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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] 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
SEPTEMBER 12, 2002
1:00 P.M. (EST)
To Our Shareholders:
As many of you 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
Thursday, September 12, 2002 at 1:00 p.m., Daylights Savings Time, for the
following purposes:
1. Approval of Merger Transaction with TradinGear.com Incorporated
2. Approval of Increase in Capitalization of Class A Common Shares from
25,000,000 Shares to 50,000,000 Shares
3. Approval of 1 for 21 Reverse Stock Split of Class A Common Shares
4. Approval of Change of Voting Rights of Class A Common Shares from
1/10 Vote Per Share to 1 Vote Per Share
5. Election of Samuel Gaer, Marni Gaer and Ronald Comerchero to the
Company's Board of Directors
6. Ratification of the appointment of Samuel Klein & Company, CPAs as
the Company's independent auditors.
7. Change of the Company's Name to TGFIN Holdings, Inc.
8. 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 July 30, 2002 are entitled to notice of and to vote at the
September 12, 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
DATED: August 9, 2002
Scott Lybbert, Secretary
DIGITRAN SYSTEMS, INCORPORATED PROXY BALLOT
SPECIAL MEETING, SEPTEMBER 12, 2002
THIS PROXY IS SOLICITED ON BEHALF
OF THE COMPANY'S BOARD OF DIRECTORS
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 Thursday, September
12, 2002.
The undersigned shareholder of Digitran Systems, Incorporated (the "Company")
hereby appoints Scott Lybbert, Secretary of the Company, or instead of him,
_____________________________________________, as nominee of the undersigned
to attend and act for and on behalf of the undersigned at the special meeting
of the shareholders of the Company to be held on Thursday, the 12th day of
September 2002, and at any adjournment or adjournments thereof, to the same
extent and with the same power as if the undersigned was personally present at
the said meeting or such adjournment or adjournments thereof and without
limiting the generality of the power hereby conferred, the proxy nominees
designated above are directed, with regard to the shares registered in the
name of the undersigned, to vote in accordance with the following
instructions.
Unless otherwise indicated, your proxy will be voted in favor of any
nomination or proposal indicated below.
YOU MAY VOTE INDIVIDUALLY AS TO EACH PROPOSED DIRECTOR BELOW
FOR WITHHELD DIRECTOR
Mr. Samuel A. Gaer
Mrs. Marni Gaer
Mr. Ronald Comerchero
OTHER MATTERS
FOR AGAINST ABSTAIN PROPOSAL
Merger Transaction With TradinGear.com Incorporated
Increase In Capitalization of Class A Common Stock From
25,000,000 Shares To 50,000,000 Shares
1 for 21 Reverse Split of Class A Common Stock
Increase In Voting Rights Of Class A Common Stock From
1/10 Vote Per Share to 1 Vote Per Share
Ratification To Engage Samuel Klein & Company, CPAs As
Independent Accountants For The Company.
Change of Name of the Company to TGFIN Holdings, Inc.
OTHER SHAREHOLDER PROPOSALS AND/OR NOMINATIONS
______________________________________________________________________________
______________________________________________________________________________
__________________________
Check here if you plan
to attend meeting.
Print Shareholder Name(s) exactly SIGNATURE
as they appear on your Certificate: Date
Complete If Known:
Certificate #:
No. of Shares:
PROXY STATEMENT
DIGITRAN SYSTEMS, INCORPORATED
(A Delaware Corporation)
SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 12, 2002
THIS PROXY STATEMENT IS BEING MAILED TO ALL SHAREHOLDERS OF RECORD AT
THE CLOSE OF BUSINESS ON JULY 30, 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 Thursday, September 12, 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 (the "Merger") 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 for fiscal year ended April 30,
2002, which is attached as an Exhibit 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
20012 ON SEC FORM 10-KSB. 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.
1
Record Date for the Special Meeting
The Company's Board of Directors has fixed the close of business on
July 30, 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. These holdings of the Company's Class A common shares
(pre-reverse split) of the Company's officers and directors who are
participating in the solicitation are: Aaron Etra - 502,100 shares, Gary Blum
- -590, 821 shares, Quentin Casperson - 553,300 shares and Scott Lybbert -
1,200,123 shares. Robert H. Jaffe, Esq., counsel for the Company, also will
participate in the solicitation. He owns 1,649,250 pre-reverse split Class A
common shares and will receive 50,000 post-reverse split Class A common shares
upon the completion of the Merger.
As of July 30, 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 24,349,699 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 50,500 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 (for a
total of 2,434,969 votes), the Class B common stock carries with it the right
to one vote per share (for a total of 2,000,000 votes) and the Preferred Stock
carries with it the right to one-tenth of a vote per share (for a total of
5,050 votes), for a total of 4,440,019 votes. All outstanding shares of the
Company's common stock and preferred stock (the "Company's Shares") have are
personal liability attaching to the ownership thereof, have no pre-emptive
rights and are free and clear of all liens, claims and encumbrances. The
Company's Shares have no cumulative voting provisions. The Class A and Class
B common shares will share equally, pro-rata, in any dividends declared by the
Company, and the rights of the Class A and Class B common shares to receive
dividends are subordinated to the rights of the preferred shares.
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.
2
Vote Required
In general, each proposal to be voted upon will be adopted only by the
affirmative vote of a majority of shares voted at the meeting on that
proposal. Adoption of proposals for the 1 for 21 reverse split of the Class A
common stock and to increase the vote of the Class A common stock from 1/10 of
a vote per share to 1 vote per share also will require the affirmative vote of
a majority of the Class A shares voted on these two proposals. Directors
shall be elected by a plurality of the votes cast.
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 of the 4,440,019 issued and outstanding voting shares
of the Company as of the record date, represented in person or by proxy, shall
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.
3
SUMMARY OF THE PROPOSED MERGER
* The Company's wholly-owned subsidiary, DSI Acquisitions, Inc. will merge
with TradinGear.com Incorporated (TradinGear). As a result, TradinGear will
be a wholly-owned subsidiary of the Company. (See "Proposal I")
* The business of TradinGear is software development for securities and
commodities exchanges and custom orders. (See "Business of TradinGear")
* Since its inception in July 1999, TradinGear has had revenues from
operations, but no profits. (See "Financial Statements of TradinGear")
* After the Merger, the present shareholders of TradinGear will own
approximately 94% of the outstanding common stock of the Company and the
present officers and directors of TradinGear will own approximately 60% of the
outstanding common stock of the Company. (See "Control of the Company After
The Merger")
* As a condition of the Merger, the Class A common shares presently held by
the shareholders of the Company will be reverse split on a 1 for 21 basis.
(See "Proposal I")
* As a condition of the Merger, the three holders of the Company's 2,000,000
Class B common shares, Julie T. Reeves, Evelyn R. Call and Rigel Hulett, have
agreed to a reverse split of their shares on a 1 for 20 basis and to exchange
the resulting 100,000 Class B common shares for 100,000 post-split Class A
common shares. (See "Proposal III")
* As a condition of the Merger, the current directors of TradinGear: Samuel
Gaer, Marni Gaer and Ronald Comerchero, will become the directors of the
Company. (See "Proposal V")
* As a condition of the Merger, the Company will change its name to TGFIN
Holdings, Inc. (See "Proposal VII")
* It is proposed that the authorized capital of the Company be increased from
25,000,000 Class A common shares to 50,000,000 Class A common shares. (See
"Proposal II")
* It is proposed that the voting rights of the Class A common shares be
increased from 1/10 vote per share to 1 vote per share. (See "Proposal IV")
* It is proposed that Samuel Klein & Company, CPAs, who are currently the
independent accountants for TradinGear, become the independent accountants for
the Company. (See "Proposal VI")
* Shareholders of the Company have certain dissenters' rights. (See "Rights
of Dissenting Stockholders")
MATTERS SUBJECT TO SHAREHOLDER VOTE
INTRODUCTION
There are seven separate proposals each of which is subject to
shareholder vote. However, all seven pertain to Proposal I - Merger with
TradinGear. Proposals II through VII are conditioned upon Proposal I being
approved. Therefore, if Proposal I is not approved, or if it is approved but
the Merger is not consummated, then Proposals II through VII will be moot and
will not be effected by the Company even if there has been a favorable vote
for these proposals. If Proposal I - Merger with TradinGear - is approved,
then the Merger still will not be consummated unless Proposal III - the one
for twenty-one reverse split of the Company's Class A common stock, Proposal V
- - the election of TradinGear's nominees for directors and Proposal VII - the
change of the Company's name to TGFIN Holdings, Inc. - are all approved, since
these are conditions precedent for the consummation of the Merger.
Assuming the consummation of the Merger, the ownership of the Company and
its affiliates both before and after the Merger will be:
BEFORE THE MERGER
Owners of Digitran Systems, Incorporated Votes
1. Holders of Class A Common Shares - 1/10 vote per share 2,434,969
2. Holders of Class B Common Shares - 1 vote per share 2,000,000
3. Holders of Preferred Shares - 1/10 vote per share 5,050
4,440,019
DIGITRAN SYSTEMS INCORPORATED
100% 100%
Digitran Acquisitions, Inc. Digitran, Inc.
AFTER THE MERGER
Owners of Class A common shares of TGFIN Holdings, Inc. (formerly Digitran
Systems, Incorporated)
Votes
1. Present Shareholders of TradinGear 19,154,309
2. Present Holders of Class A Common Shares 1,159,509
3. Former Holders of Class B Common Shares 100,000
4. Present Holders of Preferred Shares 5,050
5. Holders of Shares Issued at Closing as Finders Fees 200,000
20,618,868
TGFIN HOLDINGS, INC.
(formerly Digitran Systems, Incorporated)
100% 9%
TradinGear.com Incorporated Digitran Simulation Systems, Inc.
(merged with Digitran (merged with Digitran, Inc.)
Acquisition, Inc.)
PROPOSAL I
MERGER WITH TRADINGEAR
Material Terms of the Transaction
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. There have been no negotiations,
transactions or material contracts during the past two years between the
Company and TradinGear concerning any merger, consolidations, acquisition,
election of the Company's directors or sale or any other transfer of a
material amount of assets of the Company or of TradinGear except as set forth
in the Agreement and Plan of Merger among the Company, TradinGear and DSI
Acquisition.
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. Copies of the
Certificate of Incorporation and By-Laws of DSI Acquisition are attached
hereto. 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, thus eliminating any outstanding Class
B common shares.
As a condition precedent to 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. As a result of this
merger transaction, the Company would own a nine (9%) percent interest in DSSI
and the heirs of Loretta P. Trevors would own 91%.
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.
In recent years, the Company has been a holding company, conducting its
operations through Digi Utah. Digi Utah had been in the business of
manufacturing petroleum, crane and truck simulation systems for industry
training, and now limits its business to petroleum simulation systems only,
where it markets both the software and the simulator. The current financial
status of the Company, exclusive of Digi Utah (which is being merged into
DSSI) is that it has assets of less than $1,000 and liabilities of less than
$50,000 and has no on-going business.
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.
The Board of Directors of the Company believes that this proposed Merger
will be beneficial to the shareholders of the Company because, since
TradinGear will become a wholly-owned subsidiary of the Company, the Company's
shareholders presumably would benefit from the business of TradinGear. The
Company's directors believe the business of TradinGear to be far more viable
than that of Digi Utah. However, shareholders of the Company should note
that, upon the consummation of the Merger, the present shareholders of
TradinGear will own approximately 94% of the Company's outstanding common
stock, and the current officers and directors of TradinGear will own
approximately 60% of the Company's outstanding common stock and, accordingly,
will be able to control the affairs of the Company, including the election of
directors.
The Merger will be treated as a purchase for accounting purposes. The
directors of the Company do not believe that there should be any material
federal tax consequences to the Company's shareholders as a result of the
Merger since the Company's shareholders will continue to hold the same
securities that they hold at present. For the Merger to be consummated,
Proposals I, III, V and VII all must be approved.
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.
Adoption of this Proposal I will require the affirmative vote of a
majority of shares voted at the meeting.
RIGHTS OF DISSENTING STOCKHOLDERS
Under the Delaware General Corporation Law ("DGCL"), dissenting
stockholders who follow prescribed statutory procedures are entitled to
appraisal rights in certain mergers or consolidations.
Section 262 of the DGCL sets forth the rights of stockholders of the
Company who object to the Merger Agreement and wish to avail themselves of
these appraisal rights. The material provisions of Section 262 are summarized
herein. However, this summary does not purport to be a complete statement of
Section 262, and a shareholder who may wish to dissent is advised to review
carefully, alone or with such shareholder's adviser, all of Section 262 and,
specifically, Section 262(d)(1) thereof with respect to the dissenting
shareholder serving upon the Company a written demand for appraisal.
Section 262 provides that any stockholder of the Company who does NOT
vote in favor of the Merger Agreement may be paid, in cash, the fair value of
his shares, provided each and every one of the provisions of Section 262 is
strictly complied with, within the time provided therefore.
Prior to September 12, 2002, the date of the taking of the vote of the
stockholders of the Company on the Merger, a dissenting stockholder seeking
appraisal must file with the Company, addressed to the attention of Scott
Lybbert, Secretary of the Company, a written demand for appraisal, stating
that the stockholder intends to demand payment for his shares if the Merger
occurs (a "Notice of Demand for Appraisal"). A negative vote on the Merger
does not constitute a "Notice of Demand for Appraisal" pursuant to Section
262. Failure by a stockholder to vote against the Merger Agreement will not,
however, constitute a waiver of rights under Section 262 of the DGCL provided
that a written Notice of Demand for Appraisal is properly filed and such
stockholder has not voted in favor of the Merger Agreement.
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. Open access means that a
TradinGear system can accept and send messages from and to anywhere, and is
not limited by any one or several forms or formats. Online securities,
futures and commodities trading systems refer to electronic trading systems
accessible via the internet, intranet or closed proprietary network. A
software platform is another term for a trading system, which TradinGear seeks
to provide not only to securities and commodity exchanges, but also to "built
to suit" - (i.e. "customer order"), for example, for a hedge fund which might
want a system which could match trades internally. TradinGear has experienced
net operating losses since its inception.
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, and there can be no assurance that TradinGear
will be able to operate profitably in this environment. 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 (which allows customers to keep
track of orders or portfolios), and broker-dealer solutions (helping the
broker-dealer manage its web site, track customer orders, accounts, portfolio
information, etc.) 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. This means that using a
TradinGear system does not require the customer to change its way of doing
business to any predetermined "TradinGear - only" way.
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, which allows the customer to preset limits regarding a multitude of
parameters, such as volatility, price, order size, security or industry
concentration, etc., and are of production quality, ready to use. 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
6
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
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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:
* Solutions for Regional Exchanges
* 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.
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 (audited) and the fiscal quarters ended March
31, 2001 and March 31, 2002 (unaudited) included as Exhibit D 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 Fiscal Year
Ended December 31, 2000 and December 31, 2001
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.
Results of Operations for the Fiscal Quarters
Ended March 31, 2001 and March 31, 2002
For the quarter ended March 31, 2002, TradinGear's consolidated revenues
increased to $235,655, as compared to $187,502 for the quarter ended March 31,
2001. This increase also is attributable primarily to the sales and initial
delivery of TradinGear's new exchange systems platforms software.
Loss from operations increased to $217,486 for the quarter ended March
31, 2002 as compared to $160,131 for the quarter ended March 31, 2001,
reflecting significant increases in two components of Costs and Expenses. The
increase in general and administrative costs to $267,211 for the quarter ended
March 31, 2002 from $200,050 for the quarter ended March 31, 2001 is
attributable primarily to the 8 employees being on the payroll of TradinGear
during much of 2001, but not during the first quarter, and in 2002. The
significant increase in consulting fees from $11,200 for the quarter ended
March 31, 2001 up to $60,680 for the quarter ended March 31, 2002 continues to
reflect consulting and professional agreements entered into by TradinGear
during 2001.
After a provision for income tax of $1,649 for the quarter ended March
31, 2002 (none for the quarter ended March 31, 2001), TradinGear had a net
loss for the quarter ended March 31, 2002 of $219,307, as compared to a net
loss of $160,131 for the quarter ended March 31, 2001, for the reasons stated
above.
TradinGear files Federal Tax Returns, which reflect net operating loss
carry forwards. At December 31, 2001 and March 31, 2002, 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 or the quarter ended March 31,
2002. 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. As of March 31, 2002, TradinGear had cash and cash equivalents of
$160,743, a positive working capital position of $338,187 and no significant
debt.
For the year ended December 31, 2001 the net cash used in operating
activities was $96,620 ($361,295 for the quarter ended March 31, 2002) as
compared with cash used in operating activities in the year ended December 31,
2000 of $730,571 ($75,468 for the quarter ended March 31, 2001).
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. During
the quarter ended March 31, 2002, TradinGear's negative cash flow was funded
by the issuance of common stock for $298,000, resulting in net cash flow from
financing activities of $298,000 for the quarter ended March 31, 2002, as
compared to no cash proceeds from financing activities for the quarter ended
March 31, 2001.
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 March 31,
2002) 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. TradinGear does not believe that the consummation of the
Merger between TradinGear and the Company will have any significant impact
upon its needs for additional capital (see "Going Forward and Subsequent
Events" below).
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 Class A and Class B common stock of the Company:
Name and Number Number Combined
Address of of Class A of Class B percentage of
Beneficial shares held shares held voting power held
Julie T. Reeves
1051 North Ash Drive
Chandler, AZ 84234 1,358,324 666,667 18.07%
Evelyn R. Call
14878 Steep Mountain Drive
Draper, UT 84020 1,358,324 666,667 18.07%
Rigel Hulett
P.O. Box 345
Reserve, NM 87830 1,358,324 666,666 18.07%
Robert H. Jaffe
8 Mountain Avenue
Springfield, NJ 1,649,250 0 3.71%
Clayton Paul Hilliard
P.O. Box 52745
Lafayette, LA 70505 1,301,904 0 2.93%
Scott Lybbert*
2666 Oakwood Drive
Bountiful, UT 84010 1,200,123 0 2.70%
Gary Blum*
3278 Wilshire Blvd, #603
Los Angeles, CA 90010 535,480 0 1.21%
Quentin Casperson*
205 W. 8800 South
Paradise, UT 84328 556,000 0 1.25%
Aaron Etra*
1350 Avenue/Americas
29th Floor
New York, NY 10021 502,100 0 1.13%
Aggregate shares of
Class A and Class B
common stock of all
persons listed and
aggregate voting power 9,819,829 2,000,000 63.88%
For voting purposes, the shares of Class A Common Stock listed have only 10%
of the votes of Class B shares listed and the percentage of the voting power
stated reflects this fact.
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 (3) 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.
(3) Global Net Financial was owned by Mr. Alan Jacobs and presently is owned
by New Media Spark which is owned by Mr. Chuck Berry.
TGFIN Holdings, Inc.
If the Merger is effected, TGFIN Holdings, Inc. (formerly the Company)
will have outstanding 20,618,868 shares of its Class A Common Stock,
consisting of 1,159,509 presently outstanding shares of its Class A Common
Stock (the 24,349,699 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 (3) 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.
(3) Global Net Financial was owned by Mr. Alan Jacobs and presently is owned
by New Media Spark which is owned by Mr. Chuck Berry.
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'') which appear elsewhere in this Proxy Statement 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, 2001
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 appearing
elsewhere herein and incorporated by reference into this Proxy Statement .
The unaudited pro forma consolidated balance sheet as of March 31, 2002
presents the financial position of TGFIN as if the merger had occurred on that
date and was prepared utilizing the unaudited TradinGear balance sheet as of
March 31, 2002 and the Company's audited balance sheet as of April 30, 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 the 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
March 31, April 30,
2002 2002
ASSETS
Current Assets:
Cash and cash
equivalents $ 160,743 $ 5,233 $ - $ 165,976
Accounts receivable,
net 164,154 - - 164,154
Prepaid expenses 32,895 - - 32,895
Deferred costs 59,899 - (59,899) (1) -
----------- ----------- ---------- ----------
Total Current Assets $ 417,691 5,233 (59,899) 363,025
Property and equipment,
net 147,512 - - 147,512
Deposits 101,621 - - 101,621
----------- ----------- ---------- ----------
Total Assets $ 666,824 $ 5,233 $ (59,899) $ 612,158
=========== =========== ========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 20,763 17,841 - 38,604
Accrued expenses 58,741 - - 58,741
Income tax payable - - - -
Deferred revenue - - - -
----------- ----------- ---------- ----------
Total Current
Liabilities 79,504 17,841 - 97,345
----------- ----------- ---------- ----------
Stockholders' Equity:
Preferred Stock
($0.01 par value) - 506 - 506
Common Stock ($.0001
par value) 1,963 263,497 (263,371)(2) 2,109
- - (20)(1) -
Additional paid-in-
capital 3,349,527 10,533,928 (10,547,168)(2) 3,276,368
- - (79,980)(1)
- - 139,899 (1)
Less: Deferred
compensation relating
to compensation stock
issued (309,844) - - (309,844)
Retained earnings
(Deficit) (2,454,326) (10,810,539) 10,810,539 (2)(2,454,326)
------------ ------------ ----------- ----------
Total Stockholders'
Equity 587,320 (12,608) (59,899) 514,813
------------ ------------ ----------- ----------
Total Liabilities
and Stockholders'
Equity $ 666,824 $ 5,233 $ (59,899) $ 612,158
============ ============ =========== ==========
See accompanying notes to these pro forma financial statements.
23
TGFIN HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
For the Three
Months Ended
TG Digitran Pro Forma
Results
Revenues:
Software license fees $ 235,655 $ - $ 235,655
Costs and Expense:
General and administrative 267,211 - 267,211
Website costs - - -
Development costs 114,476 - 114,476
Consulting costs 60,680 - 60,680
Depreciation expense 10,774 - 10,774
------------ ------------- --------------
Total Costs and Expenses 453,141 - 453,141
------------ ------------- --------------
Net Loss from Operations (217,486) - (217,486)
Other Revenue (Expense)
Realized loss on sale of
securities - - -
Interest income - - -
Miscellaneous revenue - - -
Finance Charges (172) - (172)
------------ ------------- --------------
(172) - (172)
------------ ------------- --------------
Net Loss from continuing
operation (217,658) - (217,658)
Income (Loss) from
discontinuing
operation - 3,114,385 3,114,385
------------ ------------- --------------
Net Income (Loss) before
Provision for Income Tax (217,658) 3,114,385 2,896,727
------------ ------------- --------------
Provision for Income Tax 1,649 - 1,649
------------ ------------- --------------
Net Loss $ (219,307) $ 3,114,385 $ 2,895,078
============ ============= ==============
Loss per Share:
Basic and diluted income
(loss) per share from
continuing operations $ - $ - $ (0.01)
------------ ------------- --------------
discontinued operations - - $ 0.15
------------ ------------- --------------
Total basic and diluted
income (loss) per share $ - $ - $ 0.14
============ ============= ==============
Basic and diluted common
shares outstanding - - 21,086,319
============ ============= ==============
CONTINUED
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 Income
(loss) per share from
continuing operations $ - $ - $ (0.02)
------------ ------------- --------------
Discontinued operations - - $ 0.01
------------ ------------- --------------
Total basic and diluted
Income (loss) per share $ - $ - $ (0.01)
============ ============= ==============
Basic and diluted common
shares outstanding - - 21,086,319
============ ============= ==============
See accompanying notes to these pro forma financial statements.
24
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 the 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 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 revenue split) of the company's common stock to consultants
valued at $80,000 and to write-off deferred cost of merger of $ 59,899. The
issuance of the 200,000 shares of common stock was contingent upon the
completion of the merger.
(2) To record the merger of TradinGear and the Company and the issuance of
19,626,809 shares of common stock to the shareholders of TradinGear resulting
in total issued outstanding common stock of approximate 21,086,319 and the
elimination of the Company's accumulated deficit as a result of the merger.
25
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
The Company is currently authorized to issue (i) 25,000,000 shares of
Class A Common Stock, par value $.01 per share, of which 24,349,699 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 50,500 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. As of the date of this Proxy Statement, there is no particular
transaction under consideration by the Company other than the TradinGear
Merger.
The Board of Directors Recommends that the Stockholders Vote for Proposal II.
PROPOSAL III
APPROVAL OF A 1 FOR 21 REVERSE SPLIT OF THE COMPANY'S CLASS A COMMON STOCK
Implementation of this proposal will enable the shareholders of
TradinGear to hold a more than a majority of the shareholder voting rights
after consummation of the Merger. The purpose of this proposal is to comply
with one of the provisions of the Merger Agreement.
This proposal will authorize a reduction of the issued and outstanding
shares of Class A Common Stock from 24,349,699 shares to 1,159,509 shares.
The three holders of the Company's 2,000,000 shares of Class B common stock,
Julie T. Reeves, Evelyn R. Call and Rigel Hulett, already have agreed, subject
to the consummation of the Merger, to a 1 for 20 reverse split of these
shares, and to exchange the resultant 100,000 Class B common shares for
100,000 Class A common shares. Since, pursuant to the Merger Agreement,
TradinGear shareholders are to receive 19,154,309 shares of the Company's
Class A common stock and certain finders are to receive 200,000 shares of
Class A common stock, the total Class A common shares outstanding post-merger
would be 20,613,723, of which the TradinGear shareholders would hold
19,154,309, or approximately 94%. Without the 1 for 20 reverse split, the
total Class A common shares outstanding post-merger would be 43,802,008, of
which the TradinGear shareholders would hold 19,154,309, or 44%.
Voting rights and other rights of the Class A stockholders will not be
altered by this reverse stock split, 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 this reverse stock
split will have no material federal tax consequences to Class A 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
26
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 the 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 III.
27
PROPOSAL IV
APPROVAL OF CHANGE OF VOTING RIGHTS OF CLASS A COMMON
SHARES FROM 1/10 VOTE PER SHARE TO 1 VOTE PER SHARE
After all Class B common shares have been exchanged for Class A common
shares, the only common shares of the Company outstanding will be its Class A
common shares, which at present are entitled to one-tenth vote per share. By
increasing the voting rights of the Class A common shares to one vote per
share, holders of Class A common shares are protected from having their voting
rights disproportionately diluted should Class B common shares be issued in
the future. The Company has no present plans to issue any Class B common
shares.
This Proposal IV will be considered only if the Merger Agreement is
approved and the Merger is consummated. Even if this proposal is approved, it
will NOT be put into effect by the Company unless the Merger is consummated.
However, approval of this Proposal is not a condition precedent for the
consummation of the Merger.
The Board of Directors Recommends That The Stockholders Vote FOR Proposal
IV.
PROPOSAL V
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
The nominees are the officers and directors of TradinGear, and their
backgrounds are discussed elsewhere in this Proxy Statement. There have been
no transactions since the beginning of the Company's last fiscal year to which
the director were or are a party in which the amount involved exceeds $60,000
and where the nominee has a direct or indirect material interest in the
transaction except for the Merger Agreement.
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.
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 separately standing audit, nominating or compensation committees. The
Board as a whole addresses all audit and compensation issues, as well as other
matters.
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
BRUCE FRANK $30,000 1,710,584 8.3
Bruce Frank is not a director nominee.
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.
28
PROPOSAL VI
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, 2003.
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. HJ &
Associates of Salt Lake City, Utah were the Company's auditors for the fiscal
year ended April 30, 2002.
The Present Board Of Directors And The Nominees For Election Recommend
That The Stockholders Vote For Proposal VI.
PROPOSAL VII
CHANGE OF NAME FROM DIGITRAN SYSTEMS, INCORPORATED TO TGFIN HOLDINGS,
INC.
It is a condition precedent to the consummation of the Merger that the
name of the Company be changed to TGFIN Holdings, Inc. so as to more
accurately reflect the fact that the business of the Company no longer is that
of Digitran Systems, Incorporated and instead is that of TradinGear.
The Board Of Directors Recommends That The Stockholders Vote for Proposal
VII.
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, 2002,
which is being transmitted together with this Proxy Statement. Since the
demise of the Company's president, Loretta P. Trevors, 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 service rendered during the period May 1,
2001 through December 31, 2001. In addition, 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.
29
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, 20001 and
April 30, 20012 are contained in the SEC Form 10-KSB filed with the United
States Securities and Exchange Commission and attached as Exhibit C to this
Proxy Statement. Also attached to this Proxy Statement as Exhibit D are
audited financial statements of TradinGear for the calendar years ended
December 31, 2000 and 2001 and unaudited financial statements for the three
months ended March 31, 2002.
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.
30
Dated: August 9, 2002
BY ORDER OF THE BOARD OF DIRECTORS:
/s/Scott Lybbert
Scott Lybbert, Secretary
31
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, 2002 filed by Digitran Systems, Inc.
on SEC Form 10-KSB (Including Audited Financial Statements for
the Fiscal Year Ended April 30, 2002)
Exhibit D - Audited Financial Statements of TradinGear.com, Inc. for the
Period Ended December 31, 2001 and December 31, 2000 and Unaudited
Financial statements for the three months ended March 31, 2002.
32
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. covenant 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., acceptable 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
[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, 2002
[ ] 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: 2002 -
$-0-.
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 $1,293,360 at April 30, 2002, computed at the closing quotation
for the Registrant's common stock of $0.06 as of April 30, 2002
State the number of shares outstanding of each of the Issuer's classes of
common equity as of the latest practicable date: at July 26, 2002 there were
24,349,699 shares of the Registrant's Common Stock, 2,000,000 shares of Class
B Common Stock, and 50,500 shares outstanding of 8% Cumulative Preferred Stock
outstanding.
Transitional Small Business Disclosure Format (Check one):Yes[ ]No [X]
Documents Incorporated by reference: None
PART I
ITEM 1 DESCRIPTION OF BUSINESS
History
Digitran Systems, Incorporated ("DSI") is a holding company,
incorporated under the laws of Delaware in 1985. DSI conducted all of its
business operations through its wholly owned subsidiary, Digitran, Inc.
("DI"), until April 29, 2002. DI was originally formed under the laws of the
state of Louisiana in 1979, and later reincorporated under the laws of the
state of Utah in 1982. When DI became the operating subsidiary of DSI, it
possessed technology in Petroleum Drilling Simulation hardware and software.
Subsequently, DI developed similar simulation hardware and software products
for Crane Operations and Truck Driving Operations. In its product lines,
Digitran became the worldwide market leader, and still has an overwhelming
lead in installations.
In November 1999, DI entered into an agreement to sell the rights to
market its Crane and Truck divisions, although not all of the Agreements'
provisions were satisfied until December 30, 2001. Also, on April 29, 2002,
DSI spun-off DI, by exchanging 100% of the shares of DI, along with the
Petroleum Drilling Simulation business, installation base, customers, assets
and liabilities for a 9% investment in the acquirer.
DSI will be seeking shareholder approval by way of a Definitive Proxy,
shareholder meeting and shareholder vote with respect to the potential
acquisition of a new operating company. Since the proposed transaction is a
reverse merger, the transaction will potentially involve a change in any or
all of the following: controlling shareholders, management, business, Board of
Directors, external auditors, transfer agent, yearend, business name or
address. As used in "ITEM 1 DESCRIPTION OF BUSINESS" the term "Company"
refers to the combined operations of Digitran Systems, Incorporated and
Digitran, Inc. unless the reference is specific to the year ending date of
April 30, 2002 in which case, only Digitran Systems, Incorporated (DSI) is
referred.
The Company
Digitran Systems, Incorporated ("the Company"), as of April 30, 2002,
had no operating business to describe, except to indicate that it is a holding
company with minimal assets and liabilities, and has the purpose of acquiring
an operating company. Since it is a holding company, momentarily without an
operating subsidiary, it is presented in the financial statements for the
current year as a development stage company. The results of operations for the
years ended April 30, 2002 and 2001 are presented as those from the
discontinued operations of Digitran, Inc. An extraordinary gain was recognized
in the current year upon completion of the disposition of Digitran, Inc.
Digitran, Inc. primarily develops, manufactures and markets simulator
training systems which are used to train personnel in the petroleum drilling
simulation industry. The Company began marketing its first simulator training
systems in 1979 and currently markets a variety of simulator training systems
for petroleum operations.
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,
2002 the "going concern" assumption is qualified due to the Company's current
financial condition, the Company's inability to achieve and sustain profitable
operations in recent years, and because it momentarily has no operating
subsidiary.
Description of the Business:
The following captions apply to the business of Digitran, Inc.,
previously discontinued and disposed of. Since Digitran, Inc. was part of the
Company for most of the year ended April 30, 2002, Digitran, Inc. and its
operations and policies are described herein, even though it is currently
operating under new ownership and management:
Existing Simulator Training Systems
The 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 provided safer, more frequent and more diverse
training opportunities than actual equipment, and at a lower cost and risk.
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.
The 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.
Included within the simulation experience is the capability to modify
and complicate a scenario so that it resembles actual working conditions. The
crane operations simulator training systems were 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 completes a simulation
scenario, the computer analyzes his performance and generates a printed
summary for review.
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 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.
Sales
The Company had no revenues for the year ended April 30, 2002.
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, 2002 and 2001, net sales to the
following customers accounted for more than 10% of the Company's sales:
2002 2001
University of Kuwait -0- 74,185
Port of Singapore -0- 25,461
The Company's significant customers usually changed 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.
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.
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
For fiscal years ended April 30, 2002 and 2001, the company spent no
resources on Research and Development, due to economic restraints. All sales
were of existing products or contracts.
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, 2002, the Company had no full-time employees and no part
time employees. Work performed on behalf of the Company, is done by
shareholders and professional service providers at the request of the Board of
Directors. As of April 30, 2001, the Company had no full-time and 4 part-time
employees. The previous Chairman, President, CEO, CFO and only full-time
employee during the fiscal year ended April 30, 2001, Ms. Loretta Trevers,
passed away on April 27, 2001. In addition, the Company utilized several sales
agents on a commission basis and engaged various consultants. The Company is
not a party to any collective bargaining agreements.
ITEM 2 DESCRIPTION OF PROPERTY
As of April 30, 2002 the company had no tangible assets and no real
property.
ITEM 3 LEGAL PROCEEDINGS
The former operating subsidiary of the Company, Digitran, Inc., a Utah
corporation, had incurred all the Company's operating expenses. Digitran
Systems, Incorporated, as a stand-alone entity has never operated, but did
guarantee loans from certain financial institutions. As of December 31, 2001,
all such guarantees or obligations had been satisfied.
In the normal course of business, there may be various other legal
actions and proceedings pending which seek damages against the Company. As of
July 26, 2002 there were no known claims asserted or threatened against
Digitran Systems, Incorporated, except for nominal (<$50,000) merger related
expenses, the payment of which is contingent upon approval and consummation of
the merger transaction.
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 in each year
since 1996. Approval of the potential merger with a new operating company will
be submitted to the shareholders for a vote at a shareholder's meeting, when
appropriate. See also ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS-Plan of Operations and Management's Future Plans.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Market information for the stock symbol of DGTS (listed on the OTC Bulletin
Board) follows:
2002 2001
High Low High Low
1st Quarter 3/64 1/128 9/64 1/24
2nd Quarter 5/64 1/64 1/10 1/32
3rd Quarter 3/32 1/128 1/32 1/256
4th Quarter 1/16 3/64 1/64 1/256
Shareholders
As of April 30, 2002, the Company had 779 record holders of its Common
Stock and 3 record holder of its Class B Common Stock as well as 12 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 had 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 $266,400 as of April 30, 2002 and $239,100 as of
April 30, 2001. 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 had 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.
Ultimately, the company disposed of its operating unit, Digitran, Inc.
and is searching for another operating company to acquire, which is most
likely to be accomplished in a reverse merger.
Liquidity and Capital Resources
The company has virtually no liquidity nor the ability to borrow (short
term or long term) based upon its assets or capital resources. The company's
ability to attract loans secured by sales contracts was also exhausted.
Therefore, in fiscal 2002, no cash was generated through operations or
borrowings.
During the fiscal year ended April 30, 2002, cash of $107,500 was
contributed to the company: $70,000 was received from shareholders and $37,500
was received by a potential reverse merger candidate. Payments toward notes
payable were $2,500.
The company has the potential to begin generating cash through
operations once it has successfully merged with an operating company. However,
the company's ability to do so is subject to the effects and risks of:
competition, product demand, rapidly changing technology, world-wide economic
conditions, market acceptance of the target operating company's products, etc.
There were no capital expenditures or investments in either fiscal year
2002 or 2001.
Plan of Operations and Management's Future Plans
Management is actively pursuing a reverse merger transaction, which is
expected to be presented to shareholders by Definitive Proxy, in the very near
future.
Proposed Reverse Merger
The proposed reverse merger with Tradingear.com, Inc. is summarized
below. Full details will be included with the Definitive Proxy to be filed
with the SEC and subsequently presented to shareholders. The following is
subject to shareholder approval:
A. The existing Class A Common shares, numbering 24,349,699 will be
reverse split on a 21 to 1 basis;
B. The existing Class B Common shares, numbering 2,000,000 will be
exchanged for Class A Common shares and be reverse split on a 20
to 1 basis.
C. The company will create a new wholly-owned subsidiary, named
Digitran Acquisitions, Inc., which will merge with Tradingear.com,
Inc.
D. The shareholders of Tradingear.com, Inc. have approximately
19,630,000 shares issued and outstanding. After the company
executes the reverse split of the Digitran Systems, Incorporated
shares, the Tradingear.com, Inc shareholders will own
approximately 94% of the Company.
E. The company will then change its name, corporate location, Board
of Directors, external auditors and stock symbol. The company will
no longer be in the simulation software business, but in the
brokerage software business (the business of Tradingear.com, Inc.)
and will be managed by the officers of Tradingear.com, Inc.
Spin-off of Digitran, Inc.
A condition precedent to the Merger with Tradingear.com, Inc., was the
spin-off of Digitran, Inc., which was accomplished in a Share Exchange
transaction effective April 29, 2002. This transaction is detailed in the
discussion below:
The company exchanged 1,000 shares (100%) of the stock of Digitran,
Inc., a Utah corporation to Digitran Simulation Systems, Inc. ("DSSI"), an
Arizona Corporation for 90 shares (9%) of DSSI. On July 16, 2002, DSSI
completed its obligations for the closing of the transaction by recording the
Share Exchange Agreement with the State of Arizona, after representatives of
each company physically exchanged share certificates on July 6, 2002. The
Share Exchange Agreement, dated April 15, 2002 calls for an effective date of
April 29, 2002, irrespective of the date of the actual share exchange.
Therefore, the disposition of Digitran, Inc. is reflected in the Company's
financial statements for the year ended April 30, 2002.
Digitran, Inc. was the Company's operating subsidiary or division and
held the Petroleum Drilling Simulation Systems (software) business. Although
this subsidiary had nominal physical assets with no recorded book value at the
time it entered into the Share Exchange Agreement, it maintained a worldwide
lead in customer base and installations as well as the value of the Digitran
Trade name, which is still recognized on a worldwide basis. The Board of
Directors also felt an obligation to the division's customers to seek a manner
in which the division could continue to service the needs of the customers and
the marketplace that Digitran, Inc. had created. Included in the exchange of
100% of the shares of Digitran, Inc, the Company transferred its Petroleum
drilling Simulation Systems Business, history, installation base, customers,
software, trade name, source code, assets and liabilities. The assets at the
time of the exchange were carried at zero ($-0-) value and the related
liabilities were approximately $3.3 million.
The principals of DSSI are related parties to Digitran Systems,
Incorporated. They are the heirs and in-laws of Ms. Loretta Trevers. Ms
Trevers was the former (and now deceased) Co-founder, Chairman, CEO, CFO, and
controlling shareholder of Digitran Systems, Incorporated. As such, they are
familiar with the adverse financial condition of Digitran, Inc. and best
prepared to overcome the problems facing this division and to continue
operations. They are represented in Management of DSSI through Stuart Reeves,
a former son-in-law to Ms. Trevers. The heirs of Ms. Trevers are also the
controlling shareholders in Digitran Systems, Incorporated, although, under
the provisions of a proposed Merger Transaction, reported previously on Form
8-k on November 11, 2001, they would exchange their control position with the
principals of Tradingear.com, Inc., the reverse merger candidate for Digitran
Systems, Incorporated.
Although not expected, should the Merger with Tradingear.com., Inc. not
be completed, the company's management will continue 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's Discussion and Analysis of the Results of Operations 2002 vs.
2001. Results of Operations:
The Company has reported its operations as Discontinued Operations for
the past two years. Therefore, no Revenues or Operating Expenses have been
reported on the Statement of Operations. As reported in Note 10: DISCONTINUED
OPERATIONS: revenues for the year ended April 30, 2002 declined 100% from the
$99,646 reported for fiscal year ended April 30, 2001, because there were no
revenues for fiscal year 2002. Consequently, there were no Cost of sales for
2002, also a 100% decline from the prior year's amount of $87,923. The company
did receive capital contributions of $107,500 during fiscal year 2002 and
spent virtually all of it on legal and accounting fees, debt settlements, the
resolution of outstanding obligations of Digitran Systems, Incorporated and on
the normal recurring expenses associated with maintaining a public company. In
addition, 1,000,000 shares of the company's stock, valued at $20,000 were
issued for services. Selling, general and administrative expenses decreased to
approximately $124,500 from approximately $589,000, or 79% due primarily to
the settlement of a lawsuit in which Digitran, Inc. and the purchaser of the
Crane and Truck divisions of Digitran, Inc. were jointly seeking damages
against a former contractor, for alleged contract violations. Legal fees for
that action alone were approximately $250,000. Also, Ms. Loretta Trevers was a
full-time employee in fiscal 2001, conducting selling, general and
administrative functions for the company while it was still generating
revenues. Compensation charged to Ms. Loretta Trevers for fiscal year 2001 was
approximately $82,000. Ms. Trevers passed away on April 27, 2001.
The company has liberally and generously accrued interest on all
outstanding obligations, including accounts payable and accrued liabilities.
This is why accounts payable and accrued liabilities have increased steadily
over the years and seemingly beyond the company's ability to incur. This
interest was accrued on all debt instruments at their stated rates, as well as
on all accrued liabilities and accounts payable at an imputed rate of 8%--
whether or not such interest was charged by the creditor. For the fiscal years
ended April 30, 2002 and 2001, the interest accrued on outstanding obligations
was approximately $276,000, and 130,586, respectively. The amount for fiscal
year 2002 is significantly greater than the previous year because this was the
first year in which additional interest was accrued for certain accrued
liabilities.
The company recorded two extraordinary gains during the fiscal year
ended April 30, 2002. The first was for the forgiveness of debt arising out of
settlement of the sale of the Crane and Truck divisions of Digitran, Inc. This
sale was originated in November of 1999 and completed in December of 2001. The
gain was recognized on a cash basis, as the ultimate resolution and amounts
were uncertain and contingent upon events then future to the date of the
Agreement. The Agreement called for the purchaser to pay certain liabilities
on behalf of the Company in exchange for the rights to the Crane and Truck
divisions of Digitran, Inc. In December of 2001, the purchaser and Digitran,
Inc. signed mutual waivers of claims arising out of the original agreement, in
which certain debts of Digitran were forgiven and certain obligations of the
purchaser were forgiven. This was a non-cash transaction. In addition, a small
loan was settled for $2,500 in cash whereby $9,006 of interest and principal
was forgiven. Therefore, a total gain of $446,065 on the forgiveness of debt
was recorded during fiscal year ended April 30, 2002.
The second extraordinary gain recorded by the company was for the
disposal (spin-off) of Digitran, Inc., the company's operating subsidiary. The
Company exchanged 100% of its shares of Digitran, Inc., a Utah corporation,
along with the Petroleum Drilling Simulation business, installation base,
customers, assets and liabilities for a 9% investment in the acquirer,
Digitran Simulation Systems, Inc., an Arizona corporation. Even though
Digitran Inc.'s Petroleum division is recognized as the worldwide leader in
customer base and installation base, at the time of the exchange, the company
carried its assets at zero ($-0-) book value, yet it was encumbered with $3.3
million in debt. Consequently, upon disposition of the subsidiary, the company
booked a gain on disposition of subsidiary of $3,370,905. This was also a non-
cash transaction. No element of this transaction occurred during fiscal year
2001.
ITEM 7 FINANCIAL STATEMENTS
The Consolidated Financial Statements are filed as part of this Annual
Report on Form 10-KSB.
DIGITRAN SYSTEMS, INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
April 30, 2002
DIGITRAN SYSTEMS, INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
April 30, 2002
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . 3
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations . . . . . . . . . . . . . . . . . . . 5
Statements of Shareholders' (Deficit). . . . . . . . . . . . . 6
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . 7
Notes to the Financial Statements. . . . . . . . . . . . . . . 8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Digitran Systems, Incorporated
Paradise, Utah
We have audited the balance sheet of Digitran Systems, Incorporated (a
development stage company) as of April 30, 2002, and the related statements of
operations, shareholders' (deficit), and cash flows for the years ended April
30, 2002 and 2001 and from inception of the development stage on May 1, 2001
through April 30, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digitran Systems,
Incorporated (a development stage company) as of April 30, 2002, and the
results of its operations and its cash flows for the years ended April 30,
2002 and 2001 and from inception of the development stage on May 1, 2001
through April 30, 2002, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring operating losses, and
has an accumulated deficit. These conditions raise substantial doubt about
its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/S/HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
July 2, 2002
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Balance Sheet
ASSETS
April 30,
2002
CURRENT ASSETS
Restricted cash $ 5,233
-----------
Total Current Assets 5,233
-----------
TOTAL ASSETS $ 5,233
===========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 17,841
-----------
Total Current Liabilities 17,841
-----------
SHAREHOLDERS' (DEFICIT)
Preferred stock, $0.01 par value: 1,000,000 shares
authorized, 50,500 shares issued and outstanding,
(entitled to one-tenth vote per share) 506
Common stock, $0.01 par value: 25,000,000 shares
authorized, 24,349,699 shares issued and outstanding
(entitled to one-tenth vote per share) 243,497
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 10,533,928
Deficit accumulated prior to the development stage (14,226,988)
Retained earnings accumulated during development stage 3,416,449
-----------
Total Shareholders' (Deficit) (12,608)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 5,233
===========
The accompanying notes are an integral part of these financial statements.
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Statements of Operations
From
Inception of the
Development
For the years ended Stage on
April 30, May 1, 2001 to
2002 2001 April 30, 2002
REVENUES $ - $ - $ -
---------- ---------- -------------
OPERATING COSTS - - -
---------- ---------- -------------
OPERATING LOSS - - -
---------- ---------- -------------
OPERATING LOSS BEFORE
DISCONTINUED OPERATIONS - - -
---------- ---------- -------------
DISCONTINUED OPERATIONS
Loss from operations (Note 10) (400,521) (616,044) (400,521)
Gain on disposal of subsidiary
(Note 10) 3,370,905 - 3,370,905
---------- ---------- -------------
Income (Loss) before extraordinary
item 2,970,384 (616,044) 2,970,384
Gain in disposal of debt 446,065 - 446,065
---------- ---------- -------------
NET INCOME (LOSS) 3,416,449 (616,044) 3,416,449
---------- ---------- -------------
OTHER COMPREHENSIVE INCOME (LOSS)
Dividends on convertible preferred
stock; unpaid (28,280) (28,840) (28,840)
---------- ---------- -------------
Total Other Comprehensive Income
(Loss) $3,388,169 $ (644,884) $ 3,387,609
========== ========== =============
BASIC INCOME (LOSS) PER SHARE
Continuing operations $ (0.00) $ (0.00)
Discontinued operations (0.02) (0.03)
Extraordinary 0.16 0.00
---------- ----------
Total Income (Loss) Per Share $ 0.14 $ (0.03)
========== ==========
WEIGHTED AVERAGE SHARES OF COMMON
STOCK 23,883,447 22,500,947
========== ==========
FULLY DILUTED INCOME (LOSS) PER SHARE
Continuing operations (0.00) (0.00)
Discontinued operations (0.02) (0.03)
Extraordinary items 0.16 0.00
---------- ----------
Total income (loss) per fully
diluted share $ 0.14 $ (0.03)
========== ==========
FULLY DILUTED SHARES OF COMMON
STOCK 24,301,547 22,500,947
========== ==========
The accompanying notes are an integral part of these financial statements.
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Shareholders' Deficit
For the Years Ended April 30, 2002 and 2001
Preferred Stock Common Stock
Shares Amount Shares Amount
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
Shares issued for services - - 1,000,000 10,000
Contributed Capital - - - -
Preferred shares converted
into common shares (1,000) (10) 2,000 20
Net income for the year
ended April 30, 2002 - - - -
Balance, April 30, 2002 50,500 $ 506 24,349,699 $ 243,497
CONTINUED
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Shareholders' Deficit
For the Years Ended April 30, 2002 and 2001
Class B Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
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)
Shares issued for services - - 10,000 -
Contributed Capital - - 107,500 -
Preferred shares converted
into common shares - - (10) -
Net income for the year
ended April 30, 2002 - - - 3,416,449
Balance, April 30, 2002 2,000,000 $ 20,000 $10,533,928 $(10,810,539)
The accompanying notes are an integral part of these consolidated financial
statements.
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Statements of Cash Flows
From
Inception of the
Development
For the years ended Stage on
April 30, May 1, 2001 to
2002 2001 April 30, 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,416,449 $(616,044) $ 3,416,449
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Gain on forgiveness of debt (446,065) - (446,065)
Gain on disposal of subsidiary (3,370,905) - (3,370,905)
Gain on reversal of stock - (60,000) -
Issuance of common stock for
services 20,000 39,234 20,000
Changes in operating assets and
liabilities:
Decrease in accounts receivable - 74,770 -
Increase in accounts payable and
other current liabilities 280,413 532,382 280,413
----------- --------- -----------
Net Cash Used In Operating
Activities (100,108) (29,658) (100,108)
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES - - -
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (2,500) (6,000) (2,500)
Contributed Capital 107,500 - 107,500
----------- --------- -----------
Net Cash Provided (Used) by
Financing Activities 105,000 (6,000) 105,000
----------- --------- -----------
NET INCREASE (DECREASE) IN CASH 4,892 (35,658) 4,892
CASH AT BEGINNING OF YEAR 341 35,999 341
----------- --------- -----------
CASH AT END OF YEAR $ 5,233 $ 341 $ 5,233
=========== ========= ===========
The accompanying notes are an integral part of these financial statements.
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2002 and 2001
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., (DSSI) a 95%-owned subsidiary. During the year ended April
30, 2000, the Company disposed of all of its fixed assets and
operations except for its petroleum services operations.
Essentially, the Company discontinued its operations. For the year
ended April 30, 2002, the Company is considered a development stage
company. All prior activity has been reclassified as discontinued
operations.
On May 1, 2001, the Company relinquished its rights in DSSI to a
related party. At that time, DSSI had no assets, liabilities, or
operations. During April 2002, the Company entered into a stock
exchange agreement with the new owners of DSSI in which they would
exchange all the issued and outstanding shares of Digitran, Inc. for
90 shares of common stock in DSSI. Digitran, Inc. had rights to the
petroleum division which were being carried at a book value of $ -0-
and liabilities with a book value of approximately $ 3.3 million.
Going Concern
The Company has suffered recurring losses from operations and has a
shareholders' deficit of approximately $12,600 as of April 30, 2002.
The Company plans 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 financial
statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result from the
outcome of this uncertainty.
The Company continues to rely on the sale and exchange of its
securities to fund its operations.
Cash
At April 30, 2002, the Company's attorney held $5,233 in an
attorney's trust account to be used for Company operating expenses.
This amount has been classified as restricted as the Company does
not have immediate access to or control over the funds.
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2002 and 2001
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Company recognizes revenue on the manufacture and sale of
computer driven simulation equipment. 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, 2002 and 2001, there were
no significant contracts in progress.
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. The weighted-average number of shares of common stock
used to compute the basic earnings (loss) per share was increased by
418,100 shares for the year ended April 30, 2002 for the assumed
exercise of stock options in computing the diluted per-share data.
Shares issuable upon exercise of stock options were not included in
computing the diluted per-share data for the year ended April 30,
2001, because to do so would be anti-dilutive.
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2002 and 2001
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
NOTE 2- NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the years ended April 30, 2002 and 2001, the Company adopted
the provisions of FASB Statement No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities
(a replacement of FASB Statement No. 125.), FASB Statement No. 141,
"Business Combinations," FASB Statement No. 142, "Goodwill and Other
Intangible Assets," FASB Statement No. 143, "Accounting for Asset
Retirement Obligations," FASB Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," and FIN 44 "Accounting
for Certain Transactions Involving Stock Compensation (an
interpretation of APB Opinion No. 25.)." The effect of these adopted
provisions on the Company's financial statements was not
significant.
NOTE 3 - CAPITAL STOCK
The Company's capital stock consists of common stock, Class B common
stock and preferred stock. The common stock provides for a
noncumulative $0.05 per share annual dividend and a $0.01 per share
liquidation preference over Class B common. In addition, the
Company must pay the holders of the common stock a dividend per
share at least equal to any dividend paid to the holders of Class B
common. Holders of the common stock are entitled to one-tenth of a
vote for each share held.
Class B common may not receive a dividend until an annual dividend
of at least $0.05 is paid on the common stock. Holders of Class B
common have preemptive rights with respect to the Class B common
stock and may convert each share of Class B common into one share of
the common stock at any time. Holders of Class B common are
entitled to one vote per share held.
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2002 and 2001
NOTE 3 - CAPITAL STOCK (Continued)
The Series 1 Class A 8% Cumulative Convertible Preferred Stock has a
par value of $0.01 per share. As of April 30, 2002, there were
50,500 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 2002 and
2001 of approximately $266,400 and $239,100 respectively, or $5.27
and $4.64 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 a stated rate of one share of common
stock for each preferred share converted. From time to time,
shareholders have exercised this and various other conversion
features offered by the Company. Holders of the preferred stock are
entitled to one-tenth of a vote for each share of preferred stock
held. The Company may, at its option, redeem at any time all shares
of the preferred stock or some of them upon notice to each preferred
stockholder at a per share price equal to the stated value ($7.00)
plus all accrued and unpaid dividends thereon (whether or not
declared) to the date fixed for redemption, subject to certain other
provisions and requirements.
NOTE 4 - INCOME TAXES
The income tax benefit differs from the amount computed at federal
statutory rates as follows:
For the Years Ended
April 30,
2002 2001
Income tax benefit (expense) at
statutory rate $ (1,305,851) $ 234,097
Change in valuation allowance - (234,097)
Benefit of operating loss carryforward 1,305,851 -
------------ -----------
$ - $ -
============ ===========
Deferred tax assets (liabilities) are comprised of the following:
For the Years Ended
April 30,
2002 2001
Net operating loss carryforward $ 3,738,491 $ 5,044,342
Valuation allowance (3,738,491) (5,044,342)
------------ -----------
$ - $ -
============ ===========
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2002 and 2001
NOTE 4 - INCOME TAXES (Continued)
At April 30, 2002, the Company has a net operating loss carryforward
available to offset future taxable income of approximately
$10,800,000, which will begin to expire in 2008. If substantial
changes in the Company's ownership should occur, there would also be
an annual limitation of the amount of NOL carryforwards which could
be utilized. No tax benefit had been reported in the financial
statements, because the Company believes there is a 50% or greater
chance the carryforwards will expire unused. The tax benefits of
the loss carryforwards are offset by a valuation allowance of the
same amount.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
Non-Cash Financing Activities
For the Years Ended
April 30,
2002 2001
Issuance of stock for services $ 20,000 $ 39,234
Common stock issued for payment of debt - 59,105
---------- ----------
Total $ 20,000 $ 98,339
========== ==========
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,
2002 2001
Interest paid $ - $ 734
========== ==========
Income taxes paid $ - $ -
========== ==========
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2002 and 2001
NOTE 6 - MAJOR CUSTOMERS AND EXPORT SALES
Sales to major customers which exceeded 10% of net sales are as
follows: Their sales have been reclassified as part of the
discontinued operations (Note 10)
For the Years Ended
April 30,
2002 2001
University of Kuwait $ - $ 74,185
Port of Singapore $ - $ 25,461
Export sales to unaffiliated customers were as follows:
For the Years Ended
April 30,
Region 2002 2001
Asia $ - $ 25,461
Middle East - 74,185
---------- ----------
$ - $ 99,646
========== ==========
NOTE 7 - STOCK OPTIONS AND WARRANTS
Information regarding the Company's stock options and warrants are
summarized below:
Weighted
Number of Average
Options and Option Price
Warrants Per Share
Outstanding at April 30, 2001 1,225,805 $ 0.81
Granted - -
Exercised - -
Expired or canceled (807,705) 0.84
---------- ---------
Outstanding at April 30, 2002 418,100 $ 0.76
========== =========
Options and warrants exercisable at April 30, 2002 and 2001 were
418,100 and 1,225,805, respectively.
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2002 and 2001
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there may be various other legal
actions and proceedings pending which seek damages against the
Company. Management believes that the amount, if any, that may
result from these claims, will not have a material adverse affect on
the financial statements.
Digitran, Inc, (the wholly owned subsidiary) has not filed any
federal quarterly payroll withholding reports to the IRS since March
of 1998. Digitran, Inc. 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.
It is the intent of Digitran, Inc. to pursue a workable payment
schedule with the appropriate taxing authorities until fully
current. On April 15, 2002 the Company disposed of Digitran, Inc.
(See Note 1). Consequently it is uncertain what, if any, action the
IRS may pursue regarding the collection of these taxes.
In April 2002 the Company disposed of its subsidiary operations and
all related assets and liabilities to Digitran Simulation Systems,
Inc. (See Note 10).
NOTE 9 - SUBSEQUENT EVENTS
The Company is negotiating the terms of an agreement whereby the
Company would form a new subsidiary in order to complete a reverse
merger with an operating company.
DIGITRAN SYSTEMS, INCORPORATED
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2002 and 2001
NOTE 10 - DISCONTINUED OPERATIONS
On April 15, 2002, the board of directors elected to dispose of
Digitran, Inc. 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,
2002 2001
NET SALES $ - $ 99,646
COST OF SALES - 87,923
------------ ---------
GROSS PROFIT - 11,723
------------ ---------
EXPENSES
Selling, general and administrative
expenses 124,517 588,848
Depreciation and amortization - -
------------ ---------
Total Expenses 124,517 588,848
------------ ---------
LOSS FROM OPERATIONS (124,517) (577,125)
------------ ---------
OTHER INCOME (EXPENSE)
Interest expense (276,004) (130,586)
Gain on disposal of assets - 91,667
------------ ---------
Total Other Income (Expense) (276,004) (38,919)
------------ ---------
LOSS BEFORE INCOME TAXES (400,521) (616,044)
INCOME TAX BENEFIT - -
------------ ---------
NET LOSS $ (400,521) $(616,044)
============ =========
As part of the disposal of Digitran, Inc., the Company recognized a
gain on disposal of $3,370,905 which related to liabilities being
transferred to Digitran Simulation Systems, Inc.
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 61 Chairman, Director
Gary Blum 61 Director
Quentin Casperson 53 President
Scott Lybbert 44 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 held the same
position with Digitran, Inc. and Digitran Systems, Incorporated, until April
29, 2002. As of that date, all the officers listed above have resigned their
positions with Digitran, Inc.
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 on April 27, 2001.
Before passing away, she authorized her voting power to be used to appoint
Aaron Etra, a then existing Director, as Chairman of the Board.
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 received an MBA and JD
from the University of Southern California in 1978. Mr. Blum received no
compensation for the years ended April 30, 2002 or 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
Payments of approximately $-0- and $82,000 were charged to Ms. Loretta
Trevers during fiscal year ended April 30, 2002 and 2001, respectively. Also,
no amounts were owed to her or from her, as of either April 30, 2002 or 2001.
Aaron Etra received 75,000 shares as compensation for his duties as
Chairman of the Board in fiscal year 2002.
Other Items
There were no exercises of stock options (or tandem stock
Appreciation rights) and freestanding appreciation rights (or unexercised
options or stock appreciation rights) made during the fiscal year ended April
30, 2002 by any Named Executive Officer. However, Scott Lybbert forfeited his
unexercised options to facilitate potential reverse merger transactions. The
following table represents outstanding options by officers of the Company:
Options and Stock Issuances
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
(a) (b) (c) (d) (e)
Number of Value of
Unexercised Unexercised
Options/SARs Options/SARs
at FY-End (#)at FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized($)Unexercisable Unexercisable
Aaron Etra
(Chairman, Director)
2002 -0- -0- 0/0 $0/0
2001 -0- -0- 0/0 $0/0
Gary Blum
(Director)
2002 -0- -0- 0/0 $0/0
2001 -0- -0- 0/0 $0/0
Quentin Casperson
(President)
2002 -0- -0- 0/0 $0/0
2001 -0- -0- 0/0 $0/0
Scott Lybbert
(Corporate Secretary)
2002 -0- -0- 0/0 $0/0
2001 -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, 2002 or 2001.
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 July 26, 2002 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
Julie T. Reeves
1051 North Ash Drive
Chandler, AZ 84234 1,358,324 5.58% 666,666
Evelyn R. Call
14878 Steep Mountain Drive
Draper, UT 84020 1,358,324 5.58% 666,666
Rigel Hulett
P.O. Box 345
Reserve, NM 87830 1,358,324 5.58% 666,666
Robert H. Jaffe
8 Mountain Avenue
Springfield, NJ 1,649,250 6.73% 0
Clayton Paul Hilliard
P.O. Box 52745
Lafayette, LA 70505 1,301,904 5.35% 0
Scott Lybbert*
2666 Oakwood Drive
Bountiful, UT 84010 1,200,123 4.93% 0
Gary Blum*
3278 Wilshire Blvd, #603
Los Angeles, CA 90010 535,480 2.19% 0
Quentin Casperson*
205 W. 8800 South
Paradise, UT 84328 556,000 2.28% 0
Aaron Etra*
1350 Avenue/Americas
29th Floor
New York, NY 10021 502,100 2.06% 0
All executive officers
and directors as a
group (4 persons) 2,793,703 11.47% 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
Julie T. Reeves
1051 North Ash Drive
Chandler, AZ 84234 33.33% 0 18.07%
Evelyn R. Call
14878 Steep Mountain Drive
Draper, UT 84020 33.33% 0 18.07%
Rigel Hulett
P.O. Box 345
Reserve, NM 87830 33.33% 0 18.07%
Robert H. Jaffe
8 Mountain Avenue
Springfield, NJ 0 0 4.16%
Clayton Paul Hilliard
P.O. Box 52745
Lafayette, LA 70505 0 0 2.93%
Scott Lybbert*
2666 Oakwood Drive
Bountiful, UT 84010 0 0 2.70%
Gary Blum*
3278 Wilshire Blvd, #603
Los Angeles, CA 90010 0 0 1.21%
Quentin Casperson*
205 W. 8800 South
Paradise, UT 84328 0 0 1.25%
Aaron Etra*
1350 Avenue/Americas
29th Floor
New York, NY 10021 0 0 1.13%
All executive officers
and directors as a
group (4 persons) 0 0 6.29%
*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
23 Consent of HJ & Associates
(B) 8-K Current Reports
8-K Current Report dated July 22, 2002
8-K Current Report dated March 19, 2002
8-K Current Report dated November 11, 2001
Signatures
/s/ Aaron Etra Chairman of the Board, Director
-------------------------
Aaron Etra July 26, 2002
/s/ Gary Blum Director
-------------------------
Gary Blum July 26, 2002
/s/ Quentin Casperson President
-------------------------
Quentin Casperson July 26, 2002
/s/ Scott Lybbert Corporate Secretary
-------------------------
Scott Lybbert July 26, 2002
EXHIBIT D
EXHIBIT D
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.