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
DIGITRAN SYSTEMS, INCORPORATED
205 West 8800 South
P.O. Box 91
Paradise, Utah 84328-0091
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JUNE 14, 2002
1:00 P.M. (EST)
To Our Shareholders:
As many of your are aware, the Special Meeting of Shareholders scheduled
to be held on Thursday, March 21, 2002 at the Holiday Inn located on Route 22
West in Springfield, New Jersey, was adjourned. The meeting was adjourned
because it was deemed by regulatory authorities that the information
concerning the merger transaction involving the Company and TradinGear.com,
Inc. was not sufficiently detailed to meet rules governing proxy
solicitations. Please be advised that a new meeting of shareholders will be
held at the Holiday Inn located on Route 22 West in Springfield, New Jersey on
Friday, June 14, 2002 at 1:00 p.m., Daylights Savings 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.
5. Consideration of such other business as may properly come
before the meeting.
The enclosed Proxy Statement relating to these proposals supercedes the
Proxy Statement previously sent to you under cover of a Notice dated March 21,
2001.
All shareholders of record of the Company's common stock at the close of
business on April 22, 2002 are entitled to notice of and to vote at the June
14, 2002 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
Scott Lybbert, Secretary
DIGITRAN SYSTEMS, INC. PROXY BALLOT
SPECIAL MEETING, JUNE 14, 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 Monday, June 10,
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
PROXY STATEMENT
DIGITRAN SYSTEMS, INCORPORATED
(A Delaware Corporation)
SPECIAL MEETING OF SHAREHOLDERS
June 14, 2002
THIS PROXY STATEMENT IS BEING MAILED TO ALL SHAREHOLDERS OF RECORD AT
THE CLOSE OF BUSINESS ON APRIL 22, 2002 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 Shareholder Meeting to be held
on Friday, June 14, 2002 at 1:00 p.m. at the Holiday Inn, Springfield, New
Jersey. The principal purpose of the Special Shareholder Meeting is to
approve a proposed merger transaction between the Company, its wholly owned
subsidiary DSI Acquisition, Inc. ("DSI Acquisition") and TradinGear.com
Incorporated ("TradinGear"), a privately held Delaware corporation.
This Proxy Statement should be reviewed in connection with the Company's
Annual Report filed on SEC Form 10-KSB-A-1 for the fiscal year ended April 30,
2001 and its current SEC Form 10-QSB Report for the third fiscal quarter ended
January 31, 2002, which are attached as Exhibits to this Proxy Statement. All
of the Company's SEC reports are available at the website of the United States
Securities and Exchange Commission ("SEC") which may be found at www.sec.gov.
The Company's SEC CIK number is 0000876134.
VARIOUS ITEMS OF IMPORTANT INFORMATION AND FINANCIAL STATEMENTS FOR THE
COMPANY RELATED TO THIS PROXY STATEMENT ARE SET-OUT IN THE ANNUAL REPORT FOR
2001 ON SEC FORM 10-KSB AND ITS MOST CURRENT QUARTERLY REPORT ON SEC FORM 10-
QSB. SUCH DETAILED INFORMATION MAY BE RELEVANT IN REVIEWING THIS PROXY
STATEMENT, BUT IS NOT NECESSARILY REPEATED IN THIS DOCUMENT.
A copy of the October 31, 2001 Agreement and Plan of Merger between the
Company, DSI Acquisition, a Delaware corporation recently formed by the
Company as a wholly-owned subsidiary, and TradinGear (the "Merger Agreement")
is attached to this Proxy Statement as Exhibit A. The Company's shareholders
are encouraged to read the Merger Agreement and an Addendum to that Agreement
dated December 31, 2001, which is attached as Exhibit B, in their entirety and
the other information contained in this document carefully before deciding how
to vote.
The shares represented by valid proxies, which are properly executed and
received by the Secretary to the Company prior to the Special Meeting, will be
voted in accordance with specifications therein.
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Record Date for the Special Meeting
The Company's Board of Directors has fixed the close of business on
April 22, 2002 as the record date for determination of shareholders entitled
to notice of and to vote at the Special Meeting.
Solicitation and Voting
The solicitation of proxies will be conducted by mail and the Company
will bear all attendant costs. These costs will include reimbursements paid
to brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Special Meeting to beneficial owners of
the Company's Common Stock. The Company may conduct further solicitation
personally or telephonically through its officers, directors and regular
employees, none of whom will receive additional compensation for assisting
with the solicitation.
As of April 22, 2002, the authorized capital stock of the Company
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; (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; and (iii) 1,000,000 shares of
Eight (8%) Percent Cumulative Preferred Stock of which 51,500 shares were
issued and outstanding.
As provided in The Company's Articles of Incorporation, the Class A
common stock carries with it the right to one-tenth of a vote per share, the
Class B common stock carries with it the right to one vote per share and the
Preferred Stock carries with it the right to one-tenth of a vote per share.
All outstanding shares of The Company's common stock and preferred stock are
validly issued, fully paid and non-assessable, with no personal liability
attaching to the ownership thereof, with no pre-emptive rights and free and
clear of all liens, claims and encumbrances. There are no cumulative voting
provisions.
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 a majority vote of the Board of Directors.
Revocability of Proxy
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is used by delivering written notice to
the Company (sent to the attention of the Secretary of the Company) at the
address set forth above, or by a duly executed proxy bearing a later date or
by attending the Special Meeting and voting in person. Attendance at the
Special Meeting, in and of itself, will not constitute revocation of a proxy.
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Vote Required
Each proposal to be voted upon will be adopted only 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.
There can be no assurance that the resolutions being voted upon at the
Special Meeting will be approved. It is very important that as many
shareholders as possible are represented and voting in person or by proxy at
the Special Meeting.
Quorum, Abstentions and Broker Non-Votes
A majority of all issued and outstanding voting shares of the Company as
of the record date, represented in person or by proxy, constitute a quorum for
the transaction of business at the Special Meeting. The Inspector of
Elections will ascertain whether a quorum is present, tabulate votes and
determine the voting results on all matters presented at the Special Meeting.
If a quorum is not obtained, the Special Meeting may be postponed or adjourned
without notice for the purpose of allowing additional time for obtaining
additional proxies or votes, and at any subsequent reconvening of the Special
Meeting, all proxies will be voted in the same manner as the proxies would
have been voted at the original convening of the Special Meeting, except for
any proxies that have been effectively revoked or withdrawn prior to the
subsequent Special Meeting.
If you submit a proxy that indicates an abstention from voting in all
manners, your shares will be counted as present for the purpose of determining
a quorum at the Special Meeting, but they will not be voted on any matter at
the Special Meeting. In addition, the failure of a shareholder to return a
proxy will have the effect of reducing the number of votes cast at the Special
Meeting thereby also reducing the number of votes needed to approve the
resolutions to be voted on.
Under the rules that govern brokers who have record ownership of shares
that are held in "street name" for their clients, who are the beneficial
owners of the shares, brokers have discretion to vote those shares on routine
matters but not on non-routine matters. The approval of the merger with
TradinGear and the other resolutions being presented at the Special Meeting
are not considered a routine matter. Accordingly, brokers will not have
discretionary voting authority to vote your shares at the Special Meeting. A
"broker non-vote" occurs when brokers do not have discretionary voting
authority and have not received instructions from the beneficial owners of the
shares. At the Special Meeting, broker non-votes will be counted for the
purpose of determining the presence of the quorum but will not be counted for
the purpose of determining the number of votes cast on a matter. Consequently,
shareholders are urged to return the enclosed proxy ballot marked to indicate
their vote.
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MATTERS SUBJECT TO SHAREHOLDER VOTE
PROPOSAL I
MERGER WITH TRADINGEAR
The following is a description of the material aspects of the
acquisition of and merger with TradinGear, including the Merger Agreement.
While the Company believes that the following description covers the material
terms of the Merger Agreement, the description may not contain all of the
information that is important to you. You should read this entire document
and the other documents referred to carefully for a more complete
understanding of the transaction, in particular the Merger Agreement attached
as Exhibit A. The discussion of the Merger Agreement is qualified in its
entirety by reference to the document.
The Merger Agreement as modified by the Addendum, provides that
TradinGear will merge with DSI Acquisition, a newly formed subsidiary of the
Company, for the purpose of implementing this transaction. In turn, the
Company will issue 19,154,309 post reverse-split Class A shares of the Company
to DSI Acquisition, 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 merger, TradinGear
requires that the holders of Class B common stock, which on a post-split basis
would constitute 100,000 shares, to exchange the 100,000 shares of Class B
common stock for Class A common stock and thus eliminate the voting preference
attributed to Class B common stock.
As an integral part of this transaction, Digitran, Inc., a Utah
corporation ("Digi Utah"), which is a wholly owned subsidiary of the
Corporation, would be merged into an Arizona corporation known as Digitran
Simulation Systems, Inc. ("DSSI"), which is owned by the heirs of Loretta P.
Trevers, the recently deceased president of the Company. The result of this
merger transaction would be that the Company would continue to own a nine (9%)
percent interest in Digi Utah.
Based on separate financial statements for Digi Utah dated as of April
30, 2001, there is no net asset value to be placed on the investment made by
the Company in this subsidiary. Management of the Company therefore believes
the merger of Digi Utah with DSSI provides the best opportunity to dispose of
this now defunct subsidiary.
The Merger Agreement contains a number of representations made by the
Company, DSI Acquisition and TradinGear. Among other items, each of the
entities represented that it was in good standing in its state of domicile;
that the Merger 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 no legal
or administrative actions pending or contemplated which involved the entities
or their properties, except as disclosed in the Merger Agreement; and that all
federal and state corporate tax returns had been filed and, where required,
corporate taxes have been paid.
4
The Board of Directors of the Company has approved the Merger Agreement;
subject to approval of a majority of the Company's shareholders. Assuming
approval by the shareholders of the Company, the shareholders of TradinGear
will receive on a pro rata basis one share of post-split Class A common stock
for each of the 19,154,309 issued and outstanding shares of TradinGear. The
Company will then change its name to TGFIN Holdings, Inc. The Board of
Directors and the Shareholders of TradinGear also have approved the Merger
Agreement.
Prior to the closing of the transaction each of the entities that were
signatories to the Merger Agreement, were granted full access to any material
information about the entities, their business or properties. The entities
conducted their business in the same manner prior to closing as they had done
prior to executing the Merger Agreement.
The Company will require majority shareholder approval to complete the
terms of the Merger. Upon review by counsel, the Company does not believe any
dissenting shareholders are entitled to appraisal rights under Delaware law.
BUSINESS OF TRADINGEAR
GENERAL
TradinGear.com Incorporated ("TradinGear"), organized under the laws of
the State of Delaware on July 7, 1999, is a software development company
providing open access online securities, futures and commodities trading
systems, software platforms for the operation of securities and commodity
exchanges and custom order execution systems.
TradinGear's revenues will be derived from the selling of licenses and
services, and from charging annual software maintenance fees, for all products
that are licensed as required in its agreements.
TradinGear competes in the financial systems technology market. This
market is large and highly competitive, encompassing the gamut of electronic
financial transaction systems. Although TradinGear has focused its efforts on
developing systems that focus on the securities, futures and commodities
markets, its management believes that its software is readily adaptable and
designed to allow the trading of a variety of products. TradinGear provides
its products as a neutral third party. Existing stock and commodity exchange
clearing, billing and price reporting systems can be interfaced and/or
integrated with TradinGear's systems. TradinGear believes that its product
line is flexible, utilizes industry standards and allows the customer to have
their orders routed to and/or cleared by anyone.
TradinGear introduced its first generation of software products and
generated initial revenue during the fourth quarter of 1999. TradinGear
finished development of its second generation of over-the-counter ("OTC")
exchange systems, order management systems, and broker-dealer solutions and
began customer installation in June of 2001. TradinGear's goal is to continue
to develop products which customers want, and will pay for, by bringing the
latest technology to traditional trading environments. TradinGear's end-to-end
electronic systems (from order origination up to clearing) are designed to
5
permit broker-dealers and exchanges to capitalize on new technology, while
retaining the feel of a conventional operation.
Electronic Communications Networks ("ECN's") are believed to offer more
efficient markets than the traditional exchanges. Electronic alternatives to
traditional securities markets and broker-dealers are becoming more popular,
and these markets need to keep up. TradinGear intends to offer its products to
fill these needs of the traditional exchanges.
TradinGear is committed to developing cutting-edge technology solutions
to facilitate electronic trading. Currently TradinGear is focused on the
financial services, domestic and international equity and commodity exchanges
and the securities, futures and commodities brokerage industry. TradinGear
hopes to also expand into additional markets where its technology enables
efficient, secure, and price-transparent trading.
TradinGear's systems are designed from scratch; without the use of
software designed for now obsolete computer platforms ("legacy code") or the
building of TradinGear's system on top of another system. TradinGear's
solutions make use of the newest technologies and are easily customized.
All of the systems produced by TradinGear have complete risk management
functions ("rules engines") and are of production quality. TradinGear believes
that it is able to develop and deploy its systems rapidly due to its approach
to the development of its trading software solutions. Before marketing its
first system, TradinGear developed a "core" library of approximately 300
generic trading routines and functions. Each component in the library was
mapped around what is known as the "F.I.X." protocol ("Financial Information
eXchange" - a common computer language for sending and receiving financial
information) and has the ability to be custom tailored for virtually any
purpose. When developing a custom solution, TradinGear picks the appropriate
base components and "extends" or modifies their functionality to suit the task
at hand. By combining its available components, TradinGear creates a trading
system unique to the customer, but easily maintainable for TradinGear's
developers and administrators.
REVENUE SOURCES
TradinGear expects to earn revenue from its customers on many levels.
Some principal points of collections are:
* Licensing Fees
* Customization
* Monthly/Annual Maintenance
* Dedicated Support Contracts
* Change Requests/Modifications
* Consulting and Product Planning
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Licensing and Customization Fees are negotiated between TradinGear and
the customer. Maintenance fees are generally a fixed percentage cost of the
contract and any enhancements, while Support fees generally are a fixed fee
payable monthly, quarterly or semi-annually, depending upon customer
preferences. The customer can choose different levels of support, and can
purchase this support in increments of "dedicated persons" of TradinGear. A
typical support agreement might call for one half of a dedicated person.
Change Requests and Modifications occur at various times during the course of
business, and are quoted and billed at TradinGear's prevailing rates, either
on a time and materials basis or as a flat fixed-fee.
PRODUCTS
TradinGear provides comprehensive technical and trading solutions for
the brokerage and financial industry. TradinGear's TGFIN trading network
utilizes its own SmartMatch relative pricing matching technology. In addition,
some trading products support the use of SmartRoute, TradinGear's advanced
order routing management system.
Exchange Floor Automation And Market Maker/Order Management System: TGFIN
(TradinGear Financial Instrument Network)
TradinGear's TGFIN, initially designed for trading fixed income products
(e.g. bonds), has evolved into a generic exchange and order routing/market
making system capable of trading anything that can be quoted or traded using
TradinGear's proprietary SmartMatch relative pricing matching engine. The
system has the ability to show breadth and depth of market in the form of
Nasdaq Level II-style screens and easily customizable user interfaces designed
to customer specifications. The TGFIN is the basis for several of
TradinGear's sub-product lines, such as TGFIN/MM, TradinGear's
Nasdaq(Registered) Market Maker system. TradinGear seeks to compete by
pricing its TGFIN/MM significantly lower than the competition. The TGFIN/MM is
not burdened by the overhead of maintaining a physical network; but instead
the system utilizes the customer's existing Nasdaq connectivity to form its
own network. TradinGear's goal is to position TGFIN/MM as a high quality, low
cost alternative to the more traditional, expensive, and "heavy" market making
and order management systems.
TGFIN/MM allows complete order and position tracking for each user, and
uses pop-up notifications and sounds for transaction confirmations. All
transactions, positions and risk can be monitored through the administrator's
terminal, which can add, remove or lockout traders and/or individual
securities/markets, as well as monitor the customer's overall exposure,
positions, orders and order history.
The development of a product by TradinGear begins with the customer and
TradinGear agreeing upon a functional specification, in which TradinGear
addresses the needs of the customer and maps them to functions available in
the existing system. A development period is then entered in which
TradinGear's technicians assemble the various pre-fabricated software
components from its own library to meet the customer specification.
The next step is for an internal test version to be released to
TradinGear's Quality Assurance Department for initial testing. Quality
Assurance determines if the product meets specifications, and where it is
7
deficient. Collaboration between Quality Assurance and Development take place,
with interaction from the customer, until the product is ready for Beta
Release.
At "Beta Release" (a final testing version), the software is installed
at the Beta location (generally at TradinGear's test facility) for testing by
the customer. The customer performs an analysis to determine if the product
meets specifications. "Initial Acceptance" follows this.
At Initial Acceptance, the software, once substantially up to
specification, is accepted by the customer, pending final delivery and final
fixes. The software is then delivered, installed on the production system and
tested by the customer, with TradinGear having the right to be present. Once
the system performs to specification, the customer gives final approval
("Final Acceptance") and accepts the product. Maintenance and Support by
TradinGear then begin.
The customer's level of technical sophistication varies, and generally
TradinGear's technicians perform the implementation. A typical physical
hardware implementation can consist of the following tasks:
(1) Configure servers:
(a) Install Operating System (if not factory installed)
(b) Install Database Software
(c) Connect to Network/Internet
(d) Install TradinGear's application software
(e) Test
(2) Configure customer/installation program:
(a) Prepare installation package for desired operating
system
(b) Install on test computer(s)
(c) Test
Typically, the physical implementation above will take less than 2 man-
days, providing the correct equipment and networking is in place. A typical
software implementation varies, depending upon the amount of customization
needed to the "front end" or visual portion of the software. Out of the box,
with little or no tailoring, a system can be implemented in as little as 30
days (2 developers working 25 days, or 50 man-days). An all-out major
customization may take several man-months, and the greatest problem that is
encountered is the ever-changing requirements and additions to the technical
specifications that are deemed by the customer to be "mission critical" during
development.
8
MARKETING PLANS
To date, TradinGear has found that the most effective marketing tool has
been customer reference and word of mouth, and TradinGear hopes to build on
this with an aggressive marketing campaign. The main media for Company
advertising will be conventions, trade shows, and print ads in industry
publications.
Segment Identification
TradinGear's primary target markets have been identified as:
* Exchange-specific solutions
* Proprietary Trading Firms/Hedge Funds
* The Exchange Market
EXCHANGE-SPECIFIC SOLUTIONS
TradinGear's marketing effort is targeting more traditional securities;
futures and commodities exchanges that want to automate and integrate existing
floor-based operations with online operations and/or exchanges. To this
audience, TradinGear believes that its TGFIN solution will prove to be an
elegant, attractive and relatively low-cost/low-risk environment in which to
conduct business.
In addition, certain regional stock and commodity exchanges are
converting existing systems to electronic or hybrid-electronic trading
systems. Such exchanges would be prospective licensees for TGFIN. TradinGear
hopes that as these exchanges begin to realize the advantage of having an all-
electronic trading platform, and/or the potential benefits of augmenting their
traditional exchange structure with some kind of electronic system, their own
members will realize that ECN's can provide them with more efficient markets,
better prices and easier access.
PROPRIETARY TRADING FIRMS/HEDGE FUNDS
TradinGear also is selling its products to proprietary trading firms and
hedge funds. TradinGear has found that the highly modular architecture of its
systems makes them good candidates for firms wishing to implement customized
trading systems utilizing their own proprietary algorithms and/or strategies.
By providing customers with a 'toolkit' that can be integrated into a variety
of front-end applications and programming languages such as Microsoft Excel,
Visual Basic, and Java, these firms can use TradinGear's risk management,
trade routing, and order management functionality without divulging or
changing their existing business processes.
9
THE EXCHANGE MARKET
TradinGear believes that its TGFIN software offers exchanges the
opportunity to streamline their trading systems and expand their scope of
operations. Currently, exchanges that are not directly connected to the
Nasdaq system can not make markets on Nasdaq issues. Their "open outcry"
floor traders are limited to filling their orders only with bid prices and ask
prices they can hear, and then only as fast as two people can match orders.
TradinGear's TGFIN software addresses these problems. It can expand an
exchange's trading market and can allow the exchange to fill orders more
quickly and effectively by matching throughout the entire exchange, not just
between traders within earshot of each other.
The exchange marketplace also includes dozens of regional futures and
stock exchanges that have been reluctant to implement electronic trading
systems due to resistance-to-change factors. These exchanges are now beginning
to see the advantages of a "hybrid" marketplace, utilizing electronic means to
communicate and match trades while using traditional open-outcry functionality
for price discovery and liquidity. TradinGear believes that TGFIN is an ideal
candidate for such implementation.
Competition
Competition in the emerging fields of electronic commerce and
information dissemination is significant and expanding. TradinGear will
compete with companies that have far greater experience and capital resources;
such as Sungard Inc., Chicago, Illinois (which produces an order entry system
called "BRASS"), OM, Stockholm, Sweden (builds an exchange system called "OM
CLICK" and which purchased the London Stock Exchange several years ago) and
Royal Blue, an English company which competes with Sungard.
Trade Secrets and Intellectual Property
TradinGear has no patent protection for its products and as such will
depend upon its confidential and proprietary information and methods.
TradinGear has registered as domain sites: tradingear.com and tradingear.net
and has filed for trade name protection of TradinGear's name as well.
TradinGear also owns the trademark "Trade Virtually Anywhere(Registered)".
Employees
TradinGear presently employs 8 persons, all engaged in administration
and product development. Samuel Gaer, TradinGear's President, and Bruce Frank,
its Vice-President, also engage in marketing TradinGear's products and
services.
Properties
TradinGear currently maintains office space at 39 Broadway, Suite 740,
and New York, New York 10006, where it leases approximately 4,500 square feet
for an annual rental of $139,200 through July 2006. TradinGear presently
believes that its facilities are adequate for its current purposes and will
allow for some expansion of business.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
The following discussion should be read in conjunction with the
consolidated historical financial statements of TradinGear.com Incorporated
("TradinGear") and related notes thereto for the fiscal years ended December
31, 2000 and December 31, 2001 included as Exhibit E to this Proxy Statement.
This discussion contains forward-looking statements regarding the business and
industry of TradinGear within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements are based on the current plans and
expectations of TradinGear and involve risks and uncertainties that could
cause actual future activities and results of operations to be materially
different from those set forth in the forward-looking statements.
Results of Operations
For the year ended December 31, 2001 TradinGear's consolidated revenues
increased to $1,128,836, as compared to $242,778 for the year ended December
31, 2000. This increase is attributable primarily to the sales and initial
delivery of TradinGear's new exchange systems platforms software.
Operating loss from continuing operations decreased significantly to
$436,651 for the year ended December 31, 2001, as compared to a loss of
$1,208,319 for the year ended December 31, 2000. This decrease is due
primarily to the significant increase in revenues, with only a slight increase
in operating costs to $1,565,487 for the year ended December 31, 2001 from
$1,451,097 for the year ended December 31, 2000.
Despite the significant increase in revenues, general and administrative
expenses declined by $35,144, to $601,098 for the year ended December 31, 2001
from $636,242 for the year ended December 31, 2000. This decline resulted from
TradinGear's ability to support increased sales and revenues without having to
increase its payroll, which remained constant at 8 employees throughout 2001.
Website costs (essentially, a one-time expense incurred during fiscal 2000)
declined to $4,508 for the year ended December 31, 2001 from $87,629 for the
year ended December 31, 2000. Development costs remained virtually constant
($426,544 for the year ended December 31, 2001 as compared to $418,044 for the
year ended December 31, 2000) as TradinGear refined existing products and
developed new products for the marketplace. The significant increase in
consulting fees (to $496,530 for the year ended December 31, 2001 from
$286,179 for the year ended December 31, 2000) principally reflects consulting
and professional agreements entered into by TradinGear during 2001.
After deductions for Other Expenses (primarily a one-time realized loss
of $79,450 on the sale of securities in fiscal 2000) and a Provision for
Income Tax, TradinGear had a net loss for the year ended December 31, 2001 of
$467,761, down significantly from $1,282,702 for the year ended December 31,
2000, for the reasons set forth above.
TradinGear files Federal Tax Returns, which reflect net operating loss
carry forwards. At December 31, 2001, TradinGear has net operating loss carry-
forwards in excess of $2,000,000. TradinGear has not recorded any income tax
11
benefit for the year ended December 31, 2001. The Tax Reform Act of 1986
contains provisions that may limit the net operating loss carry-forwards
available to be used in any given year in the event of significant changes in
ownership. Management cannot presently determine the probability of any tax
benefit being realized in future periods.
Liquidity and Capital Resources
As of December 31, 2001, TradinGear had cash and cash equivalents of
$230,360, a positive working capital position of $183,142 and no significant
debt.
For the year ended December 31, 2001 the net cash used in operating
activities was $96,620 as compared with cash used in operating activities in
the year ended December 31, 2000 of $730,571.
During the year ended December 31, 2001 TradinGear's negative cash flow
was funded primarily by the issuance of common stock for $281,125 resulting in
net cash flow from financing activities of $281,125, as compared to no cash
flow from financing activities in the year ended December 31, 2000.
TradinGear believes that additional working capital and development and
marketing financing will be available as needed, either from additional sales
of common shares or debt (of which TradinGear had none as at December 31,
2001) or both. However, there can be no assurance that TradinGear would be
able to obtain sufficient debt or equity financing or, if obtained, that it
will be on favorable terms. If TradinGear is unable to secure additional
financing, its ability to implement its growth strategy would be impaired and
its financial condition and results of operations would be materially
adversely affected.
Going Forward And Subsequent Events
Assuming the successful consummation of the merger between TradinGear
and the Company, and the acquisition of Digitran, Inc. by Digitran Simulation
Systems, Inc., all as set forth elsewhere in this Proxy Statement, the
business of TGFIN Holdings, Inc. (formerly Digitran Systems Incorporated) will
be the business of its wholly-owned subsidiary, TradinGear (with the added
legal and accounting costs attributable to the SEC periodic reporting
obligations of a publicly-held company, which are not expected to be
material).
TradinGear's growth and development plan is based upon using its modular
trading systems technology to rapidly assemble and deliver trading solutions
for the exchange, broker-dealer and hedge fund marketplaces. TradinGear
believes that it can offer prospective customers solutions that are custom-
tailored, as well as being faster, cheaper and easier to use than those of
competitors. TradinGear also anticipates reaching a marketplace of customers
of existing customers.
In addition, TradinGear intends to develop additional product lines to
keep pace with the changing state-of-the-art technology of the market.
TradinGear's software is designed on a "modular" basis, which is intended to
allow rapid adaptation to changes in the marketplace. However, this is an area
12
of rapidly changing technology and regulation, and there can be no assurance
that TradinGear will be able to remain competitive as the technology evolves,
or that changing regulations will not severely hamper TradinGear's ability to
do business.
To date, TradinGear has had no formal marketing plan, and all sales have
been by "word of mouth". TradinGear anticipates initiating a more structured
marketing strategy during the current fiscal year, which will require the
training key personnel for sales, as well as broadening its exposure in the
marketplace via trade shows and limited advertising in the print media.
TradinGear does not expect a material increase in capital expenditures in
connection with its marketing.
TRADINGEAR RISK FACTORS
PRIOR TO VOTING ON THE PROPOSED MERGER BETWEEN DSI ACQUISITION, INC. AND
TRADINGEAR, SHAREHOLDERS OF THE COMPANY SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS REGARDING TRADINGEAR.
Recently Formed Entity With Limited Business Experience
TradinGear was formed in July 1999 and has had limited business activity
and experience. To expand its current business, TradinGear will have to employ
experienced personnel, establish a corporate infrastructure to serve
customers, solicit customers for use of these on-line services and acquire the
necessary computer and communications equipment and license appropriate
software to enable it to implement its business activities. The lack of the
TradinGear's established business experience in these areas increases the
risks involved for holders of the common stock of the Company.
Lack Of Profitability
The TradinGear has experienced a net loss from operations since its
inception, with a total net loss from July 7, 1999 through December 31, 2001
of $2,235,019. There can be no assurance as to when, or if, TradinGear's
operations will become profitable.
Need For Additional Funds; Lack Of Commitments For Future Financing
Substantially greater funds than presently available will be required
before TradinGear will be able to significantly develop and market its
business, as well as for additional working capital required by TradinGear's
lack of profitability. There can be no assurance that TradinGear will be able
to acquire such additional funding, or at what cost, or in sufficient amounts.
13
Competition
Barriers to entry into TradinGear's business are not significant so that
the TradinGear may expect even greater competition from a larger number of
firms in the future. Further, many of its competitors and proposed competitors
will have significantly greater financial, technological and other resources
than TradinGear now has or may, in the reasonably foreseeable future, attain.
See "Business - Competition."
Government Regulation.
A number of TradinGear's present and prospective customers, specifically
stock exchanges and stock brokerage companies, are subject to extensive
regulation under both federal and state laws. Therefore TradinGear, in dealing
with stock exchanges and brokerage companies, may be required to comply with
many complex laws and rules, the compliance with which could result in
additional costs to TradinGear.
Since TradinGear does deal with customers who are themselves regulated,
there can be no assurance that federal or state agencies will not attempt to
regulate TradinGear's own business activities. If enacted or deemed applicable
to TradinGear, such laws, rules or regulations could be imposed on
TradinGear's activities or its business, thereby rendering TradinGear's
business or operations more costly or burdensome, less efficient or even
impossible, any of which could have a material adverse effect on TradinGear's
business, financial condition and operating results and therefore on the stock
price of the Company's common shares.
Need For Infrastructure; Equipment And Personnel To Be Put In Place
At present, TradinGear does not own or lease the necessary computer and
communications equipment, which will be required to expand significantly its
business activities. For this reason, TradinGear relies upon certain third-
party computer systems or third-party service providers. Any interruption in
these third-party services, or deterioration in their performance, could be
disruptive to TradinGear's business. In the event that current arrangements
with any of such third parties is terminated, TradinGear may not be able to
find an alternative source of systems support on a timely basis or on
commercially reasonable terms. In addition, While TradinGear believes that it
will be able to hire and retain the necessary personnel to direct and expand
its activities, TradinGear's business prospects will be dependent upon the
continued employment and performance of its senior management; its ability to
retain and motivate other officers and key employees; and its ability to
identify, attract, hire, train, retain and motivate other highly skilled
technical, managerial, marketing, administrative and customer service
personnel, each prepared for their various roles in a public reporting entity.
Competition for personnel is intense. If TradinGear does not succeed in
attracting new employees or retaining and motivating its current and future
employees, its business could suffer significantly. See "Business - Personnel"
and "Management." This additional staffing will take time, require additional
funds, and will also involve a learning and integration process before such
systems and personnel may be expected to function seamlessly for the conduct
of TradinGear's business.
14
Intellectual Property Rights
TradinGear will attempt to register its trademarks and service marks in
the United States and internationally. However, effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which TradinGear seeks to make its services available. TradinGear
currently owns the trademark "Trade Virtually Anywhere" and has applied for
the trademark "TradinGear".
TradinGear currently owns the Internet domain names TradinGear.com, and
TradinGear.net. Internet regulatory bodies generally regulate domain names.
The regulation of domain names in the United States and in foreign countries
is subject to change. Regulatory bodies could establish additional top-level
domains, appoint additional domain name registrars or modify the requirements
for holding domain names. As a result, TradinGear may not acquire or maintain
the domain names in all of the countries in which it proposes to conduct
business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore,
TradinGear could be unable to prevent third parties from acquiring domain
names that infringe or otherwise decrease the value of its trademarks and
other proprietary rights.
Business Qualification, Tax And Related Laws
TradinGear intends to offer its services in multiple states, and may
acquire customers who conduct business in such states. These jurisdictions may
claim that TradinGear is required to qualify to do business as a foreign
corporation in each such state. TradinGear's failure to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject it
to taxes and penalties for the failure to so qualify.
International Expansion.
TradinGear intends to explore opportunities for expanding its business
into international markets by, among other things, seeking as customers' stock
exchanges, securities firms and financial institutions located overseas.
However, there are various risks associated with international expansion. They
include language barriers, unexpected changes in regulatory requirements,
trade barriers, problems in difficulties in staffing and operating foreign
operations, changes in currency exchange rates, difficulties in enforcing
contracts and other legal rights, economic and political instability and
problems in collection.
Change Of Control Provisions
TradinGear is subject to certain Delaware laws that could have the
effect of delaying, deterring or preventing a change in its control. In
addition, after the Merger, a significant amount of the common stock of the
Company will be held by the current executive officers and directors of
TradinGear, thus having the effect of discouraging potential takeover attempts
or making it more difficult for stockholders to change management. See
"Description of Capital Stock."
15
Dividend Policy
Since inception, TradinGear has not paid any cash dividends on its
common stock. TradinGear intends to retain future earnings, if any, to provide
funds for the operation of its business and, accordingly, does not anticipate
paying any cash dividends on the stock of the Company in the reasonably
foreseeable future. See "Dividend Policy."
Effect Of Proposed Merger
If the proposed Merger is consummated, TradinGear will be a wholly-owned
subsidiary of TGFIN Holdings, Inc. ("TGFIN"). The financial statements of
TGFIN will be the financial statements of TradinGear consolidated, as of the
date of the Merger, with the financial statements of the Company and DSI
Acquisition, Inc. (which has no assets, liabilities or operations). As a
result, the business of TradinGear (TGFIN) will, in effect, become the
business of the Company. There can be no assurance that the market price of
the common shares of TGFIN will be equal to or greater than the current market
price of the common shares of the Company.
Special Note Regarding Forward-Looking Statements
Some of the statements under "Risk Factors," "Business" and elsewhere in
this Proxy Statement constitute forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may
cause our actual results, levels of activity, performance, or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of such terms or other comparable terminology.
TRADINGEAR MANAGEMENT
The Officers and Directors of TradinGear are as follows:
Name Age Positions
Samuel Gaer 35 Chairman of the Board, President
Marni Gaer 35 Secretary, Treasurer, Director
Ronald Comerchero 48 Director
Bruce Frank 42 Vice President
Samuel Gaer Chairman of the Board, President
Samuel Gaer became the President and a Director of TradinGear upon its
incorporation in July 1999. Mr. Gaer has twelve years experience in financial
markets and financial software. He started his career on Wall Street after
graduating from the University of Pennsylvania, Wharton School of Business in
1988. At that time he leased a seat on the New York Commodities Exchange
("COMEX"). In 1989 he formed Gaer Trading Group, a floor brokerage business,
which merged with Millennium Futures Group in 1993, forming what was then the
16
largest floor brokerage operation on the COMEX, servicing the major Wall
Street trading houses.
In 1995 Mr. Gaer founded AustinSoft, Inc., a developer of financial
analysis software for options traders. AustinSoft's Option Trader line of
software won Stocks and Commodities Magazine's Readers' Choice Awards from
1996-1999. In 1998 Mr. Gaer formed a risk arbitrage fund. In July 1999 Mr.
Gaer formed TradinGear for the purpose of developing and providing electronic
information systems for exchanges, while still involved in AustinSoft for the
individual trader.
Marni Gaer Secretary, Treasurer, Director
Marni Gaer became the Secretary and Treasurer and a Director, as well as
corporate counsel, of TradinGear in October 1999. Since 1992, Ms. Gaer has
been and currently serves as Vice-President and General Counsel for
International Printing Corporation, a family business located in Queens, New
York, where her responsibilities include union and labor negotiations and
general corporate law. She will devote approximately 85% of her professional
time to TradinGear. 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. Marni Gaer is the wife of Samuel Gaer.
Ron Comerchero - Director
Ronald Comerchero became a Director of TradinGear in October 1999. He
has twenty years experience in the trading business, Mr. Comerchero became a
Member of the New York Mercantile Exchange ("NYMEX") 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 the 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 currently is responsible for risk management
procedures implemented at Valhalla and (through Valhalla Management) risk
management at Catalyst Trading LLC.
Bruce Frank Vice-President
Bruce Frank joined TradinGear as a Vice President in March 2001. From
February 1998 through February 2001 he was the chief operating officer of
Javelin Technologies and from February 1997 through February 1998 he was a
senior manager at Arthur, Andersen & Co., marketing and managing consulting
engagements. Mr. Frank is a graduate of Pace University (B.A., Computer
Science, 1988).
Executive Compensation
Except for Mr. Gaer, none of TradinGear's Officers or Directors has an
employment contract, and Directors are not compensated for serving as such.
For the year ended December 31, 2001, Samuel Gaer was paid $140,000, Marni
Gaer was paid $30,000 and Bruce Frank was paid $17,000. Ronald Comerchero was
paid $1,000 for serving as a director. No Officer or Director of TradinGear
17
has been awarded compensation in the form of TradinGear common stock. No
officer or director holds any options or warrants to purchase common stock of
TradinGear.
DESCRIPTION OF TRADINGEAR SECURITIES
Common Stock
TradinGear is authorized to issue up to 30,000,000 shares of common
stock, $.0001 par value ("Common Stock"). As of the date of this Proxy
Statement, 19,154,309 shares of Common Stock were issued and outstanding. The
holders of Common Stock are entitled to one vote per share on all matters
voted on by stockholders, including elections of directors, and, except as
otherwise required by law, the holders of such shares will exclusively possess
all voting power. There is no cumulative voting for the election of directors.
The holders of Common Stock are entitled to such dividends as may be declared
from time to time by the Board from funds available therefore and, upon
liquidation, are entitled to receive a pro rata distribution of all assets of
TradinGear available for distribution to such holders. No holder of Common
Stock has any preemptive right to subscribe to any securities of TradinGear of
any kind of class, or any conversion rights, or any liabilities for calls or
assessments. At present, TradinGear acts as its own registrar and transfer
agent.
Indemnification Of Directors And Executive Officers And Limitation Of
Liability
Section 145 of the Delaware General Corporation Law ("DGCL") authorizes
a corporation's board of directors to grant indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act.
As permitted by the DGCL, TradinGear's Certificate of Incorporation
includes a provision that eliminates the personal liability of its directors
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to TradinGear
or its stockholders; (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; (iii) under
section 174 of the DGCL (regarding unlawful dividends and stock purchases) or
(iv) for any transaction from which the director derived an improper personal
benefit.
18
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE TRANSACTION
The directors and executive officers of the Company and TradinGear have
interests in the merger transaction as described in this section.
Control of The Company After The Merger
After the Merger, the current officers and directors of TradinGear will
own approximately 60% of the outstanding common stock of the Company, and
accordingly will be able to control the affairs of the Company, including the
election of directors.
Stock Ownership Of Certain Beneficial Owners And Management
Digitran Systems, Incorporated
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 Voting Shares Percentage
Of Beneficial Owner Beneficially Owned (1) Owned (2)
Julie T. Reeves 600,000 13.5%
1051 North Ash Drive
Chandler, AZ 85234
Evelyn R. Call 600,000 13.5%
14878 Steep Mountain Drive
Draper, UT 84020
Rigel Hulett 600,000 13.5%
P.O. Box 345
Reserve, NM 87830
___________________
(1) For the purposes of this chart, shares are aggregated by voting rights.
Thus, for voting purposes, shares of Class A Common Stock are only listed at
10% of the actual number issued.
(2) As at the date hereof, the Company had outstanding 2,000,000 Class B
common shares (one vote per share), 24,347,699 shares of Class A Common Stock
(1/10th vote per share) and 51,500 shares of Preferred Stock (1/10th vote per
share), for a total of 4,434,770 total votes outstanding, upon which these
percentages are based.
19
TradinGear.com Incorporated
TradinGear.com Incorporated 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 voting shares of TradinGear.com
Incorporated:
Name and Address Voting Shares Percentage
Of Beneficial Owner Beneficially Owned Owned (1)
Ronald Comerchero 2,000,000 10.4%
205 Third Avenue, 7K
New York, NY 10003
Bruce Frank 1,710,584 8.9%
238 Christopher Street
Montclair, NJ 07043
Norman Fuchs 1,200,000 6.3%
5 Flagpole Lane
East Setauket, NY 11733
Marni Gaer (2) 2,050,000 10.7%
39 Broadway, Suite 740
New York, NY 10006
Samuel Gaer 6,750,000 35.2%
39 Broadway, Suite 740
New York, NY 10006
Global Net Financial 1,338,889 7.0%
7284 West Palmetto Park
Boca Raton, FL 33433
____________________
(1) Unless otherwise indicated, each person named in the table exercises
sole voting and investment power with respect to all shares beneficially
owned. As at the date hereof, TradinGear.com Incorporated had outstanding
19,154,309 shares of its common stock.
(2) Marni Gaer is the wife of Samuel Gaer. Includes 100,000 shares held in
trust for the children of Marni and Samuel Gaer, of which Marni Gaer is the
Trustee.
TGFIN Holdings, Inc.
If the Merger is effected, TGFIN Holdings, Inc. (formerly the Company)
will have outstanding 20,613,723 shares of its Class A Common Stock,
consisting of 1,159,414 presently outstanding shares of its Class A Common
Stock (the 24,347,699 Class A Common Shares presently outstanding after the
proposed 1 for 21 reverse stock split), 100,000 shares issued for the
20
Company's 100,000 Class B Common Shares (the 2,000,000 Class B Common Shares
presently outstanding after the proposed 1 for 20 reverse stock split),
200,000 shares issued to various parties at the closing of the Merger and
19,154,309 shares issued to the shareholders of TradinGear. The ownership of
the Class A Common Shares by the officers and directors of TGFIN Holdings,
Inc. and by those persons who will own beneficially and have the right to vote
more than 5% of the Class A Common shares of TGFIN Holdings, Inc. are set
forth below:
Name and Address Voting Shares Percentage
Of Beneficial Owner Beneficially Owned Owned
(1)
Ronald Comerchero 2,000,000 9.7%
205 Third Avenue, 7K
New York, NY 10003
(Director)
Bruce Frank 1,710,584 8.3%
238 Christopher Street
Montclair, NJ 07043
(Vice-President)
Norman Fuchs 1,200,000 5.8%
5 Flagpole Lane
East Setauket, NY 11733
Marni Gaer (2) 2,050,000 9.9%
39 Broadway, Suite 740
New York, NY 10006
(Secretary, Treasurer, Director)
Samuel Gaer 6,750,000 32.7%
39 Broadway, Suite 740
New York, NY 10006
(Chairman, President)
Global Net Financial 1,338,889 6.5%
7284 West Palmetto Park
Boca Raton, FL 33433
All Officers and Directors 12,510,584 60.7%
As a Group (4 persons)
___________________
(1) Unless otherwise indicated, each person named in the table exercises
sole voting and investment power with respect to all shares beneficially
owned. If the Merger is effected, TGFIN Holdings Inc. (formerly the Company)
will have outstanding 20,613,723 shares of its Class A Common Stock.
(2) Marni Gaer is the wife of Samuel Gaer. Includes 100,000 shares held in
trust for the children of Marni and Samuel Gaer, of which Marni Gaer is the
Trustee.
21
LITIGATION
TradinGear is not involved in any material litigation.
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data for TGFIN
Holdings, Inc. ("TGFIN") is based on the historical financial statements of
TradinGear.Com Incorporated ("TradinGear") and Digitran Systems Incorporated
(the "Company") and has been prepared on a pro forma basis to give effect to
the merger under the purchase method of accounting, as if the transaction had
occurred at January 1, 2000 for each operating period presented. The pro forma
information was prepared based upon certain assumptions described below and
may not be indicative of results that actually would have occurred had the
merger occurred at the beginning of the last full fiscal year presented or of
results which may occur in the future. The unaudited pro forma consolidated
financial data and accompanying notes should be read in conjunction with the
annual and interim financial statements and notes thereto of TradinGear and
the Company included in the exhibits attached to this Proxy Statement.
The unaudited pro forma consolidated balance sheet as of December 31,
2001 presents the financial position of TGFIN as if the merger had occurred on
that date and was prepared utilizing the audited TradinGear balance sheet as
of December 31, 2001 and the Company's unaudited balance sheet as of January
31, 2002. The pro forma consolidated statements of operations data presented
assumes the merger occurred at the beginning of the periods presented, it
should not be assumed that TradinGear and the Company would have achieved the
unaudited pro forma consolidated results if they had actually been combined
during the periods shown.
The merger is expected to be accounted for as a purchase. The
stockholders of TradinGear will receive one share of common stock of TGFIN for
each share of TradinGear common stock held and the stockholders of the Company
will receive one share of TGFIN for every twenty one shares of common stock
held, resulting in the current stockholders of TradinGear owning approximately
93% of TGFIN common stock. The proposed plan of merger is subject to a number
of conditions including, but not limited to, regulatory approvals and the
receipt of stockholder approval from both TradinGear and the Company.
The unaudited pro forma consolidated results are based on estimates and
assumptions, which are preliminary and have been made solely for the purpose
of developing such pro forma information. The unaudited pro forma consolidated
results are not necessarily an indication of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future.
The unaudited pro forma consolidated results should be read in
conjunction with the historical consolidated financial statements and notes
thereto set forth herein, and other financial information pertaining to the
Company and TradinGear.
22
TGFIN HOLDINGS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
TG Digitran System Pro Forma Pro Forma
Pro Forma Adjustments Results
December 31, January 31,
2001 2002
ASSETS
Current Assets:
Cash and cash
equivalents $ 230,360 $ - $ 130,000(1) $ 360,360
Accounts receivable,
net - - - -
Prepaid expenses 6,801 - - 6,801
Deferred costs 59,899 - (59,899) (2) -
----------- ----------- ---------- ----------
Total Current Assets $ 297,060 - 70,101 367,161
Property and equipment,
net 151,964 - - 151,964
Deposits 101,621 - - 101,621
----------- ----------- ---------- ----------
Total Assets $ 550,645 $ - $ 70,101 $ 620,746
=========== =========== ========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 31,087 - - 31,087
Accrued expenses 38,431 - - 38,431
Income tax payable 4,300 - - 4,300
Deferred revenue 40,000 - - 40,000
----------- ----------- ---------- ----------
Total Current
Liabilities 113,818 - - 113,818
----------- ----------- ---------- ----------
Stockholders' Equity:
Preferred Stock
($0.01 par value) - 516 - 516
Common Stock ($.0001
par value) 1,883 263,477 (263,331)(3) 2,082
- - (33)(1) -
- - (20)(2) -
Additional paid-in-
capital 3,051,607 10,416,438 (10,416,438)(3) 3,121,655
- - (129,967)(1)
- - (79,980)(2)
- - 139,899 (2)
Less: Deferred
compensation relating
to compensation stock
issued (381,644) - - (381,644)
Retained earnings
(Deficit) (2,235,019) (10,680,431) 10,679,769 (3)(2,235,681)
------------ ------------ ----------- ----------
Total Stockholders'
Equity 436,827 - (70,101) 506,928
------------ ------------ ----------- ----------
Total Liabilities
and Stockholders'
Equity $ 550,645 $ - $ - $ 620,746
============ ============ =========== ==========
See accompanying notes to these pro forma financial statements.
23
TGFIN HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
For the Year Ended
December 31, 2001
TG Digitran Pro Forma
Results
Revenues:
Software license fees $ 1,128,836 $ - $ 1,128,836
Costs and Expense:
General and administrative 601,098 - 601,098
Website costs 4,508 - 4,508
Development costs 426,544 - 426,544
Consulting costs 496,530 - 496,530
Depreciation expense 36,807 - 36,807
------------ ------------- --------------
Total Costs and Expenses 1,565,487 - 1,565,487
------------ ------------- --------------
Net Loss from Operations (436,651) - (436,651)
Other Revenue (Expense)
Realized loss on sale of
securities - - -
Interest income - - -
Miscellaneous revenue 11,737 - 11,737
Finance Charges (35,172) - (35,172)
------------ ------------- --------------
(23,435) - (23,435)
------------ ------------- --------------
Net Loss from continuing
operation (460,086) - (460,086)
Loss from discontinuing
operation - 302,064 302,064
------------ ------------- --------------
Net Loss before Provision
for Income Tax (460,086) 302,064 (158,022)
------------ ------------- --------------
Provision for Income Tax 7,675 - 7,675
------------ ------------- --------------
Net Loss $ (467,761) $ 302,064 $ (165,697)
============ ============= ==============
Loss per Share:
Basic and diluted loss per
share $ 0.00 $ 0.00 $ (0.01)
============ ============= ==============
Basic and diluted common
shares outstanding 0 0 20,613,724
============ ============= ==============
See accompanying notes to these pro forma financial statements.
24
TGFIN HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
For the year Ended
December 31, 2000
TG Digitran Pro Forma
Results
Revenues:
Software license fees $ 242,778 $ - $ 242,778
Costs and Expense:
General and administrative 636,242 - 636,242
Website costs 87,629 - 87,629
Development costs 418,044 - 418,044
Consulting costs 286,179 - 286,179
Depreciation expense 23,003 - 23,003
------------ ------------- --------------
Total Costs and Expenses 1,451,097 - 1,451,097
------------ ------------- --------------
Net Loss from Operations (1,208,319) - (1,208,319)
Other Revenue (Expense)
Realized loss on sale of
securities (79,450) - (79,450)
Interest income 5,445 - 5,445
Miscellaneous revenue - - -
Finance charges - - -
------------ ------------- --------------
(74,005) - (74,005)
------------ ------------- --------------
Net Loss from continuing
operation (1,282,324) - (1,282,324)
Loss from discontinuing
operation - (206,936) (206,936)
------------ ------------- --------------
Net Loss before Provision
for Income Tax (1,282,324) (206,936) (1,489,260)
------------ ------------- --------------
Provision for Income Tax 378 - 3,175
------------ ------------- --------------
Net Loss $ (1,282,702) $ (206,936) $ (1,492,435)
============ ============= ==============
Loss per Share:
Basic and diluted loss per
share $ 0.00 $ 0.00 $ (0.07)
============ ============= ==============
Basic and diluted common
shares outstanding 0 0 20,613,724
============ ============= ==============
See accompanying notes to these pro forma financial statements.
25
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On October 31, 2001 TradinGear and the Company entered into an Agreement
and Plan of Merger. Under the terms of this Agreement, the shareholders of
TradinGear will receive one share of common stock of the Company for each
share of common stock held and the stockholders of the Company will receive
one share for each share of common stock held after a 1 for 21 reverse stock
split, resulting in the current stockholders of TradinGear owning
approximately 93% of common stock.
Pro Forma Adjustments
(1) To record the issuance of 325,000 shares of common stock by
TradinGear at $0.40 per share for net proceeds totaling $130,000
during April, 2002.
(2) To record charges of $139,899 to additional paid in capital for
costs incurred in connection with the merger consisting of the
issuance of 200,000 shares (post reverse split) of the Company's
common stock to consultants valued at $80,000 and to write-off
deferred costs of merger of $59,899. The issuance of the 200,000
shares of common stock was contingent upon the completion of the
merger.
(3) To record the merger of TradinGear and the Company and the
issuance of 19,154,309 shares of common stock to the shareholders of
TradinGear resulting in total issued outstanding common stock of
approximate 20,613,723 and the elimination of the Company's
accumulated deficit as a result of the merger.
The Board Of Directors Recommends That The Stockholders Vote For Proposal I.
26
PROPOSAL II
AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED
SHARES OF CLASS A COMMON STOCK FROM 25,000,000 TO 50,000,000 AND TO EFFECT A
1-FOR-21 REVERSE STOCK SPLIT OF THE CLASS A COMMON STOCK AND A 1-FOR-20
REVERSE STOCK SPLIT OF THE CLASS B COMMON STOCK
The Company is currently authorized to issue (i) 25,000,000 shares of
Class A Common Stock, par value $.01 per share, of which 24,347,699 shares are
issued and outstanding; (ii) 5,000,000 shares of Class B common stock, par
value $0.01 per share, of which 2,000,000 shares are issued and outstanding;
and (iii) 1,000,000 shares of Eight Percent (8%) Cumulative Preferred Stock,
of which 51,500 shares are issued and outstanding.
The purpose of the proposal is to comply with one of the provisions of
the Merger Agreement to provide enough Class A Common Stock to be available
for issuance in the future for possible acquisitions, financing and other
transactions, and to eliminate the voting preference of the Class B Common
Stock. As of the date of this Proxy Statement, there is no particular
transaction under consideration by the Company other than the TradinGear
Merger.
Effect of the Increase in Authorized Shares of Common Stock and The Reverse
Stock Split
Implementation of the amendment of the Certificate of Incorporation will
enable the shareholders of TradinGear to hold a more than a majority of the
shareholder voting rights after consummation of the Merger.
The proposal will authorize (i) an increase of 25,000,000 shares in the
authorized Class A Common Stock of the Company, with the result that there
will be a total of 50,000,000 authorized shares of Class A Common Stock, (ii)
a reduction of the issued and outstanding shares of Class A Common Stock from
24,347,699 shares to 1,159,414 shares, and (iii) a reduction of the issued and
outstanding shares of Class B Common Stock from 2,000,000 shares to 100,000
shares.
Voting rights and other rights of stockholders will not be altered by an
reverse stock, except where a small stockholder may own only a fractional
interest after the reverse stock split, which will be eliminated and that
person will cease to be a stockholder. The Company believes that there are no
shareholders who would have only fractional share interests after the reverse
stock split. Consummation of a reverse stock split will have no material
federal tax consequences to stockholders.
The par value of the Common Stock will remain at $.01 following the
reverse stock split. As a consequence, the aggregate par value of the
outstanding Common Stock will be reduced, while the aggregate capital in
excess of par value attributable to the outstanding Common Stock for statutory
27
and accounting purposes will be correspondingly increased. The resolution
approving the reverse stock split will provide that this increase in capital
in excess of par value will be treated as capital for statutory purposes.
The conversion ratios of any of the Company's outstanding stock options
and securities having a conversion or redemption feature, such as the
outstanding warrants, will be correspondingly adjusted upon the consummation
of any reverse stock split.
At the effective date of the reverse stock split (which will be the
Closing Date of the Merger), (i) each share of Class A Common Stock issued and
outstanding immediately prior thereto (the "Old Class A Common Stock") will be
reclassified as and changed into 1/21 of a share of the Company's Class A
Common Stock, par value $.01 (the "New Class A Common Stock"), and (ii) each
share of Class B Common Stock issued and outstanding immediately prior thereto
(the "Old Class B Common Stock") will be reclassified as and changed into 1/20
of a share of the Company's Class B Common Stock, par value $.01 (the "New
Class B Common Stock"), subject to the elimination of fractional share
interests as described in this Proxy Statement. Shortly after the effective
date, the Company will send transmittal forms to the holders of Old Common
Stock, to be used in forwarding their certificates of Old Common Stock for
surrender and exchange for certificates representing whole shares of New
Common Stock.
No certificates or scrip representing fractional share interests in the
New Common Stock will be issued and no such fractional share interests will
entitle the holder thereof to any rights as a stockholder of the Company. All
such fractional share interests will be eliminated and cancelled at the
Closing of the Merger
The Board Of Directors Recommends That The Stockholders Vote For Proposal II.
28
PROPOSAL III
ELECTION OF DIRECTORS
The Certificate of Incorporation of the Company provides for the
Company's Board of Directors to serve until their successors have been duly
elected and qualified or until they resign, become disqualified or disabled,
or are otherwise removed. The nominees for election to the Board of
Directors, and their prospective executive offices, are listed below:
Name Age Positions
Samuel Gaer 35 Chairman of the Board, President
Marni Gaer 35 Secretary, Treasurer, Director
Ronald Comerchero 48 Director
Bruce Frank 42 Vice President
The nominees are the officers and directors of TradinGear, and their
backgrounds are discussed elsewhere in this Proxy Statement.
Directors hold their offices until the next annual meeting of the
stockholders and thereafter until their successors have been duly elected and
qualified. Executive officers are elected by the Board of Directors on an
annual basis and serve at the direction of the Board. There is no family
relationship between any prospective director and executive officer of the
Company, except that Samuel Gaer and Marni Gaer are husband and wife.
Summary Information As To Prospective Executive Officers and Directors
Anticipated Number of Shares Percentage of Issued and
NAME Compensation (Beneficial & Legal) Outstanding after Merger
SAMUEL H. GAER $140,000 6,750,000 32.7
MARNI GAER $30,000 2,050,000 9.9
RONALD COMERCHERO $ 1,000 2,000,000 9.7
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.
The Board Of Directors Recommends That The Stockholders Vote For
Proposal III.
29
PROPOSAL IV
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors intends to appoint Samuel Klein and Company, CPAs
as independent certified public accountants for the Company to examine the
financial statements of the Company for the fiscal year ended April 30, 2002.
The appointment of Samuel Klein and Company, 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.
The Present Board Of Directors And The Nominees For Election Recommend
That The Stockholders Vote For Proposal IV.
BOARD AND COMMITTEE MEETINGS
During the fiscal year ending April 30, 2001 (the "Last Fiscal Year"),
the Company's 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. The Board addresses all audit and
compensation issues, as well as other matters.
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% shareholders were complied with during
the Last Fiscal Year and will be completed as to new shareholders promptly
upon consummation of the Merger transaction contemplated by the Merger
Agreement.
EXECUTIVE COMPENSATION
Certain additional required information concerning remuneration, other
compensation and ownership of securities by the Directors and Officers of the
Company is set forth in the Company's Form 10-KSB Report dated April 30, 2001,
which is being transmitted together with this Proxy Statement. Since the
demise of the Company's president, Loretta P. Trevers, no compensation has
been paid to any officer or director subsequent to April 30, 2001, except for
the issuance of a Class A common stock to Aaron Etra, director (75,000
shares), Scott Lybbert, secretary (200,000 shares), and Quentin R. Casperson,
II, president (75,000 shares) for services rendered during the period May 1,
2001 through December 31, 2001. In addtion, 675,000 shares of Class A common
stock was issued to counsel and other third parties who performed services for
the Company during the same period.
30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is not aware of any other significant relationships or
transactions that need to be reported in its Form 10-KSB and/or this Proxy
Statement. 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.
OTHER MATTERS
The Special Meeting is called for the purposes set forth in the Notice
of Meeting. 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. 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. 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 shareholders proposals submitted for consideration at this
Special Meeting. The Company must receive stockholder proposals intended for
consideration at the next Annual Meeting of Shareholders no later than
December 31, 2002. Such proposals may be included in the next proxy statement
if they comply with certain rules and regulations promulgated by the SEC.
FINANCIAL REPORTS & OTHER IMPORTANT DOCUMENTS
Audited financial 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-A-1 filed with the United
States Securities and Exchange Commission and attached as Exhibit C to this
Proxy Statement. Unaudited financial statements showing the Company on an
unconsolidated and combined basis with its wholly owned subsidiary, Digitran,
Inc., for the nine month period ended January 31, 2002 are contained in the
SEC Form 10-QSB filed with the Commission and attached as Exhibit D to this
Proxy Statement. Also attached to this Proxy Statement are audited financial
statements of TradinGear for the calendar years ended December 31, 2000 and
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 at the mailing address of the
TradinGear.com, Incorporated, 39 Broadway, Suite 740, New York, New York
10006.
31
Dated: April 22, 2002
BY ORDER OF THE BOARD OF DIRECTORS:
/s/Scott Lybbert
Scott Lybbert, Secretary
32
Exhibits to Proxy Statement
Exhibit A - Agreement and Plan of Merger dated October 31, 2001
Exhibit B - Addendum dated December 31, 2001 to Agreement and Plan of Merger
Exhibit C - Annual Report dated April 30, 2001 filed by Digitran Systems, Inc.
on SEC Form 10-KSB-A-1 (Including Audited Financial Statements for
the Fiscal Year Ended April 30, 2001)
Exhibit D - Quarterly Report dated January 31, 2002 filed by Digitran Systems,
Inc. on SEC Form 10-QSB (Including Unaudited Financial Statements
for the Third Quarter Ended January 31, 2002
Exhibit E - Audited Financial Statements of TradinGear.com, Inc. for the
Period Ended December 31, 2001 and December 31, 2000
33
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger dated as of October 31, 2001 (the
"Agreement"), by and between Digitran Systems, Incorporated ("DSI" or "the
Public Company") a Delaware corporation, and DSI Acquisition, Inc., a wholly
owned newly formed Delaware subsidiary of DSI, hereinafter sometimes referred
to as "Acquisition, Inc.", both of whom have an address for mailing purposes
c/o Robert H. Jaffe, Esq., Robert H. Jaffe & Associates, P.A., 8 Mountain
Avenue, Springfield, NJ 07081 and TradinGear.com Incorporated, a Delaware
Corporation ("TradinGear" or "the Surviving Corporation"), having its
principal place for the transaction of business at 39 Broadway, Suite 740, New
York, New York 10006.
W I T N E S S E T H:
WHEREAS, as of October 22, 2001, shareholders of TradinGear (exclusive
of treasury stock) collectively own of record approximately 18,934,309 shares
(the "TradinGear Shares") which presently constitute all of the issued and
outstanding shares of the common stock of TradinGear; and
WHEREAS, before giving effect to a reverse stock split on a one share
for twenty-one share basis for its Class A common stock and a one share for
twenty share basis for its Class B common stock ("the Stock Split"), the
capitalization of DSI consists of 25,000,000 shares of Class A common stock,
$0.01 par value, of which 24,347,699 shares are issued and outstanding as of
October 22, 2001, 5,000,000 shares of Class B common stock, $0.01 par value,
of which 2,000,000 shares were issued and outstanding as of October 22, 2001,
and 1,000,000 shares of Eight (8%) Percent Cumulative Preferred Stock, $0.01
par value, of which 51,500 shares were issued and outstanding as of October
22, 2001; and
WHEREAS, the parties desire to accomplish a merger (the "Merger
Transaction") between DSI Acquisition, Inc. and TradinGear under circumstances
where TradinGear will be the surviving entity, TradinGear will be a wholly-
owned subsidiary of DSI and each shareholder of TradinGear will receive one
share of post-split DSI Class A common stock for every share of TradinGear
common stock then owned; and
WHEREAS, at the closing of the Merger Transaction contemplated by this
Agreement, DSI will not have any tangible assets except possibly an investment
in Digitran Simulation Systems, Inc., an Arizona corporation and its
investment in Acquisition, Inc. and its liabilities will not exceed $50,000
except for a contingent liability consisting of accrued dividends owed to
holders of the Public Company's preferred stock not to exceed $260,000; and
WHEREAS, the present operating subsidiary of DSI is a wholly-owned Utah
corporation known as Digitran, Inc., which has 1,000 common shares issued and
outstanding, all of which are owned by DSI; and
WHEREAS, this Agreement contemplates that, at the time of the closing of
the Merger Transaction, the 1,000 shares of Digitran, Inc. held by DSI,
representing all of the issued and outstanding shares of Digitran, Inc., will
have been sold and/or merged into Digitran Simulation Systems, Inc., an
Arizona corporation owned by the heirs of Loretta P. Trevers, the deceased
president of DSI; and
WHEREAS, this Agreement contemplates that, at the time of the closing of
the Merger Transaction, the holder of the presently outstanding 2,000,000 DSI
Class B common shares will have tendered those shares back to DSI, where they
will be held as treasury shares of DSI, and, in exchange, will have been
issued 100,000 post-split DSI Class A common shares, and
WHEREAS, this Agreement contemplates that, prior to the closing of the
Merger Transaction, the shareholders of DSI will have approved an amendment to
the Certificate of Incorporation of DSI changing the name of DSI to TG FIN
Holdings, Inc.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
BASIC TRANSACTION
Section 1.1:
(a) The Merger. Subject to the terms and conditions of this Agreement,
DSI Acquisition, Inc. will merge with and into TradinGear ("the Merger").
TradinGear shall be the corporation surviving the Merger ("the Surviving
Corporation"). At the time of closing of the merger transaction, DSI will
deliver approximately 18,934,309 post-split Class A common shares of DSI
common stock to DSI Acquisition, Inc. for distribution to the shareholders of
TradinGear subsequent to the merger on the basis of one share of DSI Class A
common stock for every one share of TradinGear common stock.
(b) Closing. The closing of the merger transaction contemplated by this
Agreement ("the Closing") shall take place at the offices of Robert H. Jaffe &
Associates, P.A. ("Representative"), 8 Mountain Avenue, Springfield, New
Jersey 07081, commencing at 9:00 a.m. on the business day following the
satisfaction or waiver of all conditions to the obligations of the parties to
consummate the merger transaction contemplated hereby.
(c) Actions at the Closing. At the Closing, (1) the parties will
deliver to each other the various certificates and documents referred to in
this Agreement, (2) DSI Acquisition, Inc. and TradinGear will file with the
Secretary of State of Delaware, a Certificate of Merger and (3) DSI will file
with the Secretary of State of Delaware an amendment to its Certificate of
Incorporation changing its name to TG FIN Holdings, Inc.
(d) Effect of Merger.
(1) Effective Date. The merger shall become effective at the time
TradinGear files the Certificate of Merger evidencing its merger with and into
DSI Acquisitions, Inc. with the Secretary of State of Delaware ("the Effective
Time"). The Merger shall have the effect set forth in the Delaware General
Corporation Law.
(2) Certificate of Incorporation. After the merger, the Certificate of
Incorporation of the Surviving Corporation shall be amended and restated at
and as of the Effective Time to read as did the Certificate of Incorporation
of DSI Acquisition, Inc. immediately prior to the Effective Time.
(3) Bylaws. After the merger, the Bylaws of the Surviving Corporation
shall be amended and restated at and as of the Effective Time to read as did
the Bylaws of DSI Acquisition, Inc. immediately prior to the Effective Time.
(4) Directors and Officers. The directors and officers of TradinGear
before the merger shall become the directors and officers of the Surviving
Corporation and of DSI at and as of the Effective Time.
(5) Conversion of TradinGear Shares. At and as of the Effective Time
(a) each TradinGear Share (other than any Dissenting Share) shall be converted
into the right to receive a proportionate number of post-split DSI shares
equal to the percentage of TradinGear shares previously held multiplied by the
number of DSI shares issued to DSI Acquisition, Inc. prior to the merger.
(6) Closing of Transfer Records. After the close of business on the
Closing Date, transfers of TradinGear Shares outstanding prior to the
Effective Time shall not be made on the stock transfer books of the Surviving
Corporation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF DSI AND DSI ACQUISITION, INC.
DSI and DSI Acquisition, Inc. represent and warrant to TradinGear as
follows:
Section 2.1 Organization and Qualification. DSI and DSI Acquisition,
Inc. are corporations duly incorporated, duly organized, validly existing and
in good standing under the laws of the State of Delaware. They have the
corporate power and authority to own or lease and operate all of their
properties and assets and to carry on their business as such business is now
being conducted. They are duly licensed or qualified to do business and are
in good standing in the State of Delaware and in all jurisdictions in which
the nature of the business of DSI and DSI Acquisitions, Inc, or the character
or location of the properties and assets owned or least by either of them
makes such licensing or qualifications necessary. The legal representative of
DSI and of DSI Acquisitions, Inc. (the "Representative") has provided to
TradinGear copies of the certificate of incorporation and by-laws of DSI and
of DSI Acquisitions, Inc., certified by its assistant secretary to be complete
and correct, as amended.
Section 2.2 Capitalization of DSI. The authorized capital stock of DSI
consists 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 September
15, 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 October 22,
2001; and (iii) 1,000,000 shares of Eight (8%) Percent Cumulative Preferred
Stock of which 51,500 shares were issued and outstanding as of October 22,
2001. 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. Except as may be set forth in
the Disclosure Document attached hereto as Exhibit A ("Disclosure Document"),
there are no shares of DSI common stock issued or outstanding except as
referred to above, and there are no calls, subscriptions, warrants, rights,
agreements or commitments of any character obligating DSI, contingently or
otherwise, to issue shares of its common stock or to register shares of its
common stock under the Securities Act of 1933, as amended (the "1933 Act"), or
any other applicable federal or state securities laws.
Section 2.3 Authority. DSI has the full power and authority to enter
into this Agreement and to carry out its obligations hereunder. Other than
approval by a majority of its shareholders and by its board of directors, no
proceedings on the part of DSI are necessary to authorize this Agreement or
the Merger Transaction contemplated hereby. This Agreement constitutes the
legal, valid and binding obligation of DSI enforceable in accordance with its
terms.
Section 2.4 Capitalization of DSI Acquisitions, Inc. The authorized
capital stock of DSI Acquisitions, Inc. consists 100 shares of common stock,
no par value, of which 100 shares were issued and outstanding as of October
22, 2001. As provided in DSI Acquisitions, Inc. Articles of Incorporation,
the common stock carries with it the right to vote one vote per share. All
outstanding shares of DSI Acquisitions, Inc. common stock are validly issued,
fully paid for and nonassessable with no personal liability attaching to the
ownership thereof and free of pre-emptive rights. Except as may be set forth
in the Disclosure Document, there are no shares of DSI Acquisitions, Inc.
common stock issued or outstanding except as referred to above, and there are
no calls, subscriptions, warrants, rights, agreements or commitments of any
character obligating DSI Acquisitions, Inc., contingently or otherwise, to
issue shares of its common stock or to register shares of its common stock
under the Securities Act of 1933, as amended (the "1933 Act"), or any other
applicable federal or state securities laws.
Section 2.5 Authority. DSI Acquisitions, Inc. has the full power and
authority to enter into this Agreement and to carry out its obligations
hereunder. Other than approval by its shareholders and by its board of
directors, no proceedings on the part of DSI Acquisitions, Inc. are necessary
to authorize this Agreement or the Merger Transaction contemplated hereby.
This Agreement constitutes the legal, valid and binding obligation of DSI
Acquisitions, Inc. enforceable in accordance with its terms.
Section 2.6 No Violations. The execution and delivery of this
Agreement by DSI and by DSI Acquisition, Inc. will not violate any provisions
of their respective certificates of incorporation or by-laws, or conflict with
any law, rule, statute or regulation to which they are subject or violate or
result in a default under any agreement to which they are a party or by which
they are bound.
Section 2.7 Investments. DSI has not made any investments and does not
own capital stock in any corporation other than its operating subsidiary,
Digitran, Inc., and newly formed wholly owned Delaware subsidiary, DSI
Acquisition, Inc.
Section 2.8 Consents and Approvals. Other than as set forth in Sections
2.3 and 2.5 above, no permit, consent, approval or authorization of, or
declaration, filing or registration with any public body or authority or other
person, firm or entity is necessary in connection with the execution and
delivery by DSI and DSI Acquisitions, Inc. of this Agreement or the
consummation by it of the transactions contemplated hereby.
Section 2.9 Compliance with Law. DSI and DSI Acquisition, Inc. hold
all licenses, franchises, permits and authorizations necessary for the lawful
conduct of their businesses, and have complied and are in compliance with all
applicable statutes, laws, ordinances, rules and regulations of all federal,
state, local and foreign governmental bodies, agencies and subdivisions
having, asserting or claiming jurisdiction over them or over any part of their
operations. In connection with the sale of its securities, and in connection
with the special meeting of its shareholders required to obtain approval of
the Merger Transaction, DSI has complied and will comply with all applicable
provisions of the 1933 Act, the Securities Exchange Act of 1934 Act, as
amended (the "1934 Act"), all rules and regulations of the United States
Securities and Exchange Commission ("SEC") and the laws, rules and regulations
of each state in which such securities were offered for sale.
Section 2.10 Financial Statements. The Representatives have provided
to TradinGear copies of the financial statements of DSI and its subsidiary,
Digitran, Inc., for the fiscal years ended April 30, 2001 and April 30, 2000
including balance sheets, statements of operations, statement of changes in
shareholders' equity for such years and the footnotes thereto. The aforesaid
financial statements represent (a) the financial position, results of
operations and changes in financial position of DSI, as of the respective
dates and for the respective periods indicated, and (b) have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied.
Section 2.11 Existing Condition. Since April 30, 2001, and except as
disclosed in the Disclosure Document, and except for the sale and/or merger of
all of the shares of Digitran, Inc. to Digitran Simulation Systems, Inc.,
neither DSI nor DSI Acquisition, Inc. have:
(a) incurred any liabilities out of the ordinary course of
business;
(b) sold, encumbered, assigned or transferred any of their
assets;
(c) made or suffered any amendment or termination of any
material agreement, contract, commitment, lease under which DSI is lessee, or
canceled, modified or waived any significant debts or claims held by it or
waived any rights of significant value, whether or not in the ordinary course
of business;
(d) suffered any damage, destruction or loss, whether or not
covered by insurance;
(e) suffered any material adverse change in their business,
operations, assets, properties, prospects or condition (financial or
otherwise);
(f) made commitments or agreements for capital expenditures;
(g) hired any employees or increased the salaries or other
compensation of, or made any advance or loan to, any of their employees or
consultants or made any increase in, or any addition to, other benefits to
which any of their employees may be entitled;
(h) changed any of the accounting principles followed by them or
the methods of applying such principles; or
(i) entered into any transaction other than in the ordinary
course of business consistent with past practice or a transaction that would
serve to reduce outstanding liabilities.
Section 2.12 Title to Properties; Leasehold Interests. DSI and DSI
Acquisition, Inc. have good and valid title to all properties and assets, real
and personal, free and clear of all mortgages, liens, pledges, security
interests, charges, claims, restrictions and other encumbrances and defects of
title of any nature whatsoever, except for liens for taxes not yet due and
payable.
Section 2.13 Condition of Tangible Assets. All material items of
tangible personal property are in good condition and repair, subject to normal
wear and tear, and are usable in the regular and ordinary course of business
of DSI and DSI Acquisition, Inc.
Section 2.14 Books of Account. The books, records and accounts of DSI
and DSI Acquisition, Inc. maintained with respect to their business accurately
and fairly reflect, in reasonable detail, all their transactions and all their
assets and liabilities. Neither DSI nor DSI Acquisition, Inc. has engaged in
any transaction, maintained any bank account or used any of their funds except
for transactions, bank accounts and funds which have been and are reflected in
their normally maintained books and records.
Section 2.15 Litigation. No litigation, including any arbitration,
investigation or other proceeding of or before any court, arbitrator or
governmental or regulatory official, body or authority is pending or, to the
best of their knowledge, is threatened against DSI and DSI Acquisition, Inc.
other than the suits listed in the Disclosure Document. Neither DSI or DSI
Acquisition, Inc. is a party to or subject to the provisions of any judgment,
order, writ, injunction, decree or award of any court, arbitrator or
governmental or regulatory official, body or authority which may materially
and adversely affect the business or assets of DSI or DSI Acquisition, Inc.
Section 2.16 Contracts and Commitments. Except as listed and annexed
to the Disclosure Document, neither DSI nor DSI Acquisition, Inc. is a party
to any written or oral:
(a) agreement, contract or commitment with any present or former
employee or consultant or for the employment of any person, other than
contracts terminable at will without future liability;
(b) agreement, contract or commitment for the future purchase
of, or payment for, equipment, supplies or products, or for the performance of
services by a third party except for any agreement, contract or commitment
arising in the ordinary course of business;
(c) agreement, contract or commitment to finance any acquisition
of or purchase any asset or to perform any service; or
(d) note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement or is a party to any contract or commitment
for the borrowing or lending of money or agreement or arrangement for a line
of credit or guarantee, pledge or undertaking of the indebtedness of any other
person.
(e) warrant or option agreement where the holder has the right to
purchase shares of DSI or DSI Acquisition, Inc.;
Each of the agreements, contracts, commitments, leases, plans and other
instruments, documents and undertakings referenced in the Disclosure Document
is valid and enforceable in accordance with its terms except as the
enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting the rights of creditors generally. DSI and DSI Acquisition,
Inc. are not in default of the performance, observance or fulfillment of any
material obligations, covenants or conditions contained therein; and no event
has occurred which with or without the giving of notice or lapse of time, or
both, would constitute a default thereunder. Furthermore, except as may be
disclosed in the Disclosure Document, no such agreement, contract, commitment,
lease, plan or other instrument, document or undertaking, in the reasonable
opinion of DSI, contains any contractual requirement with which there is a
likelihood that DSI or DSI Acquisition, Inc. would be unable to comply.
Section 2.17 No Broker or Finder. Except as set forth in Section 8.2
herein, neither DSI nor DSI Acquisition, Inc. has dealt with or retained any
finder or broker whose fees or expenses have been paid by DSI or DSI
Acquisition, Inc. or for whose fees or expenses they would be responsible in
connection with this Agreement or the transactions contemplated hereby.
Section 2.18 Employee Benefit Plans and Arrangements. Neither DSI nor
DSI Acquisition, Inc. has sponsored, maintained or supported, or otherwise
been a party to, is in default under, or had any liability or accrued
obligations under, any plan, program, fund or arrangement, either qualified or
non-qualified for federal income tax purposes, relating to the employees of
DSI or any of its subsidiaries, whether for the benefit of a single individual
or for more than one individual, and whether or not funded, including, without
limitation, any incentive or other benefit arrangement for employees, their
dependents and/or their beneficiaries and any "employee pension benefit plan"
or "employee welfare benefit plan", as such terms are defined in Section 3 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Neither DSI nor DSI Acquisition, Inc. has, at any time, maintained or
contributed or been required to maintain or contribute to any "Multi-Employer
Plan" as such term is defined in Section 3(37) of ERISA.
Section 2.19 Completeness of Disclosure. No representation or warranty
in this Agreement or in the annexed Disclosure Document nor in any other
certificate, exhibit, statement, document or instrument furnished or to be
furnished to TradinGear by DSI or DSI Acquisition, Inc. pursuant to this
Agreement, or in connection with the negotiation, execution or performance of
this Agreement, contains any untrue statement of a material fact or omits to
state a material fact required to be stated or necessary to make any statement
made, not misleading.
Section 2.20 Tax Matters. DSI and DSI Acquisition, Inc. have filed or
will file on a timely basis (including all extensions) all tax returns which
were required to have been filed, or are hereafter required to be filed up to
the Closing Date by them (including, without limitation, all federal, state,
county, local and foreign tax returns) and such returns are complete and
accurate in all material respects, and DSI and DSI Acquisition, Inc. have paid
or provided for all taxes, interest or penalties which have been incurred or
are due and payable pursuant to such returns or pursuant to any assessments
received by either of them in connection with such returns. No foreign,
federal, state, local or other taxing authority has provided either DSI or DSI
Acquisition, Inc. with any notice of, any questions relating to, or claims
asserted for, taxes against DSI or DSI Acquisition, Inc. for which either may
be liable. All taxes which DSI and DSI Acquisition, Inc. are required by law
to withhold or collect have been duly withheld or collected and, to the extent
required, have been paid over to the proper governmental authorities.
Notwithstanding the foregoing, DSI has been advised by its accountants that
the manner in which Digitran, Inc. is sold and/or merged with Digitran
Simulation Systems, Inc. could result in a taxable event for DSI. Whether the
disposition of Digitran, Inc. will result in a taxable event and what would be
the tax consequences is a matter that would be determined prior to Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRADINGEAR
TradinGear represents and warrants to DSI and to DSI Acquisition, Inc.
as follows:
Section 3.1 Organization and Qualification of TradinGear. TradinGear
is a corporation duly incorporated, duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Corporation has
the corporate power and authority to own or lease and operate all of its
properties and assets and to carry on its business as such business is now
being conducted and is duly licensed or qualified to do business and is in
good standing in all jurisdictions in which the nature of its business or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualifications necessary and where the failure to qualify
would not have a material adverse effect on operations, properties, assets,
liabilities, earnings or business.
Section 3.2 Capitalization and Ownership of TradinGear. The authorized
capital stock of TradinGear consists of 30,000,000 shares of common stock, no
par value per share, of which approximately 18,934,309 shares are issued and
outstanding as at October 22, 2001 . All outstanding shares of TradinGear
common stock are validly issued and outstanding, fully paid and nonassessable
with no personal liability attaching to the ownership thereof, free of
preemptive rights and are owned free and clear of all liens, claims and
encumbrances. No securities are issued or outstanding except for the
aforementioned 18,934,309 shares of common stock and, at Closing, there will
be no options, calls, subscriptions, warrants, rights, agreements or
commitments of any character obliging TradinGear on a contingent basis or
otherwise, to issue shares of its common stock
Section 3.3 Authority. TradinGear has the full power and authority to
enter into this Agreement and to carry out its obligations hereunder. Other
than approval by its shareholders and by its board of directors, no
proceedings, on the part of TradinGear are necessary to authorize this
Agreement or the Merger Transaction contemplated hereby. This Agreement
constitutes the legal, valid and bind obligation of TradinGear enforceable in
accordance with its terms.
Section 3.4 Consents and Approvals. Other than as set forth in Section
3.3 above, no permit, consent, approval or authorization of, or declaration,
filing or registration with, any public body or authority or other person,
firm or entity is necessary in connection with the execution and delivery by
TradinGear of this Agreement or the consummation by TradinGear of the
transactions contemplated hereby.
Section 3.5 Financial Statements. DSI and DSI Acquisition, Inc. have
received copies of the unaudited financial statements of TradinGear completed
for the period ending June 30, 2001 by Samuel Klein and Company, certified
public accountants for TradinGear. These financial statements present fairly
the financial position, results of operations and changes in financial
position of DSI, as of the respective dates and for the respective periods
indicated, and have been prepared in accordance with Generally Accepted
Accounting Principles consistently applied.
Section 3.6 Completeness of Disclosure. No representation or warranty
in this Agreement nor any certificate, exhibit, statements, document or
instrument furnished or to be furnished to DSI and DSI Acquisition, Inc. by
TradinGear in connection with the negotiation, execution or performance of
this Agreement, contains any untrue statement of a material fact or omits to
state a material fact required to be stated or necessary to make any statement
made, not misleading.
ARTICLE IV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 4.1 Survival of Representations and Warranties. The
representations and warranties made by the parties to this Agreement or in any
certificate, exhibit, document or instrument furnished hereunder shall survive
for one year from the Closing of the transactions contemplated hereby, except
for matters not disclosed or discoverable at the time of Closing, in which
case, and as regards to such matters, the representations and warranties shall
survive for one year from the time such matters are disclosed or are
discoverable.
ARTICLE V
AGREEMENTS PENDING CLOSING
Section 5.1 Agreement Pending the Closing. DSI and DSI Acquisition,
Inc. covenent and agree that, pending the Closing and except as otherwise
agreed to in writing by TradinGear, they will:
(a) Business in the Ordinary Course. Conduct their business
solely in the ordinary course.
(b) Maintenance of Physical Assets. Continue to maintain and
service the physical assets used in the conduct of their business in the same
manner as has been their consistent past practice.
(c) Employees and Business Relations. Continue to maintain
their business relations and relations with their employees in the same manner
as has been their consistent past practice.
(d) Compliance with Law. etc. Comply with all laws, ordinances,
rules, regulations and orders applicable to their operations, assets or
properties in respect thereof, the noncompliance with which might materially
affect their business or assets.
(e) Cooperation. Cooperate with the other parties to this
Agreement and use their best efforts to cause all of the conditions to the
obligations on their part to be performed under this Agreement to be satisfied
before or immediately after the Closing Date.
(f) Sales of Assets; Negotiations. Without the prior written
consent of TradinGear, neither DSI nor DSI Acquisition, Inc. will initiate or
participate in any discussions or negotiations or enter into any agreement to
sell or encumber any part of its assets except for the disposition of
Digitran, Inc. to Digitran Simulation Systems, Inc. in a manner so as to avoid
or minimize any tax impact.
(g) Press Releases. No party to this Agreement shall give
notice to third parties or otherwise make any public statement or release
concerning this Agreement or the transactions contemplated hereby except for
such written information as shall have been approved in writing by the
representatives of TradinGear as to form and content.
ARTICLE VI
CONDITIONS PRECEDENT TO THE CLOSING
AND ADDITIONAL COVENANTS OF DSI AND DSI ACQUISITION, INC.
Section 6.1 Conditions Precedent to the Obligations of TradinGear. All
obligations of TradinGear under this Agreement are subject to the fulfillment
or satisfaction, and DSI and DSI Acquisition, Inc. covenant and agree to
fulfill or satisfy, prior to or at the Closing, each of the following
conditions precedent:
(a) Representations and Warranties True as of the Closing Date.
The representations and warranties of DSI and DSI Acquisition, Inc. contained
in this Agreement or in the annexed Disclosure Document shall be true on the
date of this Agreement without regard to any updates furnished by DSI and DSI
Acquisition, Inc., shall be true after the date of this Agreement and shall be
true on the Closing Date with the same effect as though such representations
and warranties were made as of such date.
(b) Compliance with this Agreement. DSI and DSI Acquisition,
Inc. shall have performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by them prior to
or at the Closing, including, but no limited to:
(1) DSI shall have issued and outstanding no more than
1,459,414 of its post-split Class A common shares, including the 100,000
post-split Class A common shares issued in exchange for DSI's issued and
outstanding 2,000,000 Class B common shares and including the 200,000 post-
split Class A common shares to be issued pursuant to Section 8.2 of this
Agreement. DSI shall have issued and outstanding no shares of its Class B
common stock. DSI shall have issued and outstanding no more than 51,500 of its
Eight (8%) Percent Cumulative Preferred Stock.
(2) Digitran, Inc. shall have been sold and/or merged into
Digitran Simulation Systems, Inc., in a transaction approved by the directors
and shareholders of DSI pursuant to the laws of the State of Delaware.
(3) DSI shall have acquired the approval of the Merger
Transaction and related transactions from the majority of the holders of DSI
common stock, including both Class A and Class B whose approval DSI has deemed
necessary to effect the transaction. DSI shall have acquired this approval
pursuant to a Proxy Statement or Information Statement filed with the U.S.
Securities Exchange Commission as required by Section 14 of the Securities
Exchange Act of 1934, as amended.
(4) DSI shall have acquired the approval of its shareholders
to change the name of DSI to TG FIN Holdings, Inc.
(c) No Threatened or Pending Litigation. On the Closing Date,
no suit, action or other proceeding, or injunction or final judgment relating
thereto, shall be threatened or be pending before any court or government or
regulatory official, body or authority in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby, and no
investigation that might result in any such suit, action or proceeding shall
be pending or threatened, including, but not limited to a claim for appraisal
rights pursuant to Section 262 of the Delaware Corporation Law .
(d) Consents and Approvals. All of the consents required to
carry out the transactions contemplated hereunder have been obtained by the
closing date, or will be obtained by the closing date including resolutions of
the board of directors and stockholders of DSI and DSI Acquisition, Inc.
approving the entry into this Agreement and the carrying out of transactions
contemplated herein.
(e) Material Adverse Changes. There has been no material
adverse change in the business, operations, assets or properties of DSI and
DSI Acquisition, Inc.
(f) Approval of Counsel; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement and all other related legal matters shall have been approved on the
Closing Date by counsel for TradinGear in the exercise of its reasonable
judgment.
(g) Certificates. DSI shall have delivered to DSI Acquisition,
Inc. approximately 18,934,309 shares of its Class A common stock constituting
the assets of DSI Acquisition, Inc. immediately prior to the merger. DSI
shall also have delivered to the representatives of TradinGear such other
documents, instruments, certifications and further assurances as its counsel
may reasonably require.
(h) Resignations. Subsequent to the election of three qualified
nominees of TradinGear to be directors of DSI and their acceptance of the
legal duties and obligations related thereto, all officers and predecessor
directors of DSI shall have submitted written resignations.
(i) Tax Returns. Prior to the Closing, DSI and DSI Acquisition,
Inc. shall have delivered to TradinGear copies of all federal, state and local
tax returns filed since January 1, 1999.
(j) Opinion of Counsel. At the Closing, DSI and DSI
Acquisition, Inc. shall deliver to TradinGear a legal opinion of Julian D.
Jensen, Esq., counsel to DSI and DSI Acquisition, Inc., acexceptable to
TradinGear in substantially in the form attached hereto as Exhibit A.
(k) No Liabilities. At closing, DSI and DSI Acquisition, Inc.
shall have no liabilities or obligations, including any tax liability as a
consequence of the disposition of its wholly owned subsidiary, Digitran, Inc.,
either accrued, absolute, contingent or otherwise, in excess of $50,000 except
for accrued dividends on its preferred cumulative stock of approximately
$257,500 which is deemed to be a contingent obligation of the Public Company
requiring payment of preferred dividends prior to payment of any dividends on
its common stock. At the Closing, DSI and DSI Acquisitions, Inc. shall provide
to TradinGear, in form acceptable to Samuel Klein and Company, certified
public accountants to TradinGear, a "cold comfort" letter from Scott Lybbert,
the acting financial officer of DSI. .
For purposes of this Agreement, the terms "liabilities" shall
include, without limitation, any direct or indirect indebtedness, guaranty,
endorsement, indemnity, claim, loss, damage, deficiency, cost, expense, or
obligation, fixed or unfixed, choate or inchoate, liquidated or unliquidated,
secured or unsecured or a reserve for any of the foregoing.
Section 6.2 Conditions Precedent to the Obligations of DSI and DSI
Acquisition, Inc. All obligations of DSI and DSI Acquisition, Inc. under
this Agreement are subject to the fulfillment or satisfaction, prior to or at
the Closing, of each of the following conditions precedent:
(a) Representations and Warranties True as of the Closing Date.
The representations and warranties of TradinGear contained in this Agreement
or in any list, certificate or document delivered by TradinGear to DSI and DSI
Acquisition, Inc. pursuant to the provisions of this Agreement shall be true
on the Closing Date with the same effect as though such representations and
warranties were made as of such date.
(b) Compliance with this Agreement. TradinGear shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by them prior to or at the Closing.
(c) No Threatened or Pending Litigation. On the Closing Date,
no suit, action or other proceeding, or injunction of final judgment relating
thereto, shall be threatened or be pending against TradinGear before any court
or governmental or regulatory official, body or authority in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby, and no investigation that might result in any such suit,
action or proceeding shall be pending or threatened.
(d) Material Adverse Changes. There shall have been no material
adverse changes in the business, operations, assets or properties of
TradinGear.
(e) Approval of Counsel; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement and all other related legal matters shall have been approved on the
Closing Date by counsel for DSI and DSI Acquisition, Inc. in the exercise of
its reasonable judgment.
(f) Certificates. TradinGear shall have delivered to DSI such
other documents, instruments, certifications and further assurances as its
counsel may reasonably require.
(g) Opinion of Counsel. At the Closing, TradinGear shall
deliver to DSI a legal opinion of Mark Gasarch, Esq., counsel to TradinGear,
in a form attached hereto as Exhibit B.
ARTICLE VII
FURTHER ASSURANCES
AND CONDITIONS SUBSEQUENT
Section 7.1 Acts to be Performed by TradinGear. Following the Closing
Date, representatives of TradinGear shall cause DSI to:
(a) accept the resignation of its present registered agent in
the States of Delaware and Utah and appoint a successor thereto;
(b) change the address of its registered office in the State of
Delaware;
(c) change the address of its principal executive offices and to
take all actions necessary to qualify to transact business in the jurisdiction
thereof and all other jurisdictions in which the nature of business conducted
by DSI and DSI Acquisition, Inc. or the character or location of the
properties and assets owned or leased by it make such qualification necessary,
except where the failure to so qualify would not have a material adverse
effect on the Public Company;
(d) make the appropriate filings with the United States
Securities and Exchange Commission to effectuate each of the foregoing actions
and make such other filings as would be appropriate for a reporting company.
(e) change the name of DSI to TG FIN Holdings, Inc. and apply to
the NASDAQ/OTC Bulletin Board to trade the shares of DSI under the name of TG
FIN Holdings, Inc. with an appropriate NASDAQ symbol, the first choice of
which is TFIN.
Section 7.2 Further Assurances. After the Closing Date, DSI and DSI
Acquisition, Inc. and TradinGear agree to execute, acknowledge and deliver
instruments of conveyance and transfer and will take such other actions and
execute and deliver such other documents, certifications and further
assurances as the other may reasonably require in order to perfect the merger
transaction contemplated hereby. In addition, each of the parties will
cooperate by executing and delivering to the other such additional instruments
and documents and take such other actions as may be reasonably requested from
time to time by any other party necessary to carry out, evidence and confirm
the intended purposes of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Termination.
(a) Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated by written notice of
termination at any time before the Closing Date only as follows:
(i) by mutual consent of DSI and DSI Acquisition, Inc. and
TradinGear;
(ii) by TradinGear at any time if the representations and
warranties of DSI and DSI Acquisition, Inc. prove to be materially incorrect
when made or at any time prior to the Closing;
(iii) by DSI and DSI Acquisition, Inc. if then representations
and warranties of TradinGear are found to have been materially incorrect when
made or at any time prior to the Closing; or
(iv) by either DSI and DSI Acquisition, Inc. or TradinGear
if the transactions contemplated by this Agreement do not close on or before
December 31, 2001 unless extended in writing by mutual agreement of the
parties.
(b) In the event of the termination and abandonment of this
Agreement, this Agreement shall become void and have no effect, without any
liability on the part of any of the parties or their directors or officers or
stockholders.
Section 8.2 Brokers' and Finder's Fees. Each party represents and
warrants to the other that all negotiations relative to this Agreement have
been carried on by it directly without the intervention of any person except
for Robert H. Jaffe, Esq. of Springfield, New Jersey. In recognition of the
broker and finder services rendered by Mr. Jaffe, at the Closing Date 50,000
post reverse split Class A common shares of DSI shall be issued to him and,
pursuant to his direction, 50,000 post reverse split Class A common shares of
DSI shall be issued to Conkaeli Enterprises, Inc., of Morganville, New Jersey
or its designee and 100,000 post reverse split Class A common shares of DSI
shall be issued to Kim Hemphill of Spokane, Washington, or his designee. DSI
and DSI Acquisition, Inc. agree to indemnify and hold TradinGear harmless
against any and all claims, losses, liabilities and expenses which may be
asserted against or incurred by TradinGear as a result of DSI's or DSI
Acquisition, Inc.'s dealings, arrangements or agreements with any other person
beside Mr. Jaffe or Mr. Hemphill.
Section 8.3 Income, Sales, Transfer and Documentary Taxes; etc.
TradinGear shall pay all federal, state and local income taxes, if any, due as
a result of the Merger Transaction.
Section 8.4 Expenses. Each party shall pay its own expenses incidental
to the preparation of this Agreement and the consummation of the Merger
Transaction and other transactions contemplated by this Agreement.
Section 8.5 Contents of Agreement; Parties in Interest; etc. This
Agreement, including the annexed Disclosure Document, sets forth the entire
understanding of the parties with respect to the transactions contemplated by
this Agreement. It shall not be amended or modified except by written
instrument duly executed by representatives of DSI and DSI Acquisition, Inc.
and TradinGear. Any and all previous agreements and understandings between or
among the parties regarding the subject matter hereof, whether written or
oral, are superseded by this Agreement.
Section 8.6 Assignment and Binding Effect. This Agreement may not be
assigned prior to the Closing by either party without the prior written
consent of the other.
Section 8.7 Waiver. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party.
Section 8.8 Notices. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally or sent
by air courier, delivery charges prepaid, or by registered or certified mail,
postage prepaid, or by facsimile transmission, confirmation received, as
follows:
If to DSI and DSI Acquisition, Inc., to:
Quentin R. Casperson, President
Digitran Systems, Inc.
c/o 80 Thomas Court
Logan, Utah 84321
Fax No. 435-753-3909
With a required copy to:
Robert H. Jaffe, Esq.
Robert H. Jaffe & Associates, P.A.
8 Mountain Avenue
Springfield, New Jersey 07081
Fax No. (973) 467-2246
and
If to TradinGear, to:
Mr. Samuel Gaer
TradinGear.com, Inc.
39 Broadway, Suite 740
New York, New York 10006
Fax No. (212) 363-4030
With a required copy to:
Mark Gasarch, Esq.
40 West 57th Street
33rd Floor
New York, NY 10019
Fax No. (212) 956-7216
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communications will be deemed to have been given as
of the date so delivered, telephoned or mailed.
Section 8.9 Governing Law. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of Delaware.
Section 8.10 No Benefit to Others. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit
of the parties hereto.
Section 8.11 Section Headings. All section headings contained in this
Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 8.12 Schedules and Exhibits. All Exhibits referred to herein
are intended to be and hereby are specifically made a part of this Agreement.
Section 8.13 Severability. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the
extent of such invalidity or unenforceability without invalidating or
rendering unenforceable the remaining provisions.
Section 8.14 Counterparts. This Agreement may be executed in any
number of counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument. This Agreement shall become binding when one or more
counterparts taken together shall have been executed and delivered by all of
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the date first above written.
DIGITRAN SYSTEMS, INC. ATTEST:
L/S_________________________ L/S__________________________
Quentin R. Casperson, President Scott E. Lybbert, Assistant Secretary
DSI ACQUISITION, INC. ATTEST:
L/S________________________ L/S__________________________
Quentin R. Casperson, President Scott E. Lybbert, Assistant Secretary
TRADINGEAR.COM
INCORPORATED ATTEST:
L/S________________________ L/S__________________________
Samuel Gaer, President Marni Gaer, Secretary
EXHIBIT B
ADDENDUM DATED DECEMBER 31, 2001 TO
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 31, 2001
This Addendum, dated as of December 31, 2001, amends the Agreement and
Plan of Merger dated as of October 31, 2001 (the "Agreement"), by and between
Digitran Systems, Incorporated ("DSI" or "the Public Company") a Delaware
corporation, and DSI Acquisition, Inc., a wholly owned newly formed Delaware
subsidiary of DSI, hereinafter sometimes referred to as "Acquisition, Inc.",
both of whom have an address for mailing purposes c/o Robert H. Jaffe, Esq.,
Robert H. Jaffe & Associates, P.A., 8 Mountain Avenue, Springfield, NJ 07081
and TradinGear.com Incorporated, a Delaware Corporation ("TradinGear" or "the
Surviving Corporation"), having its principal place for the transaction of
business at 39 Broadway, Suite 740, New York, New York 10006.
W I T N E S S E T H:
WHEREAS, as of October 22, 2001, shareholders of TradinGear (exclusive
of treasury stock) collectively own of record 19,154,309 shares (the
"TradinGear Shares") which presently constitute all of the issued and
outstanding shares of the common stock of TradinGear; and
WHEREAS, in the Agreement and Plan of Merger dated as of October 31,
2001, the number of issued and outstanding shares of TradinGear was
incorrectly stated to be 18,934,309;
WHEREAS, the parties where to correct the Agreement and Plan of Merger
to conform with the actual number of issued and outstanding shares of
TradinGear;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants contained in this Addendum, the parties agree as follows:
Where ever in the Agreement and Plan of Merger reference is made to
18,934,309 shares of the common stock of TradinGear, and/or the fact that,
upon consummation of the proposed merger, DSI will issue shares of its common
stock to DSI Acquisition, Inc. to be distributed to the shareholders of
TradinGear, that figure is deemed to be adjusted to state 19, 154,309.
IN WITNESS WHEREOF, the parties hereto have duly executed this Addendum
on the date first above written.
DIGITRAN SYSTEMS, INC. ATTEST:
L/S____________________________ L/S__________________________
Quentin R. Casperson, President Scott E. Lybbert, Assistant Secretary
DSI ACQUISITION, INC. ATTEST:
L/S___________________________ L/S__ _____________________
Quentin R. Casperson, President Scott E. Lybbert, Assistant Secretary
TRADINGEAR.COM
INCORPORATED ATTEST:
L/S_ ______________________ L/S____________________________
Samuel Gaer, President Marni Gaer, Secretary
EXHIBIT C
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-KSB/A-1
[x] Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended April 30, 2001
[ ] Transition Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934 [No Fee Required]
Commission file Number: 1-11034
DIGITRAN SYSTEMS, INCORPORATED
(Name of small business issuer in its charter)
Delaware 72-0861671
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification Number)
205 West 8800 South
P.O. Box 91
Paradise, Utah 84328-0091
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (435) 757-4408
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
Common Stock $.01 Par value OTC Bulletin Board
Series 1 Class A 8% Cumulative
Convertible Preferred Stock None
Securities registered under Section 12(g)
of the Exchange Act: None
(continued on following page)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: 2001 -
$99,646
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days. The aggregate market value of the
Registrant's voting stock held by non-affiliates of the Registrant was
approximately $-0- at April 30, 2001, computed at the closing quotation for
the Registrant's common stock of $0.00 as of April 30, 2001, even though the
stock has traded for positive values since that date.
State the number of shares outstanding of each of the Issuer's classes of
common equity as of the latest practicable date: at August 10, 2001 there were
23,347,699 shares of the Registrant's Common Stock and 2,000,000 shares of
Class B Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one):Yes[ ]No [X]
Documents Incorporated by reference: None
PART I
ITEM 1 DESCRIPTION OF BUSINESS
Preface
As of April 30, 2000 and thereafter, the results of the company's
operations have been reported as if they had been discontinued. This is
primarily due to the fact that the company entered into an Agreement to sell
the rights to market its Crane and Truck Division product lines in November of
1999. Since certain provisions of the Agreement are still not completed, the
following description of the business (ITEM I) is also still included in its
former, present tense. Had the provisions of the Agreement been completed,
most of this section would no longer apply, or would at a minimum, be
described in past tense.
History
Digitran Systems, Incorporated is a holding company, incorporated under
the laws of Delaware in 1985, that conducts all of its business operations
through Digitran, Inc. Digitran, Inc., a wholly owned subsidiary of Digitran
Systems, Incorporated, was formed under the laws of the State of Louisiana in
1979. In 1992 it reincorporated in the State of Utah. As used in "ITEM 1
DESCRIPTION OF BUSINESS" the term "Company" refers to the combined operations
of Digitran Systems, Incorporated and Digitran, Inc.
The Company
The Company primarily develops, manufactures and markets simulator
training systems which are used to train personnel in the petroleum,
transportation, and construction industries. The Company began marketing its
first simulator training systems in 1979 and currently markets a variety of
simulator training systems for crane operations, petroleum operations and
heavy duty truck driving.
Going Concern Qualification
The financial statements of the Company have been prepared assuming that
the Company will continue as a going concern. For the year ended April 30,
2000 the "going concern" assumption is qualified due to the Company's current
financial condition and the Company's inability to achieve and sustain
profitable operations in recent years. The company's operations were greatly
affected by a shareholder lawsuit which began in 1993 and was fully satisfied
in July of 1998.
Existing Simulator Training Systems
The Company's simulator training systems generally consist of an
instructor's console; various student consoles; visual, motion and sound
subsystems; cab controls and instrumentation; hardware interface computers and
main simulation computers. The entire set of mechanical, electronic and
computer subsystems are controlled by the operating system and simulation
software. The simulators are designed and manufactured by Digitran engineers
to appear, feel and work like the real-world equipment that is being
simulated.
Training simulators offer higher quality, more frequent and more diverse
training opportunities than the actual equipment can provide. In a simulator,
safety risks during the training period to personnel, equipment, and cargo are
eliminated. In addition, the operating costs of a simulator are lower than
the costs associated with using actual equipment dedicated to training. Also,
the use of the simulator allows for higher volume usage and the ability to
simulate conditions which would be too dangerous or are unavailable for actual
training.
Crane Operations Simulator Training Systems
The Company developed simulator training systems to train operators of
various types of cranes for use in the maritime and construction industries.
These include, but are not limited to, training systems for:
Type of Crane Where Mounted Principal Purpose
Gantry-Single Lift Port Dock Container Management
Gantry-Twin Lift Port Dock Container Management
Gantry-Rubber Tire Port Dock Container Management
Pedestal Port Dock Cargo/Supplies Management
Ship Gantry Ship Cargo/Supplies Management
Ship Pedestal Ship Container/Cargo/Supplies
Offshore Lattice Oil Drilling Rig Container/Cargo/Supplies
Lattice Truck Bulk Materials Management
Telescopic Truck Precision Materials Mgt.
Tower Stationary Heavy Construction Mgt.
Simulated training addresses the two major concerns regarding the
operation of cranes: safety and efficiency. Competitive and cost pressures
drive the industry to improve its overall levels of safety, thus reducing the
risk of injury and damage. In addition, crane operators need to operate as
efficiently as possible. The Company's products have proven to improve both
crane operation safety and efficiency.
Simulator training helps reduce the operator's exposure to liabilities
for an accident should it occur. First, by providing a standard by which
competencies can be measured and maintained, thus reducing the chance of an
accident. Secondly, by providing standardized documentation of the operator's
achieved skill level, thus reducing the chance that the operator can be found
liable for not providing sufficient training to its employees.
The Company's crane simulation systems provide customers with simulation
equipment that can be tailored to the various specific needs of each customer.
The cab enables users to simulate many different kinds of cranes with the same
system. The universal cab features interchangeable control panels designed to
closely resemble crane controls. Generally, as training needs change, users
may add additional training capabilities to their simulator without having to
purchase an entirely new cab and motion base. The instructor's console is
designed to be easily learned and operated and requires little previous
knowledge of computers. The hydraulic motion system is designed to imitate the
variety of movements an operator experiences in an actual crane.
Included within the simulation experience is the capability to modify and
complicate a scenario so that it resembles actual working conditions. The
Company's crane operations simulator training systems have been designed to
give the trainee hands-on experience in picking up and moving cargo loads
under varying normal, abnormal and emergency conditions and to develop the
hand-eye coordination needed to operate a large crane. Once a trainee has
completed a simulation scenario, the computer analyzes his performance and
generates a printed summary for review. The Company's simulators are created
with the possibility of future upgrades to include additional training
applications.
Petroleum Operations Simulator Training Systems
The market for simulator training systems for the petroleum industry
originated in the mid-1970's and grew in response to increased use of advanced
technologies in petroleum operations. Because of the high costs and
environmental risks of accidents in the petroleum industry, particularly in
off-shore locations, there is an increasing need to train production and
engineering personnel in order to reduce the risk of accidents caused by
operator error. The Company's main petroleum products are briefly summarized
below:
TYPE OF SIMULATOR/SOFTWARE TRAINING AREAS
Drilling and Well Control Day to day operations and emergencies:
Full size, portable and Drilling techniques
ultra lite versions
Land or off-shore operations Blowout Prevention
Cementing
Directional Drilling
Mud analysis's Treatment
Drill Stem Testing, etc.
Production and Workover Procedures and Theory of Production and
Full size and portable versions Workover operations:
Land and off-shore operations Forward and reverse circulation
Reservoir flow testing
Bullheading
Lubricate and Bleeding
Formation fracturing
Equipment failures, etc.
Student Training Programs
Drill Track Directional Drilling
Drill Trainer Cost Estimation
Truck Simulation Systems.
The Company has developed a truck simulator for use in training drivers
in varying types of truck use, from mining and over-the-road hauling using
single, double, triple and tanker trailers, to localized applications such as
those found within ports, terminals and airports. The truck simulator
consists of a truck cab, motion base, projection screen and instructor's
console similar to those found in the Company's crane simulation systems.
The truck simulator is equipped with an operator's cab which offers
interchangeable left-hand and right-hand driving modes for domestic and
international compatibility. The cab is positioned on hydraulic actuators
located underneath the simulator cab which provides vibrations present under
normal driving conditions, jolts during rough driving conditions, and motion
caused by braking, accelerating, turning and skidding.
In addition, the driver trainee views computer generated, textured images
on a wrap-around screen with rear-view insets. The visual system offers the
driving students the ability to view such things as oncoming vehicles, road
hazards, weather conditions, and details such as highway markers. The truck
simulator offers the ability to train drivers in highway, rural, mountain and
urban terrain. The system also includes an instructor's console, giving the
instructor control over all simulation parameters such as problem situations
and environmental conditions, allowing the instructor to view the entire
simulation from the console. The system may be installed in a 48-foot long
climate-controlled trailer for transportation to various training sites, or in
a permanent facility.
The Company believes that the truck simulator will be useful to the
trucking industry in the screening of drivers for aptitude and ability. Thus,
as with the crane simulator, the truck operating entities can assess the skill
levels of their drivers and can document the level of training that the
drivers have received. Through the use of the Company's graphics technology
and its expertise developed in its other simulators, the Company may tailor
the simulation system to the needs of respective customers. Graphics
scenarios, truck cabs and other facets of the simulation experience can be
customized to suit each customer's specific requirements.
The Company has completed and is continuing to work towards the
completion of training curriculum for the trucking industry which combines
simulation, interactive video technology, and classroom techniques to provide
training to the new and the experienced driver.
Sales
Revenues for the year ended April 30, 2001 were as follows:
Simulators % Support Contracts % Total %
Crane $ -0- - $ -0- - $ -0- -
Petroleum $ 74,185 74 $ 25,461 26 $ 99,646 100
Vehicle $ -0- - $ -0- - $ -0- -
Total $ 74,185 74% $ 25,461 26 $ 99,646 100
Significant fluctuations in the relative percentages are expected between
periods due to the high dollar value and contracts as a one contract
difference may have a significant effect on relative percentages.
Marketing
Since the Company's traditional products require considerable customer
education and post sales support, the Company primarily markets its simulators
through direct contacts between its own personnel and potential customers. The
Company has also engaged independent agents who are generally paid on a
commission basis. The Company provides sales literature, videos, a corporate
background brochure as well as direct mail campaigns targeted to specific
industries. Sales from direct mail require follow-up with telephone contacts,
sales calls, product demonstrations and proposal submissions.
Marketing Strategy
The target markets for the Company's crane products include maritime
universities and training centers, major world ports (or minor port
"cooperatives"), port authorities and port terminals, insurance risk
management centers, unions and industry trade associations, construction
contractors and crane manufacturers. In the petroleum industry, the target
markets include large oil companies, major drilling contractors, petroleum
engineering institutions, colleges, universities and petroleum training
centers. The market segment for the truck simulation systems includes
companies in the commercial trucking industry, the private trucking industry,
professional trucking schools and institutions conducting truck driver
training, as well as state and federal agencies, transit authorities, and the
union associated with professional truck drivers.
Significant Customers
During the fiscal years ended April 30, 2001 and 2000, net sales to the
following customers accounted for more than 10% of the Company's sales:
2001 2000
Customer A 74,185 -0-
Customer B 25,461 -0-
Customer C -0- 302,197
The Company's significant customers usually change from year to year.
Competition
The overall simulator training system market, which includes aviation,
military, nuclear power plant and petroleum operations simulators, is
dominated by large companies and divisions including Evan's and Sutherland
Computer Corporation, Boeing Aerospace Corporation, McDonnel-Douglas
Corporation, the Link Division of Singer Corporation, Hughes Aircraft
Corporation, Westinghouse Corporation, General Electric Corporation and
others. While the Company's simulator training systems do not compete with any
of the simulator training systems manufactured by these large companies and
divisions, such companies and divisions have the resources and ability
necessary to develop simulator training systems in the markets in which the
Company is participating. There is no assurance that these large companies
and divisions will not develop simulator training systems which will compete
with the Company's products.
The Company believes that Drilling Systems, Ltd. based in the United
Kingdom and CS Manufacturing of Albuquerque, New Mexico are its primary
competitors in the petroleum operations simulator training systems market.
Drilling Systems, Ltd. has been in the business of making petroleum operations
simulator training systems since 1988. CS Manufacturing has been in business
for approximately 7 years and its predecessor, CS Simtran, Inc. for over 20
years. There is no assurance that additional competitors will not enter the
market. Competition within the petroleum industry has become increasingly
price competitive resulting in lowered profit margins. See "ITEM 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS".
Competition in the crane operations simulator training systems at present
includes Maritime Dynamics of the United Kingdom. Maritime Dynamics has
relatively few installations and does not compete well against the Company.
Management believes that preemptive marketing efforts taken by the Company to
inhibit new sales by this competitor, together with a technologically superior
simulation system, should ensure continued success within the crane simulation
product line. Jason & Associates, has begun competing against Digitran in the
crane simulator field.
Professional Truck Driving Simulators (a joint venture of FAAC, Inc. and
Perceptronics, Inc.) and Doron Precision Systems, Inc. are believed by the
Company to be its main competitors in the truck operations training industry.
While there are other entities involved in the manufacture and sale of
simulators to the trucking industry the Company is not aware of any which
utilize the high graphics quality and reality of motion on a price competitive
basis with the Company. An additional competitor is ISIM, a relatively new
company in this field.
The Company believes its simulator training systems can compete based on
price, quality, technology, service and ease of use, including the ability to
incorporate customer specific features and customizations.
Manufacturing and Sources of Supply
The Company generally will not build a simulator without an order. On
occasion, however, it will build one of each kind of significant simulator to
use for demonstrations and trade shows. This practice also allows for quicker
deliveries of contracted sales.
The Company designs and specifies the mechanical and electronic
components and subassemblies that comprise the simulators. The Company then
subcontracts with third party vendors for the manufacture and fabrication of
such components and subassemblies. While some simulator components are
procured "off-the-shelf", the Company performs all of the assembly,
integration, testing and quality control prior to installation of the
simulators. The Company also conducts performance and functionality tests
after installation to ensure that the training system is operating according
to specifications. Normally, payment for the simulation system is subject to
acceptance procedures by the customer, before and/or after shipment.
The Company chooses to procure certain simulator components from single
sources. A majority of the components of the simulation systems are available
from multiple sources and to date there have been no significant negative
effects on the Company arising from the use of a single source for certain
components. The Company currently uses a wide variety of semiconductor chips
from manufacturers including Intel, Motorola, NEC and others. Most of the
peripheral equipment is also procured from other industry manufacturers
including Hewlett-Packard, Mitsubishi and Gateway. In addition, the Company
utilizes high-end graphics computers and main simulation computers from
Silicon Graphics, Inc., Star Technologies and Evans and Sutherland, Inc.
Since many components used in the simulators are unique to the Company's
products, suppliers sometimes require lead times and minimum orders. The
Company is careful to manage its projects so as to keep its investment in
inventory parts relatively low, yet ample.
Product Warranty and Service
The Company warrants its simulator training systems to be free of defects
in materials and workmanship for a period of 12 months following delivery.
During the warranty period, the Company will repair or replace the defective
part without charge. At the end of the warranty period, customers can
purchase extended maintenance agreements.
The Company's simulator training systems are equipped with built-in
hardware diagnostic abilities which help identify failures, if any. Users of
petroleum systems are given a spare parts kit which contains parts and tools
to enable them to routinely maintain the simulator. Most of the Company's
simulator training systems also are equipped with a modem so that the Company
can monitor a system via telecommunications to assist and instruct training
personnel in maintenance and service procedures by telephone. The Company also
provides "on-site" service and maintenance when required. Warranty costs have
been relatively low to date.
Research and Development
In the past, the Company did not invest in research and development
unless a customer had engaged it to develop a project or unless the market
demanded certain product enhancements. The Company did not spend as much as it
would have liked on research and development during the fiscal year due to
economic constraints.
Foreign Sales and Concentration of Credit Risk
Most of the Company's business activity is with oil companies, port
authorities, training institutions and various other entities, often outside
the United States. One or several customers can account for a large portion
of the Company's earnings. See "ITEM 1 DESCRIPTION OF BUSINESS Significant
Customers". Normally, the Company attempts to secure shipments to points
outside the United States through letters of credit or progress payments. See
Note 1 to the Financial Statements under "Concentration of Credit Risk". In
cases for which shipments are made on open account, the Company normally
retains title to the equipment by virtue of the terms of its contracts until
significant payment has been secured.
Although the Company has attempted to protect its rights to equipment
sold in foreign countries, sales with extended payment terms are subject to
additional risks that upon default, the Company may incur additional expenses
to collect the receivable or repossess the simulator. In addition, sales to
certain countries may require additional documentation and/or licenses.
Foreign sales can be subject to additional risks associated with international
banking, currencies and other considerations which can affect payment terms
and other matters.
Patents, Copyrights and Trademarks
The Company does not hold any patents which it deems material to its
business and has not sought patent protection for the technology it uses in
its products. The Company protects the program codes used in its products as
trade secrets by utilizing nondisclosure agreements with its employees,
customers and others who are permitted access to such codes. The Company has
obtained software copyrights on essentially all the software incorporated into
the Company's non-transportation products. Copyrights provide only limited
protection. The Company has no trademarks.
Employees
As of April 30, 2001, the Company had no full-time employees and 4 part
time employees. As of April 30, 2000 the Company had 3 full-time and 5
part-time employees. In addition, the Company utilizes several sales agents on
a commission basis and engages various consultants. The Company is not a party
to any collective bargaining agreements.
ITEM 2 DESCRIPTION OF PROPERTY
As of April 30, 2001 the company had no tangible assets and no real
property.
ITEM 3 LEGAL PROCEEDINGS
In the normal course of business, there may be various other legal
actions and proceedings pending which seek damages against the Company. The
Company is delinquent in essentially all of its obligations. The potential
resolution of these obligations could continue to cause the Company harm. See
also Management's Discussion and Analysis.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The last annual meeting of the shareholders of the Company was held on
February 29, 1996. The results of this meeting were duly reported in Form
10-KSB as filed for the year ended April 30, 1996. Because the cost of the
annual meeting was considered to be prohibitive in view of other cash
requirements, the Company elected not to have an annual meeting during this
fiscal year.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Since trading of the Company's stock was suspended on May 21, 1993, the
securities were not listed on a public exchange until April 7, 1998 when the
stock (symbol DGTS) was listed on the OTC Bulletin Board.
Market information follows:
2001 2000
High Low High Low
1st Quarter 9/64 1/24 5/16 5/32
2nd Quarter 1/10 1/32 5/32 7/128
3rd Quarter 1/32 1/256 1/8 1/32
4th Quarter 1/64 1/256 5/16 9/128
Shareholders
As of April 30, 2001, the Company had 778 record holders of its Common
Stock and 3 record holder of its Class B Common Stock as well as 14 record
holders of its Series 1, Class A 8% Cumulative Convertible Preferred Stock
(the Preferred Stock) as reflected on the books of the Company's transfer
agent.
Dividends
The Company has not paid any dividends on its Common Stock and the Board
of Directors of the Company presently intends to pursue a policy of retaining
earnings, if any, for use in the Company's operations and to finance expansion
of its business. The declaration and payment of dividends in the future on
the Common Stock will be determined by the Board of Directors in light of
conditions then existing, including the Company's earnings, financial
condition, capital requirements and other factors. In addition, as noted
below, the Company is in arrears in the payment of dividends on its Preferred
Stock. Dividends are not payable on any other class of stock ranking junior
to such Preferred Stock until the full cumulative dividend requirements of the
Preferred Stock have been satisfied.
Holders of Preferred Stock are entitled to receive cumulative dividends
at the annual rate of 8% per annum on the stated value of the stock designated
at $7.00 per share, payable semi-annually on September 15 and March 15. No
dividends have been paid since March 15, 1993 resulting in dividends in
arrears of approximately $210,256 as of April 30, 2001 and $224,700 as of
April 30, 2000. Dividends on Preferred Stock cannot be paid as long as there
exists an Accumulated Deficit. Given the amount of the Accumulated Deficit, it
is not likely that Dividends will be allowed for several years. Therefore,
the Company has offered, and most shareholders have agreed, to convert the
preferred shares into common shares under the belief that the share price of
common stock would recover its value and exceed the continued accrual of
dividends on Preferred Stock.
There are not sufficient preferred shares (left unconverted) to trade
publicly. The Company will continue to encourage Preferred shareholders to
convert their shares into common stock so they might recover their investment
more quickly.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto. See "ITEM 7 FINANCIAL
STATEMENTS".
Management's Discussion
For several years now, the company has been unsuccessful in achieving
profitable operations, generating cash from operations or attracting
sufficient equity or debt financing to sustain its then current level of
operations. Consequently, the company was finally compelled to drastically
reduce its work force, sell its assets and settle its debts in any way
possible, including conversion of debt into the company's stock.
Plan of Operations
During the year ended April 30, 2001, the company still had nominal
operations and operating capacity, even though its operations are essentially
discontinued. Sales agents, living throughout the world, also represent the
company. Shareholders support other aspects of the business. However, because
the operations are currently as described above, the results of operations are
summarized, netted and classified as the results of discontinued operations.
The prior year's results have been reclassified also for comparability.
In November 1999, the company entered into an agreement with another
company (a non-competitor who has served the same customer base as Digitran
for many years) regarding the company's Crane and Truck simulation divisions.
The agreement, in principle calls for the other company to: (1) provide
support to the crane and truck division's product lines and customers, (2) to
satisfy certain debts of secured creditors and (3) to assist the company in
payment of its past due taxes. In return, the other company would
be entitled to the benefit from their efforts expended in those divisions,
including revenues from maintenance contracts and future simulator sales. To
date, the Company has recognized a gain of approximately $91,000 on the sale
of these rights. The Company continued to support the petroleum Division and
other existing projects.
Management's Future Plans
At this point, the company's management continues to entertain all viable
potential alternatives to provide creditor satisfaction and shareholder value
including, but not limited to: mergers, acquisitions, reverse acquisitions,
joint ventures, debt-restructures, spin-offs, realization of the company's
intangible assets or value, etc. Alternatives will continue to be
distinguished and favored based upon how well it provides for the existing
creditors and shareholders. Management is actively pursuing future
alternatives.
Management's Discussion and Analysis of the Results of Operations 2001 vs.
2000. Results of Operations:
The company incurred an operating loss of $484,108 due primarily to the
accrual of interest on outstanding debt, the accrual of legal fees-presumed to
have been incurred as a plaintiff, and salaries. The company continued to
scale down its operations. Ms. Trevers was a driving force behind the company.
As her health deteriorated, her ability to drive the company was compromised.
Revenues. Net Sales for 2001 were $99,646 compared to $ 903,742 for 2000
for an 89% decrease. The Crane and Truck divisions accounted for 67% of the
revenues for fiscal year 2000 versus 0% in fiscal year 2001. Another company
now markets the Crane and Truck division product lines.
ITEM 7 FINANCIAL STATEMENTS
The Consolidated Financial Statements are filed as part of this Annual
Report on Form 10-KSB.
DIGITRAN SYSTEMS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2001
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations. . . . . . . . . . . . . 5
Consolidated Statements of Shareholders' (Deficit) . . . . . . 6
Consolidated Statements of Cash Flows. . . . . . . . . . . . . 7
Notes to the Consolidated Financial Statements . . . . . . . . 8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Digitran Systems, Incorporated and Subsidiaries
We have audited the consolidated balance sheet of Digitran Systems,
Incorporated and Subsidiaries as of April 30, 2001, and the related
consolidated statements of operations, shareholders' deficit, and cash flows
for the years ended April 30, 2001 and 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Digitran
Systems, Incorporated and Subsidiaries as of April 30, 2001, and the results
of their operations and their 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 consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated 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
consolidated 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 AND SUBSIDIARIES
Consolidated 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 2,008,151
Current portion of notes payable (Note 3) 688,399
Total Current Liabilities 3,556,898
LONG-TERM LIABILITIES (Note 3) -
Total Liabilities 3,556,898
COMMITMENTS AND CONTINGENCIES (Note 10)
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) (14,266,988)
Total Shareholders' (Deficit) (3,556,557)
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 341
The accompanying notes are an integral part of these consolidated financial
statements.
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Consolidated 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 11) (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 $ (0.00) $ (0.00)
Discontinued 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 consolidated financial
statements.
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Consolidated 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 AND SUBSIDIARIES
Consolidated 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 consolidated financial
statements.
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Consolidated 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:
Depreciation and amortization - 62,802
Gain on reversal of stock (60,000) (504,238)
Issuance of common stock for services 39,234 420,409
Changes in operating assets and liabilities:
Decrease in accounts receivable 74,770 173,848
Decrease in inventory - 68,486
Increase in accounts payable and other current
liabilities 532,382 178,282
Net Cash Used In Operating Activities (29,658) 322,322
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 (6,000) (632,466)
Net Cash Used by Financing Activities (6,000) (387,466)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (35,658) 29,456
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 35,999 6,543
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 341 $ 35,999
The accompanying notes are an integral part of these consolidated financial
statements.
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Notes to the Consolidated 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. 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 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 $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.
Principles of Consolidation
The accompanying consolidated financial statements include Digitran
Systems, Incorporated, and its wholly-owned subsidiaries, Digitran,
Inc. and Digital Simulation Systems, Inc. All material intercompany
transactions have been eliminated.
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 recognizes revenue on the manufacture and sale of
computer driven simulation equipment. The sales can be from
existing inventory of the Company, wherein the revenue is
recognized once the amount and collectibility are reasonably
assured. Sales may also 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 SYSTEMS, INCORPORATED AND SUBSIDIARIES
Notes to the Consolidated 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 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 AND SUBSIDIARIES
Notes to the Consolidated 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.
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. 299,264
Total Notes Payable 688,399
Less current portion (688,399)
Long-term debt $ -
Future maturities of notes payable are as follows:
Year Ending Amount
2001 $ 688,399
2002 -
2003 -
2004 -
Thereafter -
$ 688,399
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
April 30, 2001 and 2000
NOTE 4 - 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.
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 5 - 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 $ 234,097 $ 26,000
Change in valuation allowance (234,097) (26,000)
$ - $ -
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
April 30, 2001 and 2000
NOTE 5 - INCOME TAXES (Continued)
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)
$ -
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 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Non-Cash Financing Activities
For the Years Ended
April 30,
2001 2000
Issuance of stock for services $ 39,234 $ 420,409
Common stock issued for payment of debt 59,105 733,862
Total $ 98,339 $1,154,271
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 $ 734 $ 94,217
Income taxes paid $ - $ -
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
April 30, 2001 and 2000
NOTE 7 - 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 8 - 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 AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
April 30, 2001 and 2000
NOTE 9 - 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 10 - 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 SYSTEMS, INCORPORATED AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
April 30, 2001 and 2000
NOTE 11 - 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 (130,586) (259,535)
Gain on disposal of assets 91,667 504,238
Total Other Income (Expense) (38,919) 244,703
LOSS BEFORE INCOME TAXES (616,044) (77,267)
INCOME TAX BENEFIT - -
NET LOSS $ (616,044) $(77,267)
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names, ages and positions of the directors and executive officers
of the Company are as follows:
NAME AGE POSITION
Aaron Etra 60 Chairman, Director
Gary Blum 60 Director
Quentin Casperson 52 President
Scott Lybbert 43 Corporate Secretary
Directors are elected at the Annual Meeting of Shareholders and serve
until their successors have been elected and qualified. Officers are elected
by and serve at the discretion of the Board of Directors and serve until their
successors have been elected and qualified. All persons hold the same
position with Digitran, Inc. and Digitran Systems, Incorporated. Digitran,
Inc. is the operating subsidiary of Digitran Systems, Incorporated.
Loretta P. Trevers was one of the original founders of the Company in
1979. She served as President and CEO from March of 1994 and as Chairman of
the Board since 1985. She had been a trustee for the Utah Information
Technology Association since 1990. Ms. Trevers passed away in April, 2001.
Aaron Etra has been the President of Investors & Developers
Associates, Inc., a developer of commercial, residential and industrial
property in the U.S., since 1981 as well as President of Henceforth Hibernia
Inc., a biotechnology and consumer products and research and development
company since 1998. Mr. Etra has been an Attorney and a counselor at law
since 1966 specializing in commercial, corporate, tax and personal law. His
professional education includes a J.D. in Law at Columbia University in 1965,
L.L.M. in Law at New York University in 1966, a B.A. in Political Science and
Economics at Yale University in 1962 and he attended the Hague Academy of
International Law during the summers of 1964-65. Mr. Etra received no
compensation for the year ended April 30, 2001.
Gary Blum was appointed director of the Company in October 1994. Mr.
Blum is the principal of the Law offices of Gary Blum, Los Angeles,
California, which he founded in June 1988. Mr. Blum currently serves as a
director of PCC Group, Inc., a publicly held company specializing in the
manufacturing and distribution of personal computers and equipment and
training devices. Mr. Blum received an MBA and JD from the University of
Southern California in 1978. Mr. Blum received no compensation for the year
ended April 30, 2001.
Quentin Casperson and Scott Lybbert are Shareholders who are
assisting the company primarily to protect their investment. They were acting
upon the request of Ms. Loretta Trevers, and continue to act at the request of
the Board of Directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended.
ITEM 10 EXECUTIVE COMPENSATION
The following table sets forth certain specified information
Concerning the compensation of the Chief Executive Officer of the Company and
any executive officer whose total annual salary and bonus exceeded $100,000
(the Named Executive Officers).
None
At the beginning of the year, the Company owed Loretta Trevers
$74,000. This debt was increased by advances to the Company and expenses owed
to Ms. Trevers, reduced by payments made to her. The net obligation to the
company was converted and charged to her as salary expense at the end of the
year. Consequently, as of April 30, 2001, no amounts were owed, to or from,
Ms. Trevers by the Company.
Other Items
There were no exercises of stock options (or tandem stock
Appreciation rights) and freestanding appreciation rights (or unexercised
options or stock appreciation rights) made during the fiscal year ended April
30, 2000 by any Named Executive Officer. The following table represents
outstanding options by officers of the Company:
Options and Stock Issuances
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
(a) (b) (c) (d) (e)
Number of Value of
Unexercised Unexercised
Options/SARs Options/SARs
at FY-End (#)at FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized($)Unexercisable Unexercisable
Aaron Etra
(Chairman, Director)
2001 -0- -0- 0/0 $0/0
2000 -0- -0- 0/0 $0/0
Gary Blum
(Director)
2001 -0- -0- 0/0 $0/0
2000 -0- -0- 0/0 $0/0
Quentin Casperson
(President)
2001 -0- -0- 0/0 $0/0
2000 -0- -0- 0/0 $0/0
Scott Lybbert
(Corporate Secretary)
2001 -0- -0- 150,000/0 $0/0
2000 -0- -0- 150,000/0 $0/0
Director Compensation
At the discretion of the Chairman of the Board, an option exercisable
for a period of five years to acquire 10,000 shares of Common Stock at a price
based on market value on the first trading day in January of the year could be
granted to each currently serving Director. No options were granted during
the fiscal years ended April 30, 2001 or 2000.
The Company's Bylaws as well as Delaware and Utah corporate statutes
provide for indemnification of and advances of expenses (including legal fees)
under certain circumstances for officers and directors who are a party to or
threaten to be made a party to any proceeding by reason of the fact that they
are a director, officer or employee of the Company, against expenses and
amounts paid in settlement of such actions.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 10, 2001 the number of
shares of Common Stock, Series 1 Class A 8% Cumulative Convertible Preferred
Stock (the "Preferred Stock") and Class B Common Stock beneficially owned by
each person known to be the beneficial owner of more than five percent of the
outstanding shares of the Company's Common Stock, Preferred Stock and Class B
Common Stock, by each director and each officer of the Company and by all
officers and directors as a group. Unless otherwise indicated, all persons
have sole voting and investment power over such shares, subject to
community property laws.
Name and Number Number
Address of of shares Percent of of outstanding
Beneficial of outstanding outstanding shares of Class B
Owner\Identity Common Common Common
of Group Stock Stock Stock
Loretta P. Trevers
205 W. 8800 South
Paradise, UT 84328 2,205,973 9.45% 1,800,000
Loretta P. Trevers
Trevers Trust/Trust Accounts
205 W. 8800 South
Paradise, UT 84328 1,869,000 8.01% 200,000
Robert H. Jaffe
8 Mountain Avenue
Springfield, NJ 1,573,050 6.74% 0
Clayton Paul Hilliard
P.O. Box 52745
Lafayette, LA 70505 1,301,904 5.58% 0
Scott Lybbert*
2666 Oakwood Drive
Bountiful, UT 84010 1,000,123 4.28% 0
Gary Blum*
3278 Wilshire Blvd, #603
Los Angeles, CA 90010 535,480 2.29% 0
Quentin Casperson*
205 W. 8800 South
Paradise, UT 84328 506,000 2.17% 0
Aaron Etra*
1350 Avenue/Americas
29th Floor
New York, NY 10021 427,100 1.83% 0
All executive officers
and directors as a
group (4 persons) 2,468,703 10.57% 0
Name and Percent of Number and
Address of Outstanding Percent of
Beneficial Shares of Outstanding Percent of
Owner\Identity Class B and Shares of Total Voting
of Group Common stock Preferred stock Power
Loretta P. Trevers
205 W. 8800 South
Paradise, UT 84328 90% 0 46.61%
Loretta P. Trevers
Trevers Trust/Trust Accounts
205 W. 8800 South
Paradise, UT 84328 10% 0 8.93%
Robert H. Jaffe
8 Mountain Avenue
Springfield, NJ 0 0 3.63%
Clayton Paul Hilliard
P.O. Box 52745
Lafayette, LA 70505 0 0 3.00%
Scott Lybbert*
2666 Oakwood Drive
Bountiful, UT 84010 0 0 2.31%
Gary Blum*
3278 Wilshire Blvd, #603
Los Angeles, CA 90010 0 0 1.24%
Quentin Casperson*
205 W. 8800 South
Paradise, UT 84328 0 0 1.17%
Aaron Etra*
1350 Avenue/Americas
29th Floor
New York, NY 10021 0 0 .99%
All executive officers
and directors as a
group (4 persons) 0 0 5.71%
*Indicates current officer or director of the Company.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than payment of employee and third party obligations of the
Company by Loretta Trevers and as duly reported under ITEM 10, Expenses, there
is nothing to report in this category.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
Regulation S-B
Exhibit Number
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Digitran Systems, Incorporated.
Paradise, Utah
We hereby consent to the use of our audit report dated July 31, 2001 in
this Form 10KSB of Digitran Systems, Inc. for the year ended April 30,2001,
which is part of this Form 10KSB and all references to our firm included in
this Form 10KSB.
HJ & Associates
Salt Lake City, Utah
July 31, 2001
Signatures
/s/ Aaron Etra Chairman of the Board, Director
-------------------------
Aaron Etra September 7, 2001
/s/ Gary Blum Director
-------------------------
Gary Blum September 7, 2001
/s/ Quentin Casperson President
-------------------------
Quentin Casperson September 7, 2001
/s/ Scott Lybbert Corporate Secretary
-------------------------
Scott Lybbert September 7, 2001
EXHIBIT D
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-QSB
__________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended January 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-11034
DIGITRAN SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 72-086167
(State or other jurisdiction of (IRS) employer
Incorporation or organization) identification No.)
205 West 8800 South, P.O. Box 91, Paradise, UT 84328-0091
(Address of principal executive offices and zip code)
(435) 757-4408
(Registrant's telephone number, including area code)
Not applicable
(Former name, address, and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 2002
Common stock, $.01 par value 24,347,699
Class B Common stock, $.01 par value 2,000,000
Transitional Small Business Disclosure Format (Check one)
Yes No X
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet
as of January 31, 2002 3
Unaudited Condensed Consolidated Statements of
Operations, for the nine month periods ended
January 31, 2002 and 2001 4
Unaudited Condensed Consolidated Statements of Cash
flows, for the nine month periods ended January 31,
2002 and 2001 5
Notes to Unaudited Condensed Consolidated Interim
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation 9
PART II. OTHER INFORMATION 18
SIGNATURES 20
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
January 31, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 341
Total Current Assets 341
Total assets $ 341
LIABILITIES AND STOCK HOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $2,682,435
Short Term Notes Payable 551,899
Total Current Liabilities 3,234,334
Shareholder's Deficit
Preferred Stock $ 516
Common Stock 243,477
Class B Common Stock 20,000
Additional Paid-in Capital 10,416,438
Retained Earnings (Deficit) (13,914,424)
Total Shareholder's Deficit (3,233,993)
Total Liabilities & Shareholder's Deficit $ 341
The accompanying notes are an integral part of these financial statements.
3
DIGITRAN SYSTEMS, INCORPORATED and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
January 31, January 31,
2002 2001 2002 2001
REVENUES $ - $ - $ - $ -
COST OF GOODS SOLD - - - -
GROSS PROFIT $ - $ - $ - $ -
EXPENSES
Depreciation and
Amortization $ - $ - $ - $ -
Selling, general and
administrative expenses - - - -
OPERATING INCOME (LOSS) $ - $ - $ - $ -
OTHER INCOME (EXPENSE)
Interest $ - $ - $ - $ -
Gain sale of divisions - - - -
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS
(Note 3) $ 510,000 $(62,000) $302,064 $(340,471)
NET INCOME (LOSS) $ 510,000 $(62,000) $302,064 $(340,471)
BASIC LOSS
PER SHARE
Continuing Operations - - - -
Discontinued Operations $ 0.02 $ (0.00)$ 0.01 $ (0.02)
Total Loss per share $ 0.02 $ (0.00)$ 0.01 $ (0.02)
Weighted Average number
of shares 24,247,699 22,750,000 23,774,937 22,750,000
The accompanying notes are an integral part of these consolidated
financial statements.
4
DIGITRAN SYSTEMS, INCORPORATED and Subsidiary
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
January 31,
2002 2001
Cash Flows From Operating Activities
Net(Loss) or Income $ 302,064 $(340,471)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Gain on sale of Divisions (377,564) -
Issuance of common stock for services 10,000
(Increase) Decrease in:
Accounts receivable - 70,770
Inventory - -
Increase (Decrease) in:
Accounts Payable and other current
liabilities 65,500 105,902
Net Cash (Used in) provided by
Operating Activities (0) (163,799)
Cash Flows Used in Investing Activities
Purchase of Property, plant & equipment - -
Net Cash used in Investing
Activities - -
Cash Flows from Financing Activities
Proceeds from short term borrowing - 119,850
Payments on short term borrowing - (12,500)
Payments on long term borrowing - -
Proceeds from stock-conversion of debt - -
Proceeds from sale of buildings - -
Issuance of Common Stock - 21,450
Net Cash Provided by Financing
Activities - 128,800
Net Increase (Decrease) in Cash - (34,999)
Cash at Beginning of Period 341 35,999
Cash at End of Period $ 341 $ 1,000
The accompanying Notes are an integral part of these consolidated
financial statements.
5
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
NOTE 1 CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company
without audit. They include information of Digitran Systems, Incorporated and
its subsidiary, Digitran, Inc. In the opinion of management, all material
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position at January 31, 2002 and the results of
operations and cash flows for the nine month periods ended January 31, 2002
and 2001 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's April 30, 2001 audited
financial statements. The results of operation for the periods ended January
31, 2002 and 2001 are not necessarily indicative of the operating results for
the respective full years.
The simulator products marketed by the Company sell at a very high price
in comparison to the total annual sales of the Company. This relationship
leads to individual sales having a disproportionately large effect on total
sales. Therefore, sales within a quarter can lead to highly volatile results
of operations for individual quarters. The results for individual quarters may
not be indicative of annual results. All quarterly information should be
considered in light of the last fiscal year and the current year to date
operations of the Company. Furthermore, due to the fixed nature of certain
cost of revenues, the gross margins on relatively low revenue volumes will be
lower than otherwise expected. All operating results have been shown as
discontinued.
NOTE 2 COMMITMENTS AND CONTINGENCIES
In the normal course of business, there may be various and sundry legal
actions and proceedings pending which seek damages against the Company. The
Company is behind in all its obligations and has discontinued operations. It
is possible that additional legal action could be brought against the Company.
For the nine months ended January 31, 2002, the Company accrued interest
expense of $97,500 and approximately $130,000 in Selling, General and
Administrative expenses primarily for legal expenses incurred in settling a
case in which the Company was the plaintiff. The case was dropped when Ms.
Trevers passed away. The case was withdrawn before trial, with no reportable
incident. In a non-cash transaction, certain accrued liabilities (including
those listed above), interest expense, notes payable and SG&A were reversed by
$510,000 resulting in a net gain from the sale of the divisions of $377,564.
Note that this gain had been deferred since November 1999 and was recognized
in this quarter because the company and the buyer signed mutual waivers. See
also Plan of Operations under Item 2: Management's Discussion and Analysis.
6
Going Concern
The accompanying financial statements have been presented on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred recurring operating losses, has a deficit in working capital, has an
accumulated earnings deficit, and has discontinued certain operations. See
further discussion below in Management's discussion and analysis and in Item
6: Exhibits and reports on Form 8-K.
On April 27, 2001 the former Chairman, President, CEO and co-founder of
the Company, Ms. Loretta Trevers passed away due to illness. We express our
sincere appreciation to her for her seemingly endless attempts to keep the
Company alive. Before she passed, she was actively involved with the Board and
management in the evaluation of various alternatives for the Company,
including the proposed transaction described below, herein.
NOTE 3 RESULTS FROM DISCONTINUED OPERATIONS
The following is a summary of the loss from discontinued operations
resulting from the elimination of the operations. Where necessary, the
financial statements have been retroactively restated to reflect this event.
No tax benefit has been attributed to the discontinued operations.
DIGITRAN SYSTEMS, INCORPORATED and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
January 31, January 31,
2002 2001 2002 2001
REVENUES $ - $ - $ - $ 9,000
COST OF GOODS SOLD - - - 58,866
GROSS PROFIT $ - $ - $ - $ (49,866)
EXPENSES
Depreciation and
Amortization $ - $ - $ - $ -
Selling, general and
administrative expenses (131,936) 30,000 10,000 192,700
OPERATING INCOME (LOSS) $ 131,936 $ (30,000) $ (10,000) $(242,566)
OTHER INCOME (EXPENSE)
Interest $ 500 $ (32,000) $ (65,000) $ (97,905)
Gain on sale of Divisions 377,564 - 377,564 -
INCOME (LOSS) BEFORE
INCOME TAXES $ 510,000 $ (62,000) $ 302,064 $(340,471)
INCOME TAXES, Net of Tax - - - -
NOL
NET INCOME (LOSS) $ 510,000 $ (62,000) $ 302,064 $(340,471)
LESS CURRENT UNPAID DIVIDENDS
ON PREFERRED STOCK (14,420) (15,046)
NET LOSS $ 510,000 $ (62,000) $ 287,144 $(353,517)
7
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
NOTE 4 CONCENTRATIONS OF CREDIT RISK
Most of the Company's remaining business activity is with oil companies,
training institutions and various other related entities, often outside the
United States. Normally, the Company attempts to secure shipments outside the
United States through letters of credit and/or progress payments. In cases
for which shipments are made on open accounts, the Company retains title or
ownership claims to the equipment shipped by terms of its contracts or
agreements until significant payment has been secured.
NOTE 5 CAPITAL STOCK
The Company's capital stock consists of common stock, Class B common
stock and preferred stock. The common stock provides for a non-cumulative
$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.
The Series 1 Class A 8% Cumulative Convertible Preferred Stock has a par
value of $0.01 per share. As of January 31, 2002, 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 at October 2001 of approximately $253,380 or $4.92 per share.
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.
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.
8
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
PART 1 FINANCIAL INFORMATION (Continued)
ITEM 2 Management's Discussion and Analysis of Financial Condition or Plan
of Operations.
Management's Discussion
See Item 6: Exhibits and reports on Form 8-K for current developments
regarding Management's Discussion and Plan of Operations.
For several years now, the company has been unsuccessful in achieving
profitable operations, generating cash from operations or attracting
sufficient equity or debt financing to sustain its then current level of
operations. Consequently, the company was finally compelled to drastically
reduce its work force, sell its assets and settle its debts in any way
possible, including conversion of debt into the company's stock.
Plan of Operations
The company still has nominal operations and operating capacity: The
company is represented by sales agents throughout the world; capable engineers
construct and support the company's products on a contract basis; and other
aspects of the business are sustained with the voluntary efforts of its
shareholders. However, because the operations are currently as described
above, the results of operations are summarized, netted and classified as the
results of discontinued operations. The prior year's results may have been
reclassified as necessary, for the sake of comparability.
In November 1999, the company entered into an agreement with another
company (a non-competitor who has served the same customer base as Digitran
for many years) regarding the company's Crane and Truck simulation divisions.
As of January 31, 2002, the non-competitor and the company had signed mutual
releases which resulted in the recognition of gain from the sale of the Crane
and Truck divisions, the release of certain obligations (secured and
unsecured) and the consummation of the transfer of the then existing
technology of the company. Please note that the recognition of the gain was a
non-cash transaction that had been deferred since November 1999. The
Company continues to support the petroleum Division and other existing
Projects.
9
Management's Future Plans
At this point, the company's management continues to entertain all
viable potential alternatives to provide creditor satisfaction and shareholder
value including, but not limited to: mergers, acquisitions, reverse
acquisitions, joint ventures, debt-restructures, spin-offs, realization of the
company's intangible assets or value, etc. Alternatives will continue to be
distinguished and favored based upon how well it provides for the existing
creditors and shareholders.
Proposed Transactions and Mergers
In accordance with the information contained in Item 6, below, the Company
plans to participate in a series of mergers whereby the Company will be
controlled by another entity. Consequently, two sets of Pro Forma Financial
Statements follow: First, the pro forma information with respect to the Merger
between Digitran, Inc. (a Utah Corporation) and Digitran Simulation Systems,
Inc. (an Arizona Corporation), as if they were combined for the full year
ended January 31, 2002. Secondly, the pro forma information of the Company,
assuming the merger between Digitran, Inc. and Digitran Simulation systems,
Inc. were effective as of January 31, 2002:
PRO FORMA FINANCIAL STATEMENTS
DIGITRAN, INC. AND DIGITRAN SIMULATION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
January 31, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,341
Total Current Assets 1,341
Total assets $ 1,341
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $2,682,435
Short Term Notes Payable 551,899
Due to Parent 1,819,421
Total Current Liabilities 5,053,755
Shareholder's Deficit
Common Stock 1,000
Additional Paid-in Capital -
Retained Earnings (Deficit) (5,056,096)
Total Shareholder's Deficit (5,055,096)
Total Liabilities & Shareholder's Deficit $ 1,341
The accompanying notes are an integral part of these financial statements.
10
PRO FORMA FINANCIAL STATEMENTS
DIGITRAN, INC. AND DIGITRAN SIMULATION SYSTEMS, INC.
Consolidated Statements of Operations
For the Year Ended
January 31,
2002
REVENUES $ 140,000
OPERATING COSTS (61,000)
GROSS MARGINS 79,000
Selling, general and administrative (51,936)
OPERATING Income 27,064
Other Income (expense)
Gain on sale of Divisions 377,564
Interest (65,500)
NET INCOME $ 339,128
BASIC GAIN (LOSS) PER SHARE
Pro Forma Continuing operations $ 0.01
WEIGHTED AVERAGE SHARES OF COMMON STOCK 23,000,000
The accompanying notes are an integral part of these financial statements
11
PRO FORMA FINANCIAL STATEMENTS
DIGITRAN, INC. AND DIGITRAN SIMULATION SYSTEMS, INC.
Consolidated Statements of Cash Flows
For the Year Ended
January 31,2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 339,128
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on Sale of Divisions (377,564)
Changes in operating assets and liabilities:
Decrease in accounts receivable 4,000
Increase in accounts payable and other
current liabilities 185,063
Net Cash Provided by (Used In) Operating
Activities 150,627
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in Due to Parent (149,968)
Purchase of property and equipment -
Net Cash Provided In Investing Activities (149,968)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable
Net Cash Used by Financing Activities $ 659
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 659
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,000
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 1,341
The accompanying notes are an integral part of these Pro Forma financial
statements.
12
NOTE 1 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Pro Forma financial statements have been prepared by the
Company without audit, and represent the Forma Financial position and results
of operations of the combined entities had the proposed merger of the
Company?s subsidiary Digitran, Inc., a Utah corporation into Digitran
Simulation Systems, Inc., an Arizona Corporation, occurred as of January 31,
2002. See Item 6, below for additional information regarding the proposed
merger. In the opinion of management, all material adjustments (which include
only normal recurring adjustments) necessary to present fairly the Pro Forma
financial position at January 31, 2002 and the results of operations and cash
flows for the year ended January 31, 2002 have been made. This transaction is
expected to be complete by March 31, 2002.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's April 30, 2001 audited
financial statements, the company?s latest filed 8-K, and definitive proxy
statement filed on February 20, 2002. The Pro Forma results of operation for
the year ended January 31, 2002 are not necessarily indicative of the
operating results for the respective fiscal year.
13
PRO FORMA FINANCIAL STATEMENTS
DIGITRAN SYSTEMS, INCORPORATED
CONDENSED BALANCE SHEET
(Unaudited)
January 31, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 0
Total Current Assets 0
Investment in DSSI (see Pro Forma Note 2)
Total assets $ 0
LIABILITIES AND STOCK HOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 0
Short Term Notes Payable 0
Total Current Liabilities 0
Shareholder's Deficit
Preferred Stock $ 516
Common Stock 243,477
Class B Common Stock 20,000
Additional Paid-in Capital 10,416,438
Retained Earnings (Deficit) (10,681,431)
Total Shareholder's Deficit 0
Total Liabilities & Shareholder's Deficit $ 0
The accompanying notes are an integral part of these financial statements.
14
PRO FORMA FINANCIAL STATEMENTS
DIGITRAN SYSTEMS, INCORPORATED
Consolidated Statements of Operations
For the Year Ended
January 31, 2002
REVENUES $ 0
OPERATING COSTS 0
GROSS MARGINS 0
Selling, general and administrative 0
OPERATING LOSS 0
Other Income (expense)
Interest 0
Gain on disposal of assets 0
NET INCOME (LOSS) from Discontinued Operations 302,064
NET INCOME (LOSS) before Extraordinary Item
Valuation Credit on Merger (See Pro Forma Note 2) $ 3,388,416
Utilization of Net Operating Loss Carry-forward (3,388,416)
Extraordinary Item net of tax 0
NET INCOME (LOSS) before taxes $ (302,064)
BASIC GAIN (LOSS) PER SHARE
Pro Forma Continuing operations $ 0.01
Pro Forma Extraordinary Item (0.00)
WEIGHTED AVERAGE SHARES OF COMMON STOCK 23,410,857
The accompanying notes are an integral part of these financial statements
15
PRO FORMA FINANCIAL STATEMENTS
DIGITRAN SYSTEMS, INCORPORATED
Consolidated Statements of Cash Flows
For the Year Ended
January 31,2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 302,064
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on sale of Divisions (377,564)
Issuance of Common Stock for Services 10,000
Changes in operating assets and liabilities:
Increase in accounts payable and other
current liabilities 65,500
Net Cash Used In Operating Activities -
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -
Net Cash Provided In Investing Activities -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable -
Payments on notes payable -
Issuance of common stock -
Net Cash Used by Financing Activities $ -
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
16
NOTE 1 PRO FORMA CONDENSED FINANCIAL STATEMENTS
The accompanying Pro Forma financial statements have been prepared by
the Company without audit, and represent the Pro Forma financial position and
results of operations of Digitran Systems, Incorporated assuming its
subsidiary, Digitran, Inc.?s (a Utah corporation) merger with Digitran
Simulation Systems, Inc. (an Arizona corporation) were effective as of January
31, 2002. See Item 6, below for the status of the Merger. In the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at January 31,
2002 and the results of operations and cash flows for the nine month period
ended January 31, 2002 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed Pro Forma financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's April 30,
2001 audited financial statements. The Pro Forma results of operation for the
period ended January 31, 2002 are not necessarily indicative of the operating
results for the respective full year.
NOTE 2 PRO FORMA INVESTMENT IN DSSI
The Company carried its investment in Digitran, Inc. at a net credit of
$3,388,416 as of April 30, 2001. In this Pro Forma Balance Sheet, the
investment is shown net of the Utilization of Income Tax Net Operating Loss
carry forward of $3,388,416. The Carrying value is an estimate, and ignores
any applicable local, state, excise, alternative minimum or other taxes that
might be applicable.
17
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
See "Note 2 Commitments and Contingencies".
ITEM 2 Changes in Securities
During this quarter, no shares were issued.
ITEM 3 Defaults on Senior Securities
Holders of Series 1 Class A 8% Cumulative Convertible Preferred Stock
are entitled to receive cumulative dividends at the annual rate of $.56 per
share, payable semi-annually on September 15 and March 15, beginning September
15, 1993 resulting in aggregate dividends in arrears of $253,380.
ITEM 4 Submission of Matters to a Vote of Security Holders
See Item 6: Exhibits and reports on Form 8-K. (See also filed definitive
proxy statement filed February 20, 2002.)
ITEM 5 Other
None
ITEM 6 Exhibits and reports on Form 8-K, filed since the April 30, 2001 10-K.
The following was reported on Form 8-K:
Item 5. Other Events.
The Registrant deems the following information to be of importance to security
holders:
The Board of Directors of Digitran Systems, Incorporated has resolved to call
a Special Meeting of Shareholders where it will seek to have the majority of
voting shares of the Company consider the following items:
A. To approve an Agreement and Plan of Merger by and between the Company
and TradinGear.com, Incorporated, a Delaware corporation
("TradinGear"), whereby TradinGear will merge with DSI Acquisition,
Inc., a wholly owned subsidiary of the Company,
B. To approve the issuance of approximately 19,154,309 shares of the
Company's Class A common stock (ultimately to be distributed to the
shareholders of TradinGear) to DSI Acquisition, Inc. after giving
effect to a reverse stock split on a twenty-one to one share basis,
C. To approve changing the name of the Company to "TG FIN Holdings, Inc."
and the address of the Company in accordance with the desires of the
acquisition target,
D. To approve the merger of Digitran, Inc., a Utah corporation, the
Company's wholly-owned subsidiary, with Digitran Simulation Systems,
18
Inc., an Arizona company owned by the heirs of Loretta P. Trevers, the
deceased president of Digitran Systems, Incorporated,
E. To approve a reverse stock split of the Company's Class A common stock
on a twenty-one (21) to one (1) basis,
F. To approve a reverse stock split of the Company's Class B common stock
on a twenty (20) to one (1) basis,
G. To elect as directors three representatives of TradinGear.
The Board of Directors has given its approval to the Agreement and Plan of
Merger with TradinGear subject to approval by a majority of voting
shareholders in accordance with the bylaws of the Company and the laws of
Delaware. It is anticipated that the transaction and all related
transactions will close on or before March 31, 2002.
TradinGear is a company specializing in software solutions to facilitate
online trading of securities. TradinGear is currently focused on the
financial services and brokerage industry but plans to expand into other areas
of the financial industry with its cutting edge technological products.
Management believes that the above listed proposed actions will be approved by
a majority of shareholders. Consummation of the Agreement and Plan of Merger
will cause the following events to occur which are normally reported on Form
8-K:
Change in Control of Registrant
Acquisition of Assets
Disposition of Assets
Change in Registrant's Certifying Accountants
Resignation of Registrant's Current Directors
The information contained in this Form 8-K is being given voluntarily under
Item 5 in advance of actual reporting requirements.
19
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Digitran Systems, Incorporated
Registrant
Dated March 13, 2002 By:/s/Aaron Etra
By: Aaron Etra
(Chairman)
By:/s/Gary Blum
By: Gary Blum
(Director)
By:/s/Scott Lybbert
By: Scott Lybbert
(Secretary)
20
EXHIBIT E
TRADINGEAR.COM, INCORPORATED
FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
TradinGear.Com, Incorporated
New York, New York
We have audited the accompanying balance sheets of TradinGear.Com,
Incorporated as of December 31, 2001 and 2000 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 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 TradinGear.Com, Incorporated
as of December 31, 2001 and 2000, and the results of operations and cash flows
for each of the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/Samuel Klein and Company
SAMUEL KLEIN AND COMPANY
Newark, New Jersey
April 10, 2002
TRADINGEAR.COM, INCORPORATED
BALANCE SHEETS
December 31, December 31,
ASSETS 2001 2000
- ------ ------------ -----------
Current Assets:
Cash and cash equivalents $ 230,360 $ 97,257
Accounts receivable, net - 50,300
Investments, available for sale
Securities - 755,847
Prepaid expenses 6,801 -
Deferred costs 59,899 -
----------- -----------
Total Current Assets 297,060 903,404
Property and equipment, net 151,964 137,369
Deposits 101,621 101,621
----------- -----------
Total Assets $ 550,645 $ 1,142,394
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 31,087 $ 326,918
Accrued expenses 38,431 25,000
Income tax payable 4,300 -
Deferred revenue 40,000 130,000
----------- -----------
Total Current Liabilities 113,818 481,918
----------- -----------
Stockholders' Equity:
Common stock ($.0001 par value,
30,000,000 shares authorized,
18,829,309 and 17,788,987 shares
issued and outstanding at December
31, 2001 and 2000, respectively) 1,883 1,779
Additional paid-in-capital 3,051,607 2,733,143
Less: Deferred compensation relating
To stock issued to consultants (381,644) (307,188)
Retained earnings (deficit) (2,235,019) (1,767,258)
----------- -----------
Total Stockholders' Equity 436,827 660,476
----------- -----------
Total Liabilities and
Stockholders' Equity $ 550,645 $ 1,142,394
=========== ===========
These accompanying notes are integral part of these financial statements.
TRADINGEAR.COM, INCORPORATED
STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
2001 2000
Revenues:
Software license fees $ 1,128,836 $ 242,778
Costs and Expense:
General and administrative 601,098 636,242
Website costs 4,508 87,629
Development costs 426,544 418,044
Consulting fees 496,530 286,179
Depreciation expense 36,807 23,003
----------- -----------
Total Costs and Expenses 1,565,487 1,451,097
----------- -----------
Net Loss from Operations (436,651) (1,208,319)
----------- -----------
Other Revenue (Expense)
Realized loss on sale of securities (79,450)
Interest Income 5,445
Miscellaneous revenue 11,737
Finance charges (35,172)
----------- -----------
(23,435) (74,005)
----------- -----------
Net Loss before Provision for
Income Tax (460,086) (1,282,324)
Provision for Income Tax 7,675 378
----------- -----------
Net Loss $ (467,761) $(1,282,702)
=========== ===========
Loss per Share:
Basic and diluted loss per share $ (0.02) $ (0.07)
=========== ===========
Basic and diluted common shares
outstanding 18,829,309 18,829,309
=========== =========== ===========
These accompanying notes are integral part of these financial statements.
TRADINGEAR.COM, INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Common Stock
Par Value $.0001
----------------------------------------------------
Common Additional
Number Stock Paid-In Deferred
of Shares Amount Capital Compensation
Balances, January 1, 2000 17,788,987 1,779 2,733,143 $(515,063)
Reclassification of
Unrealized Loss on
Available for Sale
Securities - - - -
Amortization of deferred
compensation - - - 207,875
Net Loss for the Year
Ended December 31, 2000 - - - -
---------- ---------- ----------- ---------
Balances December 31, 2000 17,788,987 1,779 2,733,143 (307,188)
Issuance of Common Stock 785,926 79 281,046 -
Common stock issued in
exchange for accounts
payable 1,378,870 138 483,987 -
Common stock issued for
services 881,373 88 309,202 (291,700)
Cancellation of Common
Stock (2,005,847) (201) (755,771) -
Amortization of deferred
compensation - - - 217,244
Net Loss for the Year
Ended December 31, 2001 - - - -
---------- ---------- ----------- ---------
Balances December 31, 2001 18,829,309 $ 1,883 $ 3,051,607 $(381,644)
========== ========== =========== =========
[CONTINUED]
TRADINGEAR.COM, INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Unrealized
Retained Gain/(Loss) Total
Earnings Available Stockholders'
(Deficit) For Sale Equity
Balances, January 1, 2000 (484,556) 667,188 2,402,491
Reclassification of Unrealized
Loss on Available for Sale
Securities - (667,188) (667,188)
Amortization of deferred compensation - - 207,875
Net Loss for the Year Ended
December 31, 2000 (1,282,702) - (1,282,702)
--------------- ----------- ------------
Balances December 31, 2000 (1,767,258) - 660,476
Issuance of Common Stock - - 281,125
Common stock issued in exchange
for accounts payable - - 484,125
Common stock issued for services - - 17,590
Cancellation of Common Stock - - (755,972)
Amortization of deferred compensation - - 217,244
Net Loss for the Year Ended
December 31, 2001 (467,761) - (467,761)
--------------- ----------- -----------
Balances, December 31, 2001 $ (2,235,019) $ - $ 436,827
=============== =========== ===========
These accompanying notes are integral part of financial statements.
TRADINGEAR.COM, INCORPORATED
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2001 2000
Cash Flows from Operating
Activities:
Net Loss $(467,761) $(1,282,702)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 36,807 23,003
Loss on sale of
investments - 79,450
Amortization of deferred
compensation 217,244 207,875
Compensation costs of common stock
issued to consultant 17,590 -
Changes in assets and
liabilities, net of effect
from:
Decrease (increase) in
accounts receivable 50,300 (50,300)
Increase in prepaid
Expenses (6,801) -
Increase in deferred
Costs (59,899) -
Increase in deposits - (101,621)
Increase in accounts
Payable and accrued
Expenses 205,900 264,378
Increase (decrease) in
deferred revenue (90,000) 130,000
Increase (decrease) in
Accrued tax payable - (654)
---------- -----------
Net cash used in
Operating activities (96,620) (730,571)
---------- -----------
Cash Flows from Investing
Activities:
Purchase of property and
Equipment (51,402) (84,426)
Sale of Investments - 261,800
---------- ----------
Net cash provided by
(Used in) investing
Activities (51,402) 177,374
---------- ----------
Cash Flows from Financing
Activities:
Cash proceeds from officer's loan 28,000 -
Repayment of officer's loan (28,000) -
Issuance of common stock 281,125 -
---------- ----------
Net Cash provided by
Financing Activities 281,125 -
---------- ----------
Net Increase (decrease) in
cash and Cash Equivalents 133,103 (553,197)
Cash and Cash Equivalents,
beginning of period 97,257 650,454
---------- ----------
Cash and Cash Equivalents,
end of period $ 230,360 $ 97,257
========== ==========
These accompanying notes are integral part of these financial statements.
TRADINGEAR.COM, INCORPORATED
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2001 2000
Cash paid during the period
for:
Income Taxes $ 3,425 $ -
========== ==========
Interest $ 9,200 $ -
========== ==========
Supplemental Disclosures
of Noncash Investing and
Financing Activities:
Common Stock Issued
(Cancelled) in exchange
for marketable securities $ (755,847) $ -
========== ==========
Common Stock issued in
exchange for accounts
payable $ 484,125 $ -
========== ==========
Common Stock issued for
Services $ 309,290 $ -
========== ==========
These accompanying notes are integral part of these financial statements.
TRADINGEAR.COM, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
TradinGear.Com, Incorporated ("TG" or the "Company") 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 provide 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 may be derived from post contract support services
such as maintenance/service contracts, hosting upgrades and enhancements.
These revenues are recognized according to the statement of position 97-2 (SOP
97-2), "Software Revenues Recognition," which requires that revenue recognized
from software arrangements be allocated to each element of the arrangement
based on the relative fair values of the elements. Revenue on product sales
is recognized upon completion of each stage of production and acceptance of
the stage by the customer. The Company's post contract support services
revenue is recognized over the period during which the service is expected to
be performed. The software arrangement provides for no right of return on
refunds and are fixed or determinable. 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
Stockholders' Equity.
TRADINGEAR.COM, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
(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 stockholders' equity. The adoption of SFAS 130 had no impact on
total shareholders' equity.
Stock-Based Compensation
The Company will follow Accounting Principles Board Opinion No. 25, (APT 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, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
(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 December 31, 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 98-5 (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
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS
141 requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method of accounting and is effective for all
business combinations initiated after June 30, 2001. SFAS 142 requires that
goodwill 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 its operating results and
financial condition.
TRADINGEAR.COM, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain reclassifications have been made to the prior year balances to conform
to the current year presentation.
2. INVESTMENTS
As of December 31, 2000 and 2001 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, 2000 consist of the following:
Unrealized
Cost Market Gain (Loss)
Available for sale securities:
Marketable Equity Securities $1,097,097 $755,847 $ -
The Company had no investments at December 31, 2001.
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 consist of
the following:
December December
31, 2001 31, 2000
Accounts Receivable Trade - $ 50,300
TRADINGEAR.COM, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Continued)
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, and their respective useful lives consist of
the following at December 31,
Estimated
Useful
2001 2000 Lives
Computer equipment $198,208 $148,580 5
Office equipment 7,654 5,880 5
Leasehold improvements 7,350 7,350 5
213,212 161,810
Less: Accumulated improvements 61,248 24,441
$151,964 $137,369
5. RELATED PARTY TRANSACTION
On July 10, 2001 Samuel Gaer, the CEO of TradinGear.Com, Incorporated, agreed
to lend the Company $28,000 at a rate of six percent (6%) and due on demand.
At December 31, 2001 the note had been repaid in full.
6. PROVISION FOR INCOME TAXES
For the period from inception (July 7, 1999) to December 31, 2001 the Company
had accumulated losses of $2,235,019. No federal tax expense or benefit has
been reported in the financial statements due to the uncertainty of future
operations.
7. 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 oar results of operations.
TRADINGEAR.COM, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Continued)
7. COMMITMENTS AND CONTENGENCIES (Continued)
Litigation (Continued)
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 defended
this action and on January 10, 2002 the TRO expired without action and Fuchs,
ATH and the Company engaged in preliminary settlement discussions which
concluded in a February 14, 2002 settlement agreement and no monetary damages
or obligations to the Company.
Leases
The Company leases office equipment and office space under noncancellable
operating leases. Commitments under these leases at December 31, 2001 are as
follows:
2002 $139,082
2003 142,855
2004 146,741
2005 150,743
2006 90,725
$670,146
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.
TRADINGEAR.COM, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Continued)
8. 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 13,280,000
shares of common stock to the founders of the Company for $.0001 per share,
the par value of the Company's common stock.
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 a 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, in a separate action, terminated
the employment of one of its officers and the Company was returned 1,250,000
shares of its common stock that it originally issued to this individual for
cancellation.
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 of its common
stock to this individual in exchange for a two year consulting agreement
valued at $175,950 which expired 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 the Company issued 25,000 shares of its
common stock to an investor for $10,000. In addition, the Company issued to a
consultant 100,000 shares of its common stock for services rendered valued at
$17,585 and $20,000. The Company also issued to this consultant for $1,000 an
option to purchase 50,000 shares of its common stock at $0.40 per share
commencing December 21, 2001 and ending on December 21, 2004.
TRADINGEAR.COM, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Continued)
9. 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
Holdings, Inc. ("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.
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.