
unique to or installed in the project, and indirect costs
allocation, including employee benefits and equipment expense.
As contracts extend over one or more years, revisions in cost and
earning estimates during the course of the work are reflected in the
accounting period in which the estimates are adjusted. At the time
a loss on a contract becomes known, the entire amounts of the
estimated ultimate loss is recognized in the financial statements.
In October 1999, the Company entered into an agreement to sell
software rights. Revenue from this transaction has been delayed and
recognized as cash is received from the purchasing company due to
the low reliability of collections. As specified by SAB 101,
revenue is not to be recognized until both earned and realized or
realizable. During the year ended April 30, 2001, the Company
recognized approximately $91,000 in revenue associated with the
software sale which is equal to the amount collected from the
purchaser.
Basic Loss Per Share
Basic loss per common share is based on net loss and the weighted
average number of common shares outstanding during each year after
giving effect to stock options considered to be dilutive common stock
equivalents, determined using the treasury stock method. Fully
diluted net loss per common share is not materially different from
primary net loss per common share.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
DIGITRAN INC.
Notes to the Financial Statements
April 30, 2001 and 2000
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising
The Company follows the policy of charging the costs of advertising
to expense as incurred.
NOTE 2 - RELATED PARTY TRANSACTIONS
At April 30, 2000, the Company included approximately $74,000 of
advances and commissions payable to a shareholder/officer which was
eliminated during the current year.
The Company currently owes $1,800,000 to its parent company.
NOTE 3 - NOTES PAYABLE
Notes payable at April 30, 2001 are comprised of the following:
Notes payable to stockholder, officers or directors (related
parties) with interest at rates ranging from 12% to 60%,
due on demand, unsecured or secured by receivables,
or equipment. $ 389,135
Note payable to investors with interest at a rate from
12% to 24% due on demand. 143,375
Total Notes Payable 532,510
Less current portion (532,510)
Long-term debt $ -
Future maturities of notes payable are as follows:
Year Ending Amount
2001 $ 532,510
2002 -
2003 -
2004 -
Thereafter -
$ 532,510
DIGITRAN INC.
Notes to the Financial Statements
April 30, 2001 and 2000
NOTE 4 - INCOME TAXES
The income tax benefit differs from the amount computed at federal
statutory rates as follows:
For the Years Ended
April 30,
2001 2000
Income tax benefit at statutory rate $ 229,473 $ 21,074
Change in valuation allowance (229,473) (21,074)
$ - $ -
Deferred tax assets (liabilities) at April 30, 2001 are comprised of
the following:
Net operating loss carryforward $ 1,978,978
Depreciation -
Accrued commission -
Valuation allowance (1,978,978)
$ -
At April 30, 2001, the Company has a net operating loss carryforward
available to offset future taxable income of approximately
$5,200,000, which will begin to expire in 2008. If substantial
changes in the Company's ownership should occur, there would also be
an annual limitation of the amount of NOL carryforwards which could
be utilized. No tax benefit had been reported in the financial
statements, because the Company believes there is a 50% or greater
chance the carryforwards will expire unused. The tax benefits of
the loss carryforwards are offset by a valuation allowance of the
same amount.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
Non-Cash Financing Activities
For the Years Ended
April 30,
2001 2000
Issuance of parent stock for services $ 39,234 $ 420,409
Parent common stock issued for payment
of debt 59,105 733,862
Total $ 98,339 $1,154,271
DIGITRAN INC.
Notes to the Financial Statements
April 30, 2001 and 2000
NOTE 6 - MAJOR CUSTOMERS AND EXPORT SALES
Sales to major customers which exceeded 10% of net sales are as
follows:
For the Years Ended
April 30,
2001 2000
Company A $ 74,185 $ -
Company B 25,461 $ -
Company C - $ 302,197
Export sales to unaffiliated customers were as follows:
For the Years Ended
April 30,
Region 2001 2000
North America (excluding the U.S.) $ - $ 357,000
Asia 25,461 133,000
Middle East 74,185 -
$ 99,646 $ 490,000
NOTE 7 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there may be various other legal
actions and proceedings pending which seek damages against the
Company. Management believes that the amount, if any, that may
result from these claims, will not have a material adverse affect on
the financial statements.
The Company has not filed any federal quarterly payroll withholding
reports to the IRS since March of 1998. The Company has accrued the
tax withholding liability for these reports and has estimated and
accrued related penalties and interest. These accrued and
accumulated payroll tax amounts will be a continuing liability of
the corporation until fully paid. Management indicates it intends
to pursue a workable payment schedule with the appropriate taxing
authorities until fully current. Consequently, it is uncertain
what, if any, action the IRS may pursue regarding the collection of
these taxes.
DIGITRAN, INC.
Notes to the Financial Statements
April 30, 2001 and 2000
NOTE 8 - DISCONTINUED OPERATIONS
The following is a summary of the loss from discontinued operations
resulting from the elimination of the operations. The financial
statements have been retroactively restated to reflect this event.
No tax benefit has been attributed to the discontinued operations.
For the
Year Ended
April 30,
2001 2000
NET SALES $ 99,646 $ 903,742
COST OF SALES 87,923 483,459
GROSS PROFIT 11,723 420,283
EXPENSES
Selling, general and administrative expenses 588,848 679,451
Depreciation and amortization - 62,802
Total Expenses 588,848 742,253
LOSS FROM OPERATIONS (577,125) (321,970)
OTHER INCOME (EXPENSE)
Interest expense (118,419) (237,726)
Gain on disposal of assets 91,667 504,238
Total Other Income (Expense) (26,752) 266,512
LOSS BEFORE INCOME TAXES (603,877) (55,458)
INCOME TAX BENEFIT - -
NET LOSS $ (603,877) $(55,458)
TRADINGEAR.COM, INC.
FINANCIAL STATEMENTS
UNAUDITED
TRADINGEAR.COM, INC.
BALANCE SHEET
(UNAUDITED)
September 30, December 31, December 31,
ASSETS 2001 2000 1999
- ------ ------------- ------------ -----------
Current Assets:
Cash and cash equivalents $ - $ 97,257 $ 650,454
Accounts receivable, net 43,087 50,300 -
Investments, available for sale
Securities - 755,847 1,764,285
Prepaid expenses 470,523 307,188 515,063
Deferred costs 49,899 - -
----------- ----------- -----------
Total Current Assets 563,509 1,210,592 2,929,802
Property and equipment, net 146,003 137,369 75,947
Deposits 101,621 101,621 -
----------- ----------- -----------
Total Assets $ 811,133 $ 1,449,582 $ 3,005,749
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 47,742 $ 326,918 $ 87,540
Accrued expenses - 25,000 655
Deferred revenue - 130,000 -
----------- ----------- -----------
Total Current Liabilities 47,742 481,918 88,195
----------- ----------- -----------
Stockholders' Equity:
Common stock ($.0001 par value,
30,000,000 shares authorized,
17,758,987 shares issued and
outstanding at December 31, 1999
and 2000 and 18,674,309 at
September 30, 2001 1,867 1,776 1,776
Additional paid-in-capital 3,003,033 2,733,146 2,733,146
Unrealized gain on available for
sale securities - - 667,188
Retained earnings (deficit) (2,241,509) (1,767,258) (484,556)
------------ ----------- -----------
Total Stockholders' Equity 763,391 967,664 2,917,554
------------ ----------- -----------
Total Liabilities and
Stockholders' Equity $ 811,133 $ 1,449,582 $ 3,005,749
============ =========== ===========
See accompanying notes to these financial statements.
TRADINGEAR.COM, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the
For the Nine Months Ended Year Ended
September 30, December 31,
2001 2000 2000
Revenues:
Software license fees $ 613,936 $ 216,748 $ 242,778
Costs and Expense:
General and administrative 428,892 480,957 636,242
Website costs - 77,669 87,629
Development costs 303,433 302,098 418,044
Consulting fees 326,166 225,982 286,179
Depreciation expense 26,521 15,640 23,003
----------- ----------- -----------
Total Costs and Expenses 1,085,012 1,102,346 1,451,097
----------- ----------- -----------
Net Loss from Operations (471,076) (885,598) (1,208,319)
----------- ----------- -----------
Other Revenue (Expense)
Realized loss on sale of securities - (79,450) (79,450)
Interest Income - 5,445 5,445
----------- ----------- -----------
- (74,005) (74,005)
----------- ----------- -----------
Net Loss before Provision for
Income Tax (471,076) (959,603) (1,282,324)
Provision for Income Tax 3,175 1,229 378
----------- ----------- -----------
Net Loss $ (474,251) $ (960,832) $(1,282,702)
=========== =========== ===========
Loss per Share:
Basic and diluted loss per share $ (0.03) $ (0.05) $ (0.07)
=========== =========== ===========
Basic and diluted common shares
outstanding 18,674,309 18,674,309 18,674,309
=========== =========== ===========
See the accompanying notes to these financial statements.
TRADINGEAR.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Common Stock
Par Value $.0001
---------------------------------------------
Common Additional
Number Stock Paid-In
of Shares Amount Capital
Balances, Inception July 7, 1999 - $ - $ -
Issuance of Common Stock 17,758,987 1,776 2,733,146
Unrealized Gain on Available
for Sale Securities - - -
Net Loss for the Period Ended
December 31, 1999 - - -
---------- ---------- -----------
Balances, December 31, 1999 17,758,987 1,776 2,733,146
Reclass of Unrealized Loss on
Available for Sale Securities - - -
Net Loss for the Period Ended
December 31, 2000 - - -
---------- ---------- -----------
Balances December 31, 2000 17,758,987 1,776 2,733,146
Issuance of Common Stock 2,921,169 292 1,025,658
Cancellation of Common Stock (2,005,847) (201) (755,771)
Net Loss for the Nine Months
Ended September 30, 2001 - - -
---------- ---------- -----------
Balances, September 30, 2001 18,674,309 $ 1,867 $ 3,003,033
========== ========== ===========
[CONTINUED]
TRADINGEAR.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Unrealized
Retained Gain/(Loss) Total
Earnings Available Stockholders'
(Deficit) For Sale Equity
Balances, Inception July 7, 1999 $ - $ - $ -
Issuance of Common Stock - - 2,734,922
Unrealized Gain on Available for
Sale Securities - 667,188 667,188
Net Loss for the Period Ended
December 31, 1999 (484,556) - (484,556)
------------ ----------- ------------
Balances, December 31, 1999 (484,556) 667,188 2,917,554
Reclass of Unrealized Loss on
Available for Sale Securities - (667,188) (667,188)
Net Loss for the Period Ended
December 31, 2000 (1,282,702) - (1,282,702)
--------------- ----------- ------------
Balances December 31, 2000 (1,767,258) - 967,664
Issuance of Common Stock - - 1,025,950
Cancellation of Common Stock - - (755,972)
Net Loss for the Nine Months
Ended September 30, 2001 (474,251) - (474,251)
--------------- ----------- -----------
Balances, September 30, 2001 $ (2,241,509) $ - $ 763,391
=============== =========== ===========
See accompanying notes to financial statements.
TRADINGEAR.COM, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
From Inception
For the (July 7, 1999)
For the Nine Months Ended Year Ended To
September 30, December 31, December 31,
2001 2000 2000 1999
Cash Flows from Operating
Activities:
Net Loss $(474,251) $(960,832) $(1,282,702) $ (484,556)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 26,521 15,640 23,003 1,438
Loss on sale of
investments - 79,450 79,450 -
Amortization of prepaid
expenses 130,782 155,907 207,876 372,762
Changes in assets and
liabilities, net of effect
from:
Decrease (increase) in
Accounts receivable 7,213 (50,417) (50,300) -
Increase in prepaid
Expenses (2,416) - - -
Increase in deferred
Costs (49,899) - - -
Increase in deposit - (101,621) (101,621) -
Increase in accounts
Payable and accrued
Expenses 179,948 170,955 264,378 87,540
Increase (decrease) in
deferred revenue (130,000) - 130,000 -
Increase (decrease) in
Accrued tax payable - (655) (655) 655
---------- ---------- ----------- ---------
Net cash used in
Operating activities (312,102) (691,573) (730,571) (22,161)
---------- ---------- ----------- ---------
Cash Flows from Investing
Activities:
Purchase of property and
Equipment (35,155) (54,767) (84,426) (77,385)
Sale of Investments - 261,800 261,800 -
---------- ---------- ---------- ---------
Net cash provided by
(Used in) investing
Activities (35,155) 207,033 177,374 (77,385)
---------- ---------- ---------- ---------
Cash Flows from Financing
Activities:
Issuance of common stock 250,000 - - 750,000
---------- ---------- ---------- ---------
Net Cash provided by
Financing Activities 250,000 - - 750,000
---------- ---------- ---------- ---------
Net Increase (decrease) in
cash and Cash Equivalents (97,257) (484,540) (553,197) 650,454
Cash and Cash Equivalents,
beginning of period 97,257 650,454 650,454 -
---------- ---------- ---------- ---------
Cash and Cash Equivalents,
end of period $ - $ 165,914 $ 97,257 $ 650,454
========== ========== ========== =========
See accompanying notes to these financial statements.
TRADINGEAR.COM, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
For the Period
From Inception
For the (July 7, 1999)
For the Nine Months Ended Year Ended To
September 30, December 31, December 31,
2001 2000 2000 1999
Cash paid during the period
for:
Income Taxes $ - $ - $ - $ -
Interest $ - $ - $ - $ -
=========== ========== ========== ==========
Supplemental Disclosures
of Noncash Investing and
Financing Activities:
Common Stock Issued
(Cancelled) in exchange
for marketable securities$ (755,847) $ - $ - $1,097,097
=========== ========== ========== ==========
Common Stock issued in
exchange for accounts
payable $ 484,125 $ - $ - $ -
=========== ========== ========== ==========
Common Stock issued for
Services $ 291,700 $ - $ - $ 887,825
=========== ========== ========== ==========
See accompanying notes to these financial statements.
TRADINGEAR.COM, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTNG POLICIES
The Company
TradinGear.Com, ("TG" or the "Company") Inc. was incorporated under the laws
of the State of Delaware on July 7, 1999. TradinGear.Com, Inc. produces
trading software designed for the financial services industry.
The Company's software technology is designed to allow stock exchanges and
broker dealers in the securities industry the ability to offer to its
customers an on-line electronic system for securities trading.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, trade receivable, accounts payable and other
accrued liabilities, approximate fair value because of their short maturities.
Revenue Recognition
The Company's revenues are derived principally from providing its customers
with software applications that enable them to conduct stock transactions
online. Additional revenue will be derived from actual implementations of
these software platforms and related service/maintenance contracts. These
revenues are recognized as earned once the related activities have been
performed and delivered. Deferred revenue represents amounts received on
uncompleted projects.
Use of Management's Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
The Company accounts for its investments in debt and equity securities in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
which requires that investments in debt securities and marketable equity
securities be designated as trading, held-to-maturity or available-for-sale.
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determinations at each balance sheet date. Debt securities for which the
Company does not have the intent or ability to hold to maturity are classified
as available for sale, along with any investments in equity securities.
Securities available for sale are carried at fair value, with unrealized gains
and losses, net of income taxes, reported as a separate component of
Stockholder's Equity.
TRADINGEAR.COM, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment
Property and equipment are recorded at cost and being depreciated for
financial accounting purposes on the straight-line method over their
respective estimated useful lives ranging from three to thirty-nine years.
Upon retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in the results of operations.
Expenditures for maintenance and repairs are charged to operations. Renewals
and betterments are capitalized. Depreciation of leased equipment under
capital leases is included in depreciation.
Product Development
Costs incurred in conjunction with the development of new products are charged
to expense as incurred. Material software development costs subsequent to the
establishment of technological feasibility will be capitalized. Based upon
the Company's product development process, technological feasibility is
established upon the completion of a working model. To date attainment of
technological feasibility and general release to customers have substantially
coincided.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". SFAS 121 requires that if facts and circumstances
indicate that the cost of fixed assets or other assets may be impaired, an
evaluation of recoverability would be performed by comparing the estimated
future undiscounted pre-tax cash flows associated with the asset to the
asset's carrying value to determine if a write-down to market value or
discounted pre-tax cash flow value would be required.
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130
(SFAS 130), "Reporting on Comprehensive Income". This statement establishes
rules for the reporting of comprehensive income and its components which
require that certain items such as foreign currency translation adjustments,
unrealized gains and losses on certain investments in debt and equity
securities, minimum pension liability adjustments and unearned compensation
expense related to stock issuances to employees be presented as separate
components of stockholder's equity. The adoption of SFAS 130 had no impact on
total shareholder's equity.
Stock-Based Compensation
The Company will follow Accounting Principles Board Opinion No. 25, (APB 25)
"Accounting for Stock Issued to Employees" in accounting for future employee
stock option plans. Under APB 25, when the exercise price of the Company's
employee stock options equals or is above the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
In accounting for options granted to persons other than employees, the
provisions of Financial Accounting Standards Board Statement No. 123, (FASB
123) "Accounting for Stock Based Compensation" are applied in accordance with
FASB 123 at the fair value of these options.
TRADINGEAR.COM, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (Loss) Per Share
The Company will calculate earnings (loss) per share in accordance with SFAS
No. 128, "Computation of Earnings Per Share" and SEC Staff Accounting Bulletin
No. 98. Accordingly, basic earnings per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period.
Common equivalent shares consist of the incremental common shares issuable
upon the conversion of the Preferred Stock (using the if-converted method) and
shares issuable upon the exercise of stock options (using the treasury stock
method); common equivalent shares are excluded from the calculation if their
effect is anti-dilutive.
Earnings(loss) per share in these financial statements has been computed as if
the outstanding shares as of September 30, 2001 were outstanding for all
periods.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109, (SFAS
109) "Accounting for Income Taxes". SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement carrying amounts and tax bases
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
Start-Up Activities
The American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 98-5, "Reporting the Costs of Start-Up Activities". SOP 98-5
requires start-up costs, as defined, to be expensed as incurred and is
effective for financial statements for fiscal years beginning after December
15, 1998. The Company expenses all start-up costs as incurred in accordance
with this statement and therefore the issuance of SOP 98-5 will have no
material impact on the Company's financial statements.
Recent Accounting Pronouncements
In July 2001 the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" (SFAS 141) and Statement of Financial Accounting
and Reporting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS
142). SFAS 141 requires all business combinations initiated after June 30,
2001. SFAS 142 requires goodwill to be tested for impairment under certain
circumstances, and written off when impaired, rather then being amortized as
previous standards required. SFAS 142 is effective for fiscal years beginning
after December 15, 2001. Early application is permitted for entities with
fiscal years beginning after March 15, 2001 provided that the first interim
period financial statements have not been previously issued. The adoption of
SFAS 141 had no effect on the Company's operating results or financial
condition. The Company is currently assessing the impact of SFAS 142 on the
operating results and financial condition.
TRADINGEAR.COM, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Continued)
2. INVESTMENTS
As of December 31, 1999 and 2000 the Company classified their investments as
available for sale securities. Unrealized holding gains (losses) on available
for sale securities which are reported at fair value are included as a
separate component of stockholders' equity.
Investments at December 31, 1999 consist of the following:
Unrealized
Cost Market Gain(Loss)
Available for sale securities:
Marketable Equity Securities $1,097,097 $1,764,285 $ 667,188
========== ========== =========
Investments at December 31, 2000 consist of the following:
Unrealized
Cost Market Gain(Loss)
Available for sale securities:
Marketable Equity Securities $ 755,847 $ 755,847 $ -
========== ========== =========
3. ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts equal to the estimated
uncollectible amounts. The Company's estimate is based on historical
collection experience and a review of the current status of trade accounts
receivable. It is reasonably possible that the Company's estimate of the
allowance for doubtful accounts will change. Accounts receivable consists of
the following:
September 30, December 31, December
2001 2000 1999
Accounts Receivable:
Trade $ 43,087 $ 50,300 $ -
========= ========= ========
TRADINGEAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, and their respective useful lives consist of
the following at December 31, 2000:
Estimated
September 30, December 31, December Useful
2001 2000 1999 Lives
Computer equipment $ 182,387 $ 148,580 $ 75,385 5
Office equipment 7,227 5,880 2,000 5
Leasehold improvements 7,350 7,350 - 5
--------- --------- --------
196,964 161,810 77,385
Less: Accumulated
Depreciation 50,961 24,441 1,438
--------- --------- --------
$ 146,003 $ 137,369 $ 75,947
========= ========= ========
5. PROVISION FOR INCOME TAXES
For the period from inception (July 7, 1999) to December 31, 2000 the Company
had accumulated losses of $2,248,934. No tax expense or benefit has been
reported in the financial statements due to the uncertainty of future
operations.
6. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject from time to time to litigation arising from the normal
course of business. In management's opinion, any such contingencies would be
covered under its existing insurance policies or would not materially affect
the Company's financial position or results of operations.
Norman Fuchs ("Fuchs"), a former director of the Company, and ATH Ventures,
Inc. ("ATH"), a company controlled by Fuchs, have commenced an action against
the Company and against Ausinsoft, Inc., an entity of which Samuel Gaer, the
President, Director and principal shareholder of the Company, is also an
officer, director and shareholder. The action seeks monetary damages and
shares of the Company's common stock. Subsequently, Fuchs and ATH commenced
an action seeking to enjoin the merger as discussed in Note 8 and petitioned
the Court for a Temporary Restraining Order ("TRO"). The Company believes
that both actions are without merit and intends to vigorously defend against
them, as well as commencing its own action against Fuchs. On January 10, 2002
the TRO expired without action and Fuchs, ATH and the Company have engaged in
preliminary settlement discussions.
TRADINGEAR.COM, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Continued)
6. COMMITMENTS AND CONTINGENCIES (Continued)
Leases
The Company leases office equipment and office space under noncancellable
operating leases. Commitments under these leases at December 31, 2000 are as
follows:
Year ending December 31:
2001 $ 45,425
2002 139,082
2003 142,855
2004 146,741
2005 150,743
Thereafter 156,765
--------
$792,611
========
Employment Agreements
On December 10, 1999 the Company entered into an employment agreement with
Samuel H. Gaer, the Chief Executive Officer of the Company. The agreement is
for a term of three years commencing January 1, 2000 and provides for a base
annual salary of $120,000 and for bonuses as determined by the Company's Board
of Directors.
401(k) Plan and Profit Sharing Plan
The Company has approved a 401(k) Plan and a Profit Sharing Plan which cover
full-time employees who have attained the age of 21 and have completed at
least one year of service with the Company. Under the 401(k) Plan, an
employee may contribute an amount up to 25% of his compensation to the 401(k)
Plan on a pretax basis not to exceed the current Federal limitation of $10,500
per year (as adjusted for cost of living increase). Amounts contributed to
the 401(k) Plan are nonforfeitable. Under the Profit Sharing Plan, a member
in the plan participates in the Company's contributions to the Plan as of
December 31 in any year, with allocations to individual accounts based on
annual compensation.
An employee does not fully vest in the plan until completion of three years of
employment. The Board of Directors determine the Company's contributions to
the plan on a discretionary basis. The Company has not made any contributions
to date.
7. COMMON STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
common stock, par value $.0001 per share. The Company issued 13,250,000
shares of common stock to the founders of the Company for $.0001 per share,
the par value of the Company's common stock.
. . . . . . . . . . . TRADINGEAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. COMMON STOCK (Continued)
During July 1999 the Company issued 1,263,000 shares of common stock to two
consultants for services rendered and a two year agreement which provided the
Company with office space and services through June 2001. The total value of
the services and consulting agreement was estimated to be $661,500.
During October 1999 the Company issued 10,000 shares of its common stock to a
consultant for services valued at $5,000. In addition, during October 1999
the Company issued 500,000 shares of its common stock to professionals for
services rendered valued at $150,000 and for future professional services to
be rendered through December 2002 valued at $100,000.
Also, during the fourth quarter of 1999 the Company sold 1,980,140 shares of
its common stock to four investors for cash of $500,000 and the receipts of
marketable equity securities valued at $341,250 or for total consideration of
$841,250.
In November 1999 the Company issued 755,847 shares of its common stock valued
at $755,847 in conjunction with the Company entering into a license agreement
to provide its proprietary software suite in exchange for marketable equity
securities of the same value. This agreement and exchange of securities
ultimately became the subject of a dispute in late 2000 which was settled in
2001 with the parties agreeing to cancel the outstanding shares exchanged and
with the Company retaining $110,000 for its software suite that it received
and recorded as revenue during 2000.
As part of this settled dispute the Company also, in a separate action,
terminated the employment of one of its officers and the Company was returned
1,250,000 shares of its common stocks for cancellation that it originally
issued to this individual.
In April 2001 the Company sold 710,585 shares of its common stock for $250,000
to an investor consultant. The Company also issued 500,000 shares of its
common stock to this individual in exchange for a two year consulting
agreement valued at $175,950 which expires in April 2002.
Also, during April 2001 the Company issued 1,710,584 shares in satisfaction of
amounts owed to a consultant amounting to $262,500 and for future consulting
services valued at $337,500, or a total of $600,000.
During the fourth quarter of 2001 they issued an additional 175,000 shares of
its common stock for $60,000 and services valued at $40,000.
8. PROPOSED MERGER
On September 15, 2001, the Company and Digitran Systems, Inc. (a publicly held
Delaware company together with its subsidiaries herein referred to as "DSI")
entered into an Agreement and Plan of Reorganization ("the Agreement"). The
Agreement describes a merger transaction whereby TG will become a wholly-owned
subsidiary of DSI which public company in turn will change its name to TGFIN.
The Agreement is subject to shareholder approval of both companies and is also
subject to certain conditions, including, but not limited to, submission for
approval of proxy material to the Securities and Exchange Commission. The
Agreement calls for the shareholders of TG to receive 19,154,369 shares of the
reorganized TGFIN or one share of TGFIN for each share of TG share held after
giving effect to a reverse stock split of DSI shares and its change in name.
The result will be that the shareholders of TG will own approximately 93% of
the outstanding shares of the reorganized TGFIN.
. . . . . . . . . . . TRADINGEAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. PROPOSED MERGER (Continued)
The merger transaction will be accounted for as a purchase with TG being
deemed the acquiror for accounting and financial reporting purposes. However,
since the stockholders of TG will own approximately 93% of the outstanding
shares of the reorganized TGFIN no step up basis or goodwill will be recorded
by TG. This accounting treatment is in accordance with the view of Securities
and Exchange Commission staff members that the acquisition by a public shell
of the assets of a business from a private company should be accounted for at
historical cost and accounted for as a reverse merger.