UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 19, 2004
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Rapidtron, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 000-31713 88-0455472
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(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification No.)
3151 Airway Avenue, Costa Mesa, California 92626-4627
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 798-0652
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(Former name or former address, if changed since last report)
ITEM 9. REGULATION FD DISCLOSURE.
We entered into a Memorandum of Understanding ("MOU") regarding a potential
transaction with Smart Card Integrators, Inc., a privately held California
corporation ("SCI"). The MOU gives both parties the right to conduct due
diligence until October 18, 2004, to determine if it is in their respective best
interest to bring in SCI as a subsidiary of Rapidtron.
Summary of the MOU
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The transaction is contingent upon each party's satisfaction with its due
diligence investigation of the other party's business, and the following
additional events:
1. Agreement on the terms of a definitive agreement, consistent with
Article III of the MOU;
2. A loan from Rapidtron to SCI in the amount of $350,000 on or before
August 18, 2004;
3. Rapidtron raising Ten Million Dollars ($10,000,000) in equity and/or
debt financing on or before November 30, 2004; and
4. At closing, the officers, directors and affiliates of Rapidtron and SCI
must collectively own at least a majority of the issued and outstanding common
stock of Rapidtron, on a fully diluted basis.
Our $350,000 loan to SCI will be due the earlier of closing or January 29,
2005. If we satisfy all our contingencies and enter into a definitive agreement,
but fail to close in default of the agreement, then the loan will be forgiven as
part of the liquidated damages to SCI totaling One Million Dollars ($1,000,000).
Likewise, if SCI satisfies all its contingencies and enters into the definitive
agreement, but fails to close in default of the agreement, then Rapidtron shall
be entitled to receive One Million Dollars ($1,000,000) as liquidated damages.
If we raise the $10,000,000 in financing, we will likely do so in a private
placement of equity securities. The proceeds of such financing will be used as
follows: $5,000,000 investment into SCI to pay existing liabilities of SCI as
provided in the definitive agreement for covenants not to compete and similar
obligations to related parties; $2,000,000 will be invested into Rapidtron
Delaware (our existing subsidiary) for working capital; $2,000,000 will be
invested into SCI for working capital; and $1,000,000 will be retained by our
company to cover the costs and expenses of the transaction and for working
capital.
If we close, we will issue a new series of convertible preferred stock to
the shareholders of SCI, plus warrants to purchase 1,000,000 shares of our
common stock at a price of $1.25 per share, in exchange for all the issued and
outstanding shares of SCI stock. As a result, SCI will become a wholly-owned
subsidiary of Rapidtron. Following closing, we plan to keep SCI as a separate
company, with the same management team working with SCI today. Currently, SCI is
managed by Francois A. Allal and Ron Halvas.
The preferred stock will earn a stock dividend beginning April 15, 2006,
equal to a total of 2.67% of the then issued and outstanding shares of common
stock. The total preferred stock will be convertible into an aggregate number
of shares of common stock that, when combined with the dividends paid on the
preferred stock, will equal between thirty and thirty-five percent (30%-35%) of
the then issued and outstanding shares of common stock, depending upon the
highest annual revenue achieved by SCI during the fiscal years between 2005 and
conversion, but in no event beyond 2008. The table below illustrates the
conversion ratio based upon the revenue achieved by SCI:
GROSS REVENUE X Y
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5 million or more 32.33% 35.00%
4.5 million up to $5 million 31.33% 34.00%
4.0 million up to $4.5 million 30.33% 33.00%
3.5 million up to $4.0 million 29.34% 32.00%
3.0 million up to $3.5 million 28.34% 31.00%
Less than $3.0 million 27.34% 30.00%
All outstanding shares of preferred stock will be automatically converted
by April 15, 2009.
The MOU is attached to this report as Exhibit 10.1.
About SCI
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SCI was founded as a California corporation in 1996. SCI is a North
American smart card technology company that develops and markets systems and
software integration services for the smart card market. The company's core
competencies and capabilities allow it to provide and facilitate end-to-end
integrated system solutions for smart card and cashless payment markets.
The goal of SCI is to be a preeminent provider of smart card
technology-based solutions. In support of its goal, the objective of SCI is to
provide the following in one product: 1) open operating systems, 2) electronic
purses, 3) application software; 4) firmware and hardware; and 5) smart cards
for integrated end-to-end systems - i.e. the "Total Solution". This product is
intended to provide an application for cash transactions that will interface
with biometric operating systems that will pass the highest levels of
governmental and corporate security and will be web enabled.
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SCI's current products include the following:
- s-Choice(TM) OS, a smart card operating system based on the former
Microsoft for Windows Smart Card Operating System,
- s-Choice(TM) Electronic Purse, a platform-independent application ported
to the s-Choice OS and Java that is used by the United States Treasury for the
US Navy Cash Project,
- s-Choice(TM) Readers, a range of innovative standalone programmable card
readers and other hardware devices which currently support numerous smart card
applications and systems,
- Software application suites that provide comprehensive solutions to
specific markets for cashless transaction payment systems and offline gaming,
and
- Custom development of smart card based applications.
SCI targets the following markets: ID/Security, Government, Biometrics,
Financial, Gaming, Transportation and Commercial / Retail / Loyalty markets.
SCI has invested in its research and development program to ensure
continued leadership in smart card system technology. SCI's R&D efforts
currently focus on expansion and improvement of the s-Choice(TM) OS, Electronic
Purse, card readers, hardware devices and developing new application software.
The additions and enhancements to the core technologies increase flexibility of
SCI's solutions and when applicable, are intended to facilitate a seamless
transition from closed systems to the open environment.
If SCI becomes a subsidiary, SCI will provide our company more control over
smart card and biometric technology and production. SCI will introduce
Rapidtron's access products to its clients and strategic partners, including
government clients that would otherwise require Rapidtron to satisfy a more
lengthy review and approval process. We believe SCI management will compliment
our current management team. Rapidtron is strong in marketing, commercial sales
and hardware Smart technology, and SCI is as strong in government and municipal
sales and software Smart and biometric technology.
If we close the transaction, we expect to hire two to three senior and
well-respected executives that will add increased credibility and acceptance of
our products by all government and municipal institutions. We plan to target
larger projects, and we believe we will be able to act as prime contractor
because of our ability to provide a more complete Smart card, e-purse, biometric
and access control technology.
Forward-looking Statements
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This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21B of the Securities
Exchange Act of 1934. Any statements that express or involve discussions with
respect to predictions, expectations, beliefs, plans, projections, objectives,
goals, assumptions or future events or performance are not statements of
historical fact may be forward-looking statements. Forward-looking statements
are based on expectations, estimates and projections at the time the statements
are made that involve a number of risks and uncertainties which could cause
actual results or events to differ materially from those presently anticipated.
These risks include the following: (a) the possibility that Rapidtron or SCI
will not satisfy their contingencies and will not complete the transaction, (b)
the possibility that Rapidtron will not secure $10,000,000 of financing on terms
and conditions deemed desirable or available at this time, and as a result, will
dilute existing shareholders beyond current expectations; and (c) the
possibility that the joint efforts of Rapidtron and SCI will not result in new
businesses, larger projects or significantly greater net profits to our company.
ITEM 7. EXHIBITS.
The following exhibits are included as part of this report:
10.1 Memorandum of Understanding, dated July 19, 2004.
99.1 Press release
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RAPIDTRON, INC., a Nevada corporation
Date: August 3, 2004 By: /s/ John Creel
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John Creel,
Chief Executive Officer
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