UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT 1
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITY
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission file Number 33-22142
REDOX TECHNOLOGY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 55-0681106
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State or other jurisdiction of (IRS Employer
incorporation or organization Identification Number)
340 North Sam Houston Parkway East, Suite 250, Houston, Texas, 77060
Tel: (281) 445-0020
Securities registered pursuant to Section 12(b) of the act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
COMMON STOCK, PAR VALUE $0.00005 PER SHARE
------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 Days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the average bid and asked price of the stock on December 31,
2000 was $21,553,305.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of registrant's classes of
common stock, as of the latest practicable date.
CLASS NUMBER OF SHARES OUTSTANDING ON:
----- --------------------------------
June 20, 2001
Common Stock -----------------
par value $0.00005 50,953,439
1
PART I
ITEM 1. BUSINESS OF THE COMPANY
Organization
The Company initially was incorporated as DCUSA, Inc. under the laws of Delaware
on April 28, 1988, organized as a "blind pool," meaning that it had no business
plan of its own but was organized to acquire or merge with an active business.
Initially the Company was a wholly-owned subsidiary of Family Health Systems,
Inc. which held 3,000,000 shares of the Company's Common Stock. Pursuant to a
Registration Statement which was declared effective on August 2, 1988, the
3,000,000 shares were distributed as a dividend to approximately 900 Family
Health Systems, Inc. stockholders, effectively spinning-off the Company as an
independent entity.
In early 1993, the Company entered into a relationship with Richard Szymanski
who, on April 9, 1993 assigned his recently filed Patent Application for an
"Emergency Reserve Battery" to the Company in exchange for 15,000,000 shares of
the Company's Common Stock. As a result, Mr. Szymanski owned approximately 82%
of the Company's then issued and outstanding Common Stock. On June 1, 1993 the
name of the Company was changed to its present name, "ReDOX Technology
Corporation."
Business History
From 1993 until approximately 1996, we were engaged in developing the "Emergency
Reserve Battery." The product was, essentially, a single-use battery which would
be attached to a car battery as a reserve unit. In the event that the regular
battery was fully discharged and unable to start the car, the driver would
activate the reserve battery, releasing the electrolyte and charging instantly
the reserve battery that would then be used to start the car. The Company built
prototypes, attempted to market it to many battery manufacturers, and attempted
to secure financing to support manufacture of the product. However, during the
same period there were significant changes in battery technology, especially the
chemistry including new electro-chemical engineering and processes (such as
lithium metal batteries) which offered higher energy densities (storage
capacity)than the Company's product. As a result, the Company became engaged in
substantial research and development efforts in a search for greater energy
density and more flexibility, and the product was never produced and sold.
As a result of his research efforts, Mr. Szymanski became aware of the work
being done by Professor Licht at Clark University in Worcester, Massachusetts.
At that time, the Company's battery was based on an alloy of aluminum, magnesium
and zinc as the anode with a carbon-based cathode. Professor Licht was working
with aluminum as the anode and sulfur and poly-sulfide as the cathode. Mr.
Szymanski began working with Clark University and in September, 1998, after
about three years of investigation and negotiations, the Company obtained a
Patent License Agreement from Clark University. (see "Property of the Company")
From 1998 to December 31, 1999, we were engaged in seeking financing for the
production of prototypes, beta testing of the prototypes, completion of product
development and establishment of manufacturing. However, the Company has been
unable to secure that financing on terms acceptable to it. Using the Clark
University technology, and the financing of our President, Mr. Szymanski,
prototypes have been developed as of the last quarter of 2000. Although the lab
prototypes have been developed, and testing at an independent laboratory has
commenced, additional funding is necessary to make production prototypes from
the lab prototypes, which will be accomplished only after testing on the lab
2
prototypes is complete and recommended adjustments are made, if any. We have
decided to initially develop two of our lab prototypes, with a focus on
minimizing battery size, and maximizing cell and ampere-hours. We have been
working with a well-known independent research lab, the name of which is
contractually being withheld, and this lab will be providing certifications on
all 5 patents issued on this technology. Until the results are complete, and
certifications are provided, we will be deferring the marketing of this
technology and focusing on our software technologies. We believe that our
decision to focus on technologies that can more quickly provide the Company with
cash flow, such as the computer software technologies discussed below, will
benefit the Company and its shareholders.
We hope to generate sufficient revenues from our software technologies to
fulfill our business objectives, including the completion of our research and
testing necessary for our battery technology. It is our belief that that the
final development and marketing of our battery technology will be delayed unitl
the second quarter of 2002.
During the year 2000, we acquired the world wide exclusive licensing rights for
two new computer software technologies: (i) Divine Logic 2000 (also referred to
as nCRYPTfx); and (ii) ONSLR e2000; both of which Management feels will generate
revenue for the Company. We intend to market sub-licenses to these software
technologies directly to computer hardware companies so that the technologies
can be installed prior the retail sale of the computer, thereby generating
revenue from royalties. Our role, then, will be more a marketing and selling one
than a research and developmental one.
Richard Szymanski, the founding and majority shareholder, has spent varying
amounts of time since 1993 on these research efforts. Mr. Szymanski has taken no
salary since inception and has personally funded most operating costs. Until
2001, no significant payments were made to third parties for any research
efforts. Thus, the financial statements do not reflect any research and
development expenditures until 2001.
3
Proposed Products
Software Technologies
Divine Logic 2000 is an anti-piracy software program that was developed to
prevent the theft of electronic information and unauthorized copying of
software. Applications for this product will be in the computer industry, the
music CD industry, the DVD movie industry, video games and MP3. This technology
differs from existing anti-piracy software programs in that it has the ability
to detect when a copy is being made of any file, without limitation to only
executable files. Divine Logic 2000 checks graphic files, movie files, text
files, etc. This software can be installed directly during the assembly of the
computer by the manufacturer, or can be installed indirectly with a CD.
Divine Logic 2000 consists of two parts: Divine Logic and Program Immune Virus.
Divine Logic detects the pirated software, and Program Immune Virus eliminates
or destroys it. The developer, Shaju Chacko, has indicated that the program
cannot be detected or debugged using any assembly language. The development of
Divine Logic 2000 has been completed and was delivered for benchmark testing to
an independent, reputable third party- eTesting Laboratories. Final testing is
being conducted on this software, and Management believes that the product will
be ready to market as early as the first quarter of 2002.
ONSLR e2001 is a computer software product that was developed for use in various
computer systems. It purpose is to provide: significant processor speed
acceleration, significant graphics display acceleration, significant drive
compression and convenient keyboard enhancements. It has been successfully
demonstrated, and independent testing has been commenced by eTesting Labs, Inc.,
a division of Ziff Davis, Inc.
In addition, independent testing was conducted by Business Applications
Performance Corporation of Santa Clara, CA. ("BAPco"), which was completed in
July of 2001. Utilizing a benchmark software suite created by BAPco, the
software formerly coded as ONSLRe2001, obtained office productivity SYSmark2000
score average of 215.6. This exceeded similarly equipped Notebook PC scores by
30-50% and established a new high for PC Desktops with heightened peripherals.
4
The testing platform ran on a Dell Inspirion 4000 equipped with Windows 98, 128
MB and a 10 GB hard drive powered by a 700mhz processor. BAPco is a non-profit
consortium, who's charter is to develop and distribute a stet of objective
performance benchmarks based on popular/personal computer applications and
industry standard operating systems. To learn more about BAPco, see
www.bapco.com.
Further testing will ensue with BAPco's Internet Creation Content module and
results will then be posted on the REDOX website at www.rdox.com following
notification to BAPco's membership companies including Compaq, Dell, HP, IBM,
Intel, Microsoft as well as many others.
In a press release dated January 31, 2001, the Company announced the selection
of MDR Labs, which had not reached a definitive agreement. MDR expressed to the
Company in February of 2001 that it no longer operates "MDR Labs," but MDR does
perform hardware and software testing as part of its other operations. MDR had
engaged in preliminary discussions with REDOX about testing the ONSLR e2001
software but has never tested any REDOX products. Currently, REDOX and MDR do
not have a business relationship. Testing has been conducted, however, by BAPco
and eTesting Labs.
ETesting Labs will continue to conduct its own independent testing with
published results upon availability. Results are expected as early as the fourth
quarter of 2001.
Battery Technology
We have developed a high energy density battery based on an aluminum/sulfur
system. The significance of the composition of the battery is in its potential
capacity to serve a stronger and longer life in a much smaller size.
Competition
The battery market is highly competitive. There are numerous manufacturers both
in the United States and overseas (especially in Japan). Many of these
manufacturers have high brand recognition and established market shares with
customer-perceived quality. Batteries under development today use the following
chemical components, all of which have drawbacks. They are:
Lead Acid--which is heavy (low energy density) and is toxic;
Sodium Sulfur- which required high temperatures, is explosive, and required
expensive packaging
Nickel-Cadmium- that required expensive materials, is a carcinogen and has a
high memory effect;
Nickel metal hydride- which requires expensive material, has limited temperature
range and has a high self-discharge rate;
Lithium polymer- which required expensive materials, is explosive, has power
density and requires long term development;
Flywheel- requires long term development.
Aluminum Sulfur Batteries have a high capacity (demonstrated up to 220
watt-hrs/kilogram with a theoretical capacity of up to 5 times that amount in
tests conducted at Clark University). Aluminum and Sulfur are comparatively
lighter components than the components typically used in batteries, and are
easily obtainable. Aluminum and sulfur are also considerably less expensive than
components used in other batteries. The break-through patented technology that
the Company obtained from Clark University makes sulfur conductive at room
temperature, when previously without Clark's technology, was non-conductive and
only used as an insulator. Aluminum and sulfur are not hazardous to work with.
They are not toxic and can operate without becoming hot or dangerous. Also, the
components produce no harmful by-products and are environmentally friendly.
Aluminum and sulfur are safe even if ingested. The acids used in our batteries
are pH neutral.
5
The materials which would be used in our batteries, Aluminum and Sulfur, are
common, inexpensive and readily available from many sources. We do not foresee
any difficulties in acquiring raw materials or in facing any dramatic price
increases due to material shortages. Information on the costs of the various
battery components (chemical compounds) is publicly available. It is, in other
words, easily to verify that our components are substantially less expensive
than the other components used in batteries. Based on the cost of materials
alone, our manufacturing costs would be lower. Additionally, we are using our
inexpensive components in a highly technical system for which we have five
patents issued. Our proprietary manufacturing process will allow us to lay the
material on a substrate, and work on a hands-free basis in a vacuum environment,
which allows for precise measurement on a continuous web process. Unlike other
battery making, this process causes no contamination and no dangerous, hazardous
or toxic by products. The process is also possible without the use of expensive
equipment that is necessary in the manufacturing process for other batteries.
In sum, the Company believes that it can enter the battery market and establish
a reasonable market share because:
* its raw materials (aluminum and sulfur) are readily available and less
costly than those used by competitors, giving it cost advantages compared
to every other battery on the market today;
* its raw materials permit easier and less costly manufacturing, giving
further cost advantages;
* its finished products do not have explosion or other safety issues,
permitting easier transportation, giving further cost advantages;
* its raw materials are environmentally friendly and do not pose disposal
problems; giving it an advantage with consumers concerned about the
environment and waste disposal problems;
* the energy densities (i.e., the amount of stored power) offered by its
products are substantially higher (e.g., compared to a lithium-ion battery
offering 180 - 205 watt hours per kilogram, the Company's replacement
product could theoretically offer 648 watt hours per kilogram based on an
independent lab's study of our design.) That energy density is
substantially higher than all batteries on the market today; and
* the Company's licensed electro-chemical process is a departure from current
technology in that it uses different chemical components and a proprietary
patented process that has not yet been employed by any other battery making
process known.
Electrochemically, the sulfur and the electrolyte we use, and our special
patented process allows the battery to run more efficiently.
Presently, we have three employees. They are:
o Richard Szymanski, President/CEO;
o Clifton Douglas, Vice President, Secretary; and
o Nick Nasco, VP of Software Development.
We do not anticipate hiring any new employees during the next twelve months.
6
ITEM 2. PROPERTY OF THE COMPANY
Offices
We maintain our principal office at 340 North Sam Houston Parkway East, Suite
250, Houston, Texas 77060, where our telephone number is (281) 445-0020 and our
facsimile number is (281) 445-0022. The offices are leased from a non-related
party under a three year lease that commenced April 1, 1998 at an annual rental
of $19,712.52 payable in monthly installments of $1,642.71. The office area is
1,577 square feet, divided into a reception area, a conference room, a
file/storage/utility room and three executive offices. The Company owns the
office furniture and equipment in the office. This space is adequate for current
needs and our needs for the next 12 - 24 months. Effective April 1, 2001, we
have renewed our lease for an additional three year term.
Patents, Patent Applications and Licenses
Prior to his relationship with the Company in 1993, Mr. Szymanski had been
developing a battery with greater storage capacity ("density") using aluminum,
magnesium and zinc. On April 8, 1993 Mr. Szymanski filed a Patent Application
for an "Emergency Reserve Battery". On April 9, 1993 Mr. Szymanski assigned that
Patent Application to the Company in exchange for 15,000,000 shares of the
Company's Common Stock. That Patent Application is still pending in the United
States Patent and Trademark Office, while the Company's primary emphasis has
been on the technology under the License obtained from Clark University,
Worcester, Massachusetts.
On September 17, 1998 the Company entered into an exclusive License Agreement
with Clark University covering U.S. Patents 5,413,881 issued May 9, 1995 and
5,571,600 issued November 5, 1996. These patents relate to batteries using
aluminum and sulfur. Upon execution of the Patent License, the Company paid
Clark University the sum of $30,000 as a License Fee. In addition, at the end of
each year of the agreement, the Company pays a minimum royalty of $35,000. Upon
the commencement of sales of products under the Patent License, the Company will
pay a royalty of 5% of Gross Sales, against which the minimum royalty in that
year will be applicable. The License Agreement, subject to earlier termination
by Clark University in the event of the Company's default, will remain in effect
until the expiration of the last patent to have been issued (Number 5,571,600
was issued November 5, 1996).
In November of 1999, we issued press releases regarding an agreement that was to
be finalized between ReDOX and the State of Uttar Pradesh in India for the
development of a 1,500 acre technology park for ReDOX. We also filed these
releases with the SEC on Form 8-K. Due to a change in administration in India,
however, and various circumstantial changes which would have made it necessary
for us to finance much of the project, this project has been put on hold and
will not likely be revisited in the foreseeable future.
On August 28, 2000, we entered into an exclusive License Agreement with Divine
Logic for the exclusive worldwide marketing rights to the Divine Logic software.
The Company will be required to pay 27.5% of the gross revenues from all sales
of the software to Divine Logic.
On May 4, 2001, we entered into an exclusive License Agreement, effective
December 12, 2000m with ONSLR e2000 and a group of individuals, namely, Nick
Mascia, Amit Kumar Singh, Kushal Kumar; Kashal Kumar for the exclusive worldwide
marketing rights to the ONSLR e2000 software. The Company was required to pay
$25,000 as an advance payment against any future royalties. The Company is not
required to make any future payments until the royalties owed to ONSLR exceed
$25,000.
We have hired the law firm of Duane, Morris and Heckscher, LLP to file the
trademark and patent applications for Divine Logic and Onslr. The trademark
applications have been filed and the patent applications will be filed with the
United States Patent and Trademark Office imminently.
7
ITEM 3. LEGAL PROCEEDINGS.
We are not engaged in any pending legal proceedings. We are not aware of any
legal proceedings pending, threatened or contemplated, against any of our
officers and directors, respectively, in their capacities as such.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders in the fourth quarter of
2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On June 29, 1993, the National Association of Securities Dealers (the "NASD")
approved the Company for quotations by Brooklyn Capital, and we were listed for
trading on the OTC Bulletin Board and the NQB (now "Pink Sheets, LLC") Pink
Sheets. The Company's Common stock was suspended from trading in the First
Quarter of 1994 due to delinquencies in certain filings. Having become current
with respect to its filings, the Company sought a market maker that would
reapply to the NASD to trade the Company's stock. The Company secured the
services of Public Securities, Inc., Spokane, Washington, in providing market
making services for the stock. Through the direct efforts of Public Securities,
the NASD approved ReDOX Technology Corporation Common Stock for reinstatement
and listing under the symbol "RDOX" as of May 10, 1995. Therefore, the principal
United States market in which the registrant's Common Stock has been traded is
the NASD Over the Counter (OTC) Bulletin Board under the symbol "RDOX".
The range of our prices for the past two fiscal years is as follows:
Quarter High Ask Low Bid
- ------- -------- -------
1st Qtr,'00 $ 0.6562 $ 0.3438
2nd Qtr,'00 $ 0.6562 $ 0.375
3rd Qtr,'00 $ 0.5625 $ 0.25
4th Qtr '00 $ 0.4688 $ 0.125
Quarter High Ask Low Bid
- ------- -------- -------
1st Qtr,'99 $ 1.53125 $0.4375
2nd Qtr,'99 $ 1.945 $0.65625
3rd Qtr,'99 $ 2.0075 $0.5
4th Qtr '99 $ 0.59375 $0.26
During the past three fiscal years ended 1998, 1999 and 2000, there have been no
issuances of unregistered securities made by the Company. However, in 1998,
Richard Szymanski converted 1,000,000 shares of his Convertible Preferred Stock
to Common Stock, at a conversion rate of 5 shares of Common for each share of
Preferred, providing Mr. Szymanski with 5,000,000 shares of Common Stock from
that conversion. If this is recognized as an issuance, then it is considered
exempt by reason of Section 4(2) of the Securities Act of 1933.
In February 2001, the Company issued Mr. Szymanski, our founder, 11,937,311
shares of Common Stock in exchange for the promissory note dated August 2000 in
the amount of $1,080,712. This issuance was exempt from registration by reason
of Section 4(2) of the Securities Act of 1933.
In April, 2001, the Company raised $120,000 through a Rule 506 private placement
by selling 1,000,000 shares of Common Stock at $0.12 per share to a single
individual investor. This issuance is considered exempt by reason of
8
Regulation D of the Securities Act of 1933, and Rule 506 promulgated thereunder.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and summary of selected financial data for ReDOX Technology
Corp. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment of the management of the Company.
As previously reported, this corporation is in a development stage and has not
yet conducted any business so as to become an income producing entity. We
continue to utilize capital borrowed from our principal shareholder.
Our financial condition has not changed materially from December 31, 1999 to the
date of the financial statements herewith provided. We have suffered recurring
losses from operations, and its current liabilities exceed our current assets.
As of December 31, 2000, there was a stockholders' deficit. To the extent that
we have incurred continuing expenses without any revenues having been generated,
shareholder's equity would have suffered proportionately had it not been for the
continuing infusion of capital from the Company's President, Richard Szymanski.
We intend to continue to rely on Richard Szymanski's capital infusions to fund
our operations until we begin significant sales of our licensed products.
We expect that our software technologies will start generating revenues in the
Fourth quarter of 2001.
Plan of Operation
We have developed a plan of operation that covers our final testing
requirements, our marketing plan and strategy, our intended methods for
generating revenue, and our staffing requirements.
Objective: Our objective is to initially market our software technologies to
computer hardware manufactures and other original equipment manufacturers
("OEMs") before offering the technologies to the general public. It is our
intention, to use a portion of the revenues generated from our software
technologies to fulfill our remaining business objectives, including the
completion of our research and testing required for the marketing of our battery
technology. Management believes that the final development and marketing of its
battery technology will be delayed at least through the second quarter of 2002.
Testing: Independent testing for our software technologies has been commenced by
eTesting Labs, Inc., a division of Ziff Davis, Inc. Independent testing was
conducted by Business Applications Performance Corporation of Santa Clara, CA.
("BAPco"), which was completed in July of 2001. Utilizing a benchmark software
suite created by BAPco, our ONSLRe2001 office productivity scores exceeded
similarly equipped Notebook PC scores by 30-50%. BAPco is a non-profit
consortium, who's charter is to develop and distribute a stet of objective
performance benchmarks based on popular/personal computer applications and
industry standard operating systems. To learn more about BAPco, see
www.bapco.com.
9
Further testing will ensue with BAPco's Internet Creation Content module and
results will then be posted on the REDOX website at www.rdox.com following
notification to BAPco's membership companies including Compaq, Dell, HP, IBM,
Intel, Microsoft as well as many others.
Products and our Target Market: Our primary software technologies consist of
Divine Logic 2000 and ONSLRE e2001.
1. Divine Logic 2000, our exclusively licensed anti-piracy software program, was
designed to prevent the theft of electronic information and unauthorized copying
of software.
We will be targeting the following industries for this product:
o The computer software industry;
o The music CD industry;
o the DVD movie industry;
o The video games industry; and
o The MP3 industry.
2. ONSLR e2001, our exclusively licensed speed accelerator software product was
developed to provide significant processor speed acceleration, graphics display
acceleration, drive compression and convenient keyboard enhancements.
We will primarily target the original equipment manufacturers ("OEMs") that make
computer systems, telecommunications and data communications equipment and
peripherals. Also, we will offer our software technologies to PC and computing
appliance users (including individual consumers, large and small businesses,
also referred to as "end users") however, direct marketing to the end user will
not be our initial or primary focus.
Both our software technologies will be marketed directly to OEMs, and the
Company will generate its revenue on a per unit basis, i.e. one upload per unit,
prior to the manufacturer's release of its product to the market place. Our
President, Mr. Szymanski, has had met with more than twenty such OEMs and
negotiations will progress once final test data has been released. Although our
unit price has not been yet established or finalized, we intend to establish
pricing for OEMs based on our marketing research and negotiation with OEMs. Upon
release of final testing for both software technologies, we will begin actively
pursuing the OEMs, many of which with we have already established contact and a
strong level of interest.
Marketing Strategy:
We have retained the marketing firm of Mark Weiner Design to develop our
marketing plan. Upon completion of the testing and with the release of the test
data, that company will begin executing its process of product-information
dissemination and its product fulfillment plan. Strategic branding, or creating
name recognition through advertising in trade publications and other traditional
formats, will be a primary focus of Mark Weiner Design. Marketing will progress
in three phases. We anticipate our marketing costs to run approximately
$100,000, which costs will not begin to in incur until the fourth quarter of
2001.
Phase 1 involves establishing a plan of critical reactive measures designed to
provide us with the ability to react immediately to existing market conditions
with the launching of our product. This short-term plan is designed to help
ReDOX:
1. field product inquiries precipitated by marketing and public relations
processes already in motion;
10
2. set up a preliminary mechanism to deliver a consistent brand message to
consumer and other potential buyers;
3. provide a preliminary method to capture critical relationship data from
potential consumers precipitated by any public relations and marketing
efforts;
4. provide a basic infrastructure of product design and information from which
to build a solid program of marketing and fulfillment.
The design and functional specifications for a full e-commerce/marketing site
will be developed during the end of Phase 1 for implementation in Phase 2.
Phase 2 will include the tactical deployment of a targeted functional Web site.
The design of the site will be based on the functional requirements identified
in Phase l. Market and brand data that has been collected in Phase 1 will be
analyzed and converted to action items designed to continue to build brand
identity and design direction for implementation of the logo/mark and any
specified marketing verbiage across the appropriate marketing channels. Phase 2
will also involve: (i) exploration of the user interface regarding user's
alignment to the established brand and target market; (ii) product collateral
not developed in Phase 1 (such as user guides, compatibility guides,
point-of-sale collateral, brochures, etc.) will be developed during this Phase.
Phase 3 involves monitoring, budgeting and planning for the projected life-cycle
of the brand as well as adjusting those processes developed in prior phases.
Once ReDOX has established brand identity and begins its implementation of an
effective method of product information dissemination and fulfillment, Phase 3
will focus on building brand equity across multiple channels. This could include
the introduction of an effective media plan for online/offline exposure,
development of ad campaigns, banner campaigns, possible introduction of
additional or co-brand synergies within ReDOX, development of external marketing
synergies through co-branding, bundling, partnering and other promotional
opportunities.
All three phases can be accomplished within a 60-90 day period, and can begin
upon completion of testing and release of test data for publication.
Manufacturing: We will not be involved in manufacturing. The burning of CDs for
our OEM customers will be done in house for a minimal cost. In the future, if we
choose to market to end users, we will explore our manufacturing options at that
time. During the next 12 months, we do not anticipate having any manufacturing
requirements.
Revenue Generation: We will generate revenue from essentially two sources:
1. OEMs will pay a royalty to the Company, based on a negotiated
sub-license agreement to be drafted on a per OEM basis, for each
upload of our software during their own manufacturing process. Our
per-unit price will be negotiated with OEMs based on our estimated
volume with each OEM.
2. Software companies will pay a royalty to the Company, based on a
negotiated sub-license agreement to be drafted on a per company basis,
for each unit sold.
We do not expect to purchase any significant equipment over the next twelve
months. We also do not expect any significant changes in the number of
employees.
By year-end, or the first quarter of 2002, we believe we will have a positive
cash flow. This assessment is based upon the net profit we expect to earn on the
sub-licensing of our software technologies and the size of the OEM marketplace.
11
Since our manufacturing costs are insignificant in our OEM selling environment,
we could reach a "break even" status fairly quickly.
Battery Technologies: Our plan of operations does not include our battery
technology. It is our objective to generate revenue though our software
technologies over the next 12 to 24 months, and a portion of our profits will be
used to complete the research and development and marketing plan necessary to
launch this technology.
Staffing Requirements: Over the next twelve months, we anticipate hiring a
Secretary and a national sales representative. Presently, we have three
employees. Over the next 24 months, we plan to build our sales force by hiring
an additional four national representatives.
SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
----- ---- ----- ---- ----
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
(Loss) from continuing
operations) $(389,828) $(324,288) $(168,879) $(532,820) $(2,877,784)
(Loss) from continuing
operations per share $(0.008) $(0.006) $(0.004) $(0.012) $(0.064)
Total assets $19,442 $ 20,194 $ 18,887 $ 8,981 $ 13,201
Long term debt $ 0 $ 0 $ 0 $ 0 $ 0
The loss from continuing operations in 1996 is largely due to the issuance of
6,000,000 shares of preferred stock to the founder for services performed valued
at $2,700,000 (5,000,000 of such shares were subsequently returned to the
Company and canceled.)
The loss from continuing operations in 1997 is largely due to the issuance of
300,000 shares of common stock to a consultant for services performed valued at
$459,300.
Operating Data:
There was no revenue from sales and ancillary income for the calendar years
ended December 31, 1998, December 31,1999 and December 31, 2000.
General and Administrative expenses (operating expenses) were $319,737 for the
year ending December 31,1999 and $223,204 for the year ending December 31, 2000.
In 2000, $125,000 in such expenses were paid in Common Stock.
Liquidity and Capital Resources:
In January 2000, the Company issued 250,000 shares of its Common Stock to two
former consultants to settle a lawsuit. The Company recorded the settlement
expense of $125,000 based on the fair value of the Common Stock.
In February of 2001, we issued Mr. Szymanski 11,937,311 shares of Common Stock
in exchange for the promissory note dated August 2000 in the amount of
$1,080,712 and the accrued interest. The face value of the note payable, plus
interest, was converted to Common Stock. Mr. Szymanski has made assurances that
he will continue to personally finance the Company, to the best of his ability,
over the next 12 months on an as needed basis.
There were no issuances made by the Company in 1998, 1999 or 2000.
12
In February 2001, the Company issued the founder 11,937,311 shares of common
stock in exchange for the promissory note dated August 2000 in the amount of
$1,080,712, and the accrued interest. This issuance was considered exempt by
reason of Section 4(2) of the Securities Act of 1933.
In April 2001, the Company raised $120,000 through a private placement by
selling 1,000,000 shares of common stock at $.12 per share to a single
individual. This issuance was considered exempt by reason of Section 4(2) of the
Securities Act of 1933.
During the next 12 months, Management has identified specific financial demands
and commitments, as well as broad financial requirements, as follows:
Final testing costs for software technologies: $ 20,000
Marketing Plan Development and Implementation; $ 90,000
Mark Weiner Design:
Advances on Royalty Payments: $ 50,000
Working Capital: $ 75,000(1)
General and Administrative: $180,000
--------
Total $415,000
(1) Amount listed under Working Capital has not yet been specifically
allocated.
Our commitments to our licensors, Divine Logic, ONSLR e2001 an Clark University,
are all current. The sale of products using the licensed software technology
(and later, battery technology) will trigger payments to our licensors. We do
not anticipate that problems will arise with respect to our making such
payments, as they will be paid directly out of revenues generated from sales. If
required payments are not made for any unforeseen reason, however, our license
agreement(s) involved may be considered in default. The Company raised $120,000
in a private placement from a single investor in April of 2001. The proceeds
from that sale are being applied towards the Company's financial needs, as
outlined above. Until such time that we are generating revenues sufficient to
cover these expenses, Mr. Szymanski has made assurances to the Company that he
will make up the difference personally.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not have any market risk sensitive instruments, commodity risk
or any foreign currency exchange rate risk.
13
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to the Officers
and Directors of the company.
Name Age Position
Richard Szymanski 58 President/Director
Clifton D. Douglas 71 Secretary/Treasurer/Director
James R. Schuler 61 Director
The members of the Board of Directors of the Company are elected by the
shareholders at each annual meeting for a one year term. Officers are elected by
the Directors at each annual meeting for a one year term, or until otherwise
replaced by the Board of Directors.
Richard A. Szymanski is President, Chairman of the Board of Directors and CEO of
our Company, serving in these capacities since our incorporation in April 1993.
Mr. Szymanski is involved in research, development and improvement of high
density power batteries. Mr. Szymanski previously served as Vice President and
Technical Director of World Book Encyclopedia Science Service for several years
where he maintained a staff of professional science writers and photographers
for the purpose of writing and illustrating major scientific events, including:
exclusive coverage of the seven original astronauts, organizing all photo
coverage including space launchers at Cape Kennedy, and the initial heart
transplants performed in Houston, Texas.
Clifton D. Douglas has served as Secretary/Treasurer and Director since July
1996, overseeing and managing all of the accounting and financial affairs of the
Company. From 1990 though 1995, Mr. Douglas was Vice President of Tiger Oil and
Gas, Inc., Latin America Trading Company and Petrorental Internacionales, S.A.,
where he was responsible for operations in Mexico and Latin America. Previously,
Mr. Douglas was a financial consultant in the areas of oil, gas and real estate
construction.
In 1953, Mr. Douglas received a Bachelor of Science in Accounting from Arizona
State University.
James R. Schuler has served as a Director of our Company since August 4, 1998.
Presently, Mr. Schuler is the President and CEO of Trans United Partners, Inc.
of Pacifica, California, having been with that company since 1998. Also since
1998 through the present, Mr. Schuler is CEO to S-Cube Investments, LLC, where
he has been forming a technology cooperative among new technology companies.
Previously, Mr. Schuler co-founded a research and development company in 1994
called Add-Vision, Inc., which produced a new illumination technology made up of
a revolutionary thin, flat, programmable display product with multiple uses
(called Intelligent Illumination). He remained with Add-Vision until 1998. Prior
to that, Mr. Schuler served as President and CEO to a transportation relocation
company called Relocation Controls Corporation, and to a petroleum refining
administrative company that he founded called Transatlantic Petroleum.
Mr. Schuler received a Bachelor of Science Degree in Finance and Business
Administration from the University of North Carolina.
Nicholas Mascia is our Vice President of Software Development and Sales, serving
in that capacity since April of 2001. He also continues to hold the position of
National Sales Manager of Vertima Virtual Software, Inc., a software start-up
company of which he co-founded in 1995. His professional sale experience spans
over 18 years, and covers the fields of PC Hardware, Application Software and 3d
Design. He received his initial technical sales training at IBM Corp. in
Orlando, Florida where he achieved 100% plus quota for three consecutive years.
Ad Calcomp, Inc., Mr. Mascia exceeded 100% of that company's sales quota for 9
out of 10 years. He was named salesman of the year at Paradyme Corp. for
generating $2.9 million in revenue.
Mr. Mascia received a Bachelor of Mechanical Engineering from City College of
New York, and has completed 3/4 of his M.A in Business/Education at Rollins
College in Winter Park, Florida.
14
Significant Consultant
Dr. Robert Murphy is our consulting Vice President of Research and Development,
having served as such since May of 1998. He has twenty years of experience in
studies of chemical thermodynamics, surface chemistry, electrochemical processes
in molten sales, solid electrolyte systems and high energy density battery
systems. He is the founder and owner of Advanced Battery Group in Lancaster, New
York where he performs research, development and engineering studies for
agencies of the U.S. Government, U.S. Military and defense contractors. Dr.
Murphy started that company in 1983. His prior experience in the battery
research and development field is extensive, beginning in 1974 with the
Rensselaer Polytechnical Institute. He holds several U.S. Patents and has had
more that 25 of his studies and papers published in various science and
technical journals and publications.
Dr. Murphy holds a Bachelor of Science in Chemistry from the University of
Maine; a Master of Science in Physical Chemistry from the University of Vermont;
and a Ph.D. in Physical Chemistry from the University of Vermont.
Advisory Board of Directors. We are forming Advisory Board of Directors of
individuals with expertise in software, marketing and battery technology. Our
first member, Lawrence C. Oakley, was asked to join our Advisory Board, and over
the next 12 months, we plan to have our Board of Directors make additional
appointments to the Advisory Board. During the first quarter of 2002, we hope to
have an Advisory Board of at least four members. We intend to cover the expenses
associated with attending meetings, and will compensate the Advisory Board with
a small amount of the Company's Common Stock (the amount to be later determined)
to be issued after each full year of service.
Lawrence C. Oakley: Mr. Oakley ("Larry") is CEO and editor of
WallStreetCorner.com, Inc., which publishes www.WallStreetCorner.com and
Conservative Speculator. He has been editor of Conservative Speculator for the
past 16 years. Larry has been a featured speaker at over 60 international
investment conferences. Before creating Conservative Speculator, he and his wife
Roseanne wrote two computer and seven investment newsletters for various
publishers. Larry's early background includes several years as president of a
successful electronic test equipment manufacturer whose IPO he personally
underwrote; marketing director of a NYSE company; and marketing manager of the
electronic component manufacturing division of a Fortune 500 company.
Mr. Oakley holds a Bachelor of Mechanical Engineering from George Washington
University, and a Bachelor of Science in Business Management and Accounting from
College of the City of New York, where he graduated first in his class.
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On June 12 2001, we filed a current report on Form 8-K to disclose our change in
accountants. Want & Ender CPA, PC, audited our financial statements for the past
seven fiscal years, including years ended December 31, 1993 through December 31,
2000 inclusive. On June 12,2001, by action of the Board of Directors, we
terminated our auditor-client relationship with that firm. The report of Want &
Ender CPA, PC on the financial statements did not contain an adverse opinion or
disclaimer of opinion, and was not modified as to uncertainty, audit scope, or
accounting principles. There were no disagreements between the Company and Want
& Ender CPA, PC with respect to any matter of accounting principals or audit
scope. In June of 2001, the Board of Directors appointed Malone & Bailey, PLLC,
and, by action of the Board, that firm was engaged on June 12, 2001. Prior to
its engagement, Malone & Bailey, PLLC was not consulted by the Company with
respect to any matter.
15
ITEM 11. EXECUTIVE COMPENSATION.
Currently, our Officers are not compensated for their services. They do not
receive any salary, wages or other cash remuneration. They receive no
performance-based stock or options, no non-performance-based stock or options
and they receive no SAR grants or deferred compensation of any kind.
Annual Compensation including wages, cash remuneration of any kind,
performance-based stock and options and non-performance based stock and options,
SAR grants and deferred compensation of any kind for the past three years is as
follows:
Name Title 2000 1999 1998
- ---- ----- ----- ------ ----
Richard Szymanski President -0- -0- -0-
Clifton D. Douglas Secretary/Treasurer -0- -0- -0-
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Not applicable for the period covered by this annual report (fiscal year ended
2000).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since his association with the Company in 1993, Mr. Szymanski has provided
substantially all of the funding which the Company has received. From 1993 to
June 30, 2000, Mr. Szymanski has advanced a total of $1,080,712 to the Company.
In addition, Mr. Szymanski has served as Chairman of the Board, Vice President
or President, and as the primary employee during that same period without
compensation. In 1996, in an effort to recognize Mr. Szymanski's contributions,
the Board of Directors authorized the issuance of 6,000,000 shares of a series
of Convertible Preferred Stock which was designated for that purpose. This
issuance was based upon a then recent Amendment to the Certificate of
Incorporation which had authorized 10,000,000 shares of undesignated Preferred
Stock having a par value of $.001 per share. In reliance upon that issuance, the
advances made by Mr. Szymanski prior to that date were booked as "Additional
Paid In Capital". Furthermore, Mr. Szymanski continued to make all necessary
cash advances and in reliance upon the issuance of the Convertible Preferred
Stock those were also booked as "Additional Paid In Capital". In essence, Mr.
Szymanski's advances were treated as capital contributions. During the second
quarter of 2000, questions were raised about the validity of the 1996 Amendment
to the Certificate of Incorporation since the proxies used for the required vote
of the stockholders had been solicited without the use of a definitive Proxy
Statement filed in accordance with the Proxy Rules of the Securities and
Exchange Commission. To resolve the problem, the Board and Mr. Szymanski
rescinded the issuance with respect to the 5,000,000 shares of Convertible
Preferred Stock still held by his trust, issued him a Promissory Note for the
$1,080,712 in advances, and agreed to develop an alternative plan to recognize
his advances and convert the Promissory Note back to equity. The Board has
approved the issuance of the Promissory Note and subsequent conversion of that
Note to equity. Even though only 5,000,000 of the 6,000,000 shares of
Convertible Preferred Stock were canceled, the Board elected to issue the
Promissory Note for the full amount advanced. The other 1,000,000 shares of
Convertible Preferred had already been converted. The Board has decided that
16
with respect to those 1,000,000 shares, they were issued to Mr. Szymanski as
"founder's shares," independent of the shares issued in exchange for his
rescission of the 5,000,000 shares of preferred.
The Promissory Note bore no interest through December 31, 2000 (the Maturity
Date), but provided that if not paid in full or before that the Maturity Date,
interest would be retroactively applicable for the period from the date of the
Note, August 14, 2000, through the Maturity Date at a rate of 10% per annum,
simple interest, and after the passage of the Maturity Date, the Company (or
Borrower) would be considered in default. Unpaid principal and unpaid interest
thereon would be retroactively calculated bearing an interest rate of 18% per
annum until paid. The Board approved Mr. Szymanski's conversion of the Note to
equity, and issued him 11,937,311 shares of our Common Stock in February of
2001.
We filed a Proxy Statement with the SEC in September of 2000 to disclose what we
believed to be a possible violation of Section 14, and to disclose other
matters. Specifically, a Certificate of Amendment was approved by the Board to
increase the Company's capital structure, and an amendment to our Certificate of
Incorporation was subsequently filed with the Delaware Secretary of State.
Shares of stock were issued, and we became concerned after a consultation with a
securities lawyer that there may have been a problem with the shares that were
issued since the Certificate of Amendment was not presented to our shareholders
in accordance with the Section 14 Proxy Regulations. We filed a preliminary
proxy statement in an effort to remedy our perceived deficiency or violation.
After responding to comments from the Commission on that Statement, and
conducting research with regard to the applications of Section 15(d) of the
Securities Exchange Act of 1934 to companies such as ReDOX that are reporting
solely because their Registration Statements were declared effective under the
Securities Act of 1933, we concluded, that there was no violation since the
Company was not subject to Section 14 Proxy Regulation. We have since
communicated the amendment and other matters with our shareholders in accordance
with Delaware Corporation Law.
Our Board of Directors approved an issuance to Mr. Szymanski of 11,937,311
shares of Common Stock in conversion of the Promissory Note. The number of
shares was arrived at by taking the advances made to 1996 and dividing that
total by one-half of the then market price per share (which amounted to 0.045)
and by taking the further advances to June 30, 2000 and dividing that total by
$.20 per share, which was more or less the average bid and ask price during the
period of those advances. The issuances amounts were calculated as follows:
Advances Conversion Shares
Rate
$379,379 to 6/30/96 $0.045 8,430,644
$701,333 to 6/30/00 $0.20 3,506,667
The calculation employed by the Board to arrive at that number of shares was
considered to be a fair method of calculation. The shares issued to Mr.
Szymanski were restricted, and he and the Board felt that as such, the stock
should have a reduced value.
Prior to the issuance of the Promissory Note, and subsequent conversion thereof,
Mr. Szymanski had no formal loan documents with the Company, and therefore,
there were no repayment terms.
In February 2001, we issued to Mr. Szymanski, 11,937,311 shares of Common Stock
in exchange for the promissory note dated August 2000 in the amount of
$1,080,712.
17
ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of June 20, 2001, information regarding the
beneficial ownership of shares of our Common Stock by each person known by us to
own five percent or more of the outstanding shares of Common Stock, by each of
our Officers, by each of our Directors, and by our Officers and Directors as a
group. On June 20, 2001 there were 50,953,439 shares issued and outstanding of
record.
Name and Address of Number of Percent
Beneficial Owner Common Shares As of 6/20/01(1)
- ------------------- --------------- ---------------
Richard Alan Szymanski 14,641,400(2) 28.73%
Trust #1
15 White Oak Manor
Conroe, Texas 77304
Clifton D. Douglas 500,000(3) 0.98%
14674 F. Perthshire
Houston, Texas 77079
James R. Schuler -0- -0-
1141 Harbor Bay Parkway
Alameda, CA 94502
All officers and
directors as a group(3) 15,141,000 29.71%
- ----------------------
(1) Based on 50,953,439 shares of Common Stock issued and outstanding as of
6/20/01.
(2) These shares were placed in a trust, The Richard Alan Szymanski Trust #1,
for the benefit of Patricia Szymanski, Wendy Szymanski, Jonathan Szymanski
and Holly Szymanski.
(3) These shares have been transferred by Mr. Douglas to his wife. Mr. Douglas
may have a beneficial interest in these shares.
Name and Address of Number of Percent
Beneficial Owner Preferred Shares As of 6/20/01(1)
- --------------- (2001 Series ) -------------------
---------------
Richard Alan Szymanski -0- -0-
Trust #1
15 White Oak Manor
Conroe, Texas 77304
Clifton D. Douglas -0- -0-
14674 F. Perthshire
Houston, Texas 77079
James R. Schuler -0- -0-
1141 Harbor Bay Parkway
Alameda, CA 94502
All officers and
directors as a group(3) -0- -0-
- ----------------------
(1) Based on 0 shares of the 2001 Series of Convertible Preferred Stock
after the rescission of Richard Szymanski of 5,000,000 shares.
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
3.1 Certificate of Incorporation, filed April 25, 1988
3.2* By-laws
3.3 Certificate of Amendment, filed June 7, 1993
3.4** By-laws of June 1993
3.5 Certificate of Amendment, filed July 5, 1994
3.6 Certificate of Amendment, filed September 12, 1996
3.7 Certificate of Amendment, filed February 19, 2001
4.1** Designation of Convertible Preferred Stock
10.1** License Agreement with Clark University
10.2** Indemnification Agreement with Richard A. Szymanski
10.3** Indemnification Agreement with Clifton D. Douglas
10.4** Indemnification with James R. Schuler
10.5*** License Agreement with Onsler e2000
10.5*** License Agreement with Divine Logic
10.6 Promissory Note with Richard Szymanski
10.7 Letter Agreement with eTesting Labs
* Previously filed in our 1996 10-K.
** Previously filed in our 1999 10-K, amendment number 2.
*** Previously filed in our 2000 10-K.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Security Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
REDOX TECHNOLOGY CORPORATION
By: /s/ Richard A. Szymanski
-------------------------------------------
Richard A. Szymanski, President
Date: July 30,2001
By: /s/ Clifton D. Douglas
-----------------------------
Clifton D. Douglas, CFO
Date: July 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant in the
capacities and on the dates indicated.
/s/ Clifton D. Douglas
-----------------------------
Clifton D. Douglas, Director
Date: July 30, 2001
20
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
As of December 31, 2000 and 1999
(Restated)
2000 1999
----------- -----------
ASSETS
Cash $ 633 $ 3,233
Property and equipment, net 17,650 15,802
Other assets 1,159 1,159
----------- -----------
Total Assets $ 19,442 $ 20,194
=========== ===========
LIABILITIES
Accounts payable $ 30,011 $ 16,280
Note payable to founder 1,080,712
----------- -----------
Total Liabilities 1,110,723 16,280
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible Preferred stock, $.001 par, 10,000,000
shares authorized, 0 and 0 shares
outstanding, respectively
Common stock, $.00005 par, 100,000,000 shares
authorized, 50,950,000 and 50,700,000
shares outstanding respectively 2,547 2,535
Additional paid in capital 1,342,156 2,047,535
Deficit accumulated during the development stage (2,435,984) (2,046,156)
----------- -----------
Total Stockholders' Equity (Deficit) (1,091,281) 3,914
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 19,442 $ 20,194
=========== ===========
See accompanying summary of accounting principles
and notes to financial statements.
F-1
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
STATEMENTS OF EXPENSES
For the Years Ended December 31, 2000, 1999, and 1998, and
the Period from April 9, 1993 (Inception) Through December 31, 2000
(Restated)
Inception
Through
Dec. 31,
2000 1999 1998 2000
--------- --------- --------- -----------
General & administrative
- paid in cash $ 223,204 $ 319,737 $ 160,764 $ 1,166,626
- paid in stock 125,000 1,193,950
Interest 36,024 36,024
Depreciation 5,600 4,551 8,115 39,384
--------- --------- --------- -----------
Net loss $(389,828) $(324,288) $(168,879) $(2,435,984)
========= ========= ========= ===========
Net loss per common share $(.008) $(.006) $(.004)
Weighted average common shares
outstanding 50,950,000 50,700,000 46,950,000
See accompanying summary of accounting principles
and notes to financial statements.
F-2
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from April 9, 1993 (Inception) Through December 31, 2000
(Restated)
Preferred Stock Common Stock
Shares $ Shares $
---------- ------- ----------- ------
Shares issued
- - to founder for patent 15,000,000 $1,500
- - for acquisition of DCUSA 3,000,000 300
Reverse 1 for 10 stock split (16,200,000)
Options issued to 5 directors
for services rendered
Options exercised by 5 directors 300,000 300
Forward 20 for 1 split 39,900,000
Additional shares issued due
to error in original split 2,100,000 105
Cash contributed by founder
Options issued to an officer
for services
Options exercised by an officer 1,000,000 50
Shares issued for services 1,000,000 $1,000 600,000 30
Accumulated deficit
---------- ------- ----------- ------
Balance at December 31, 1997 1,000,000 1,000 45,700,000 2,285
Cash contributed by founder
Conversion of preferred stock to
common stock (1,000,000) (1,000) 5,000,000 250
Net loss
---------- ------- ----------- ------
Balance at December 31, 1998 0 0 50,700,000 2,535
Cash contributed by founder
Net loss
---------- ------- ----------- ------
Balance at December 31, 1999 0 0 50,700,000 2,535
Shares issued for
- - settlement of lawsuit 250,000 12
Reclassify additional paid in capital
to note payable to founder, net
Net loss
---------- ------- ----------- ------
Balances at December 31, 2000 0 $ 0 50,950,000 $2,547
========== ======= =========== ======
See accompanying summary of accounting principles
and notes to financial statements.
F-3
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from April 9, 1993 (Inception) Through December 31, 2000
(Restated)
Additional
Paid in Accumulated
Capital Deficit Totals
---------- ----------- -----------
Shares issued
- - to founder for patent $ 1,500
- - for acquisition of DCUSA $ ( 300) 0
Reverse 1 for 10 stock split
Options issued to 5 directors
for services rendered 14,700 14,700
Options exercised by 5 directors 300
Forward 20 for 1 split
Additional shares issued due
to error in original split ( 105) 0
Cash contributed by founder 489,472 489,472
Options issued to an officer
for services 129,950 129,950
Options exercised by an officer 50
Shares issued for services 923,270 924,300
Accumulated deficit $(1,552,989) (1,552,989)
---------- ----------- -----------
Balance at December 31, 1997 1,556,987 (1,552,989) 7,283
Cash contributed by founder 173,662 173,662
Conversion of preferred stock to
common stock 750
Net loss ( 168,879) ( 168,879)
---------- ----------- -----------
Balance at December 31, 1998 1,731,399 (1,721,868) 12,066
Cash contributed by founder 316,136 316,136
Net loss ( 324,288) ( 324,288)
---------- ----------- -----------
Balance at December 31, 1999 2,047,535 (2,046,156) 3,914
Shares issued for
- - settlement of lawsuit 124,988 125,000
Reclassify additional paid in capital
to note payable to founder, net (830,367) ( 830,367)
Net loss ( 389,828) ( 389,828)
---------- ----------- -----------
Balances at December 31, 2000 $1,342,156 $(2,435,984) $(1,091,281)
========== =========== ===========
See accompanying summary of accounting principles
and notes to financial statements.
F-4
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999, and 1998, and
the Period from April 9, 1993 (Inception) Through December 31, 2000
(Restated)
Inception
Through
Dec. 31,
2000 1999 1998 2000
--------- --------- --------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES
Accumulated deficit during the
development stage $(389,828) $(324,288) $(168,879) $(2,435,984)
Adjustments to reconcile
deficit to cash used by
operating activities:
Stock issued for lawsuit 125,000 125,000
Stock issued for patent 1,500
Stock issued for services 1,068,950
Depreciation 5,600 4,551 8,115 39,384
Increase in deposits ( 1,159)
Increase in accounts payable 13,731 9,459 5,123 30,011
--------- --------- --------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (245,497) (310,278) (155,641) (1,172,298)
--------- --------- --------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets ( 7,448) ( 2,811) ( 18,077) ( 57,034)
--------- --------- --------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Sales of common stock for cash 350
Contributions to capital
by founder 250,345 316,136 173,662 1,229,615
--------- --------- --------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 250,345 316,136 173,662 1,229,965
--------- --------- --------- -----------
NET INCREASE (DECREASE)
IN CASH ( 2,600) 3,047 ( 56) 633
CASH AT BEGINNING OF PERIOD 3,233 186 242 0
--------- --------- --------- -----------
CASH AT END OF PERIOD $ 633 $ 3,233 $ 186 $ 633
========= ========= ========= ===========
SUPPLEMENTAL DISCLOSURES
Paid in capital converted
into note to founder $1,080,712 $1,080,712
Patent for common stock 1,500
See accompanying summary of accounting principles
and notes to financial statements.
F-5
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Restated)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business. On April 15, 1988 Family Health Systems, Inc. formed DCUSA
Corporation as a wholly owned subsidiary, receiving 3,000,000 shares of DCUSA.
DCUSA was incorporated in Delaware on April 25, 1988.
On April 9, 1993, DCUSA was acquired through a reverse acquisition by Richard
Szymanski, a sole proprietor, and on June 1, 1993 the name was changed to Redox
Technology Corporation.
In the acquisition, Mr. Szymanski received 83%, or 15,000,000 shares of DCUSA in
exchange for a pending patent application for an Emergency Reserve Battery.
Restatements of 1998, 1999, and 2000 were made. See Note 9 for details.
Estimates and assumptions that affect amounts reported are used by management to
prepare these financial statements and accompanying footnotes in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
Cash and Cash Equivalents. For purposes of the statements of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Depreciation is currently being provided on the property and equipment used by
the Company using the straight line method over an estimated useful life of five
years for all computers, equipment, and furniture. Assets purchased in 1994 from
the founder were recorded at the founder's original cost less an appropriate
reserve for accumulated depreciation. The assets have no remaining book value at
December 21, 2000.
Income taxes. The Company recognizes deferred tax assets and liabilities based
on differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. The Company provides a
valuation allowance for deferred tax assets for which it does not consider
realization of such assets to be more likely than not.
Loss per common share is calculated by dividing the net loss by the weighted
average shares outstanding. There are no dilutive securities.
Stock options and warrants. The Company accounts for stock options and warrants
issued to employees in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. For financial statement disclosure
purposes and issuance of options and warrants to non-employees for services
rendered, the Company follows statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation.
F-6
NOTE 2 NOTE PAYABLE TO FOUNDER
Mr. Szymanski has advanced the Company $1,229,615 from inception through
December 31, 2000. In prior years, the Company recorded these advances as
contributions to capital. In August 2000, the Company issued a promissory note
in the amount of $1,080,712 to Mr. Szymanski, bearing interest at 10% and due
December 31, 2000. After December 31, 2000, the principal and accrued interest
will bear interest at 18% until paid. The balance of $148,903 is still carried
as a contribution to capital from Mr. Szymanski.
NOTE 3 INCOME TAXES
Deferred tax assets $ 375,329
Less: valuation allowance (375,329)
---------
Net deferred taxes $ 0
=========
The company has net operating losses of $411,939 at December 31, 1997 which can
be carried forward 15 years and net operating losses of $138,879, $324,288 and
$228,804 at December 31, 1998, 1999 and 2000 respectively which each can be
carried forward 20 years.
NOTE 4 CAPITAL
COMMON STOCK
The Company is authorized to issue up to 100,000,000 shares of its $.00005 par
value common stock. The holders of common stock are entitled to receive
dividends, if any, as may be declared by the Board of Directors from time to
time out of legally available funds, only after all dividends declared and due
to preferred shareholders have been paid. The holders of common stock are
entitled to one vote for each share on all matters submitted to a vote of
stockholders Upon liquidation or dissolution of the Company, the holders of
common stock are entitled to share ratably in all assets of the Company that are
legally available for distribution, after payment of all debts and other
liabilities and subject to the priority rights of any holders of preferred stock
then outstanding.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of its $.001 par
value preferred stock. The preferred stock may be issued in one or more series,
the terms of which may be determined by the Board of Directors, and may include
voting rights, preferences as to dividends and liquidation, limitations and
relative rights provisions.
F-7
NOTE 5 STOCK ISSUED FOR SERVICES
At inception, the Company issued 15,000,000 shares of common stock to the
founder in exchange for a pending patent. The shares were valued at par because
all costs incurred by the founder were previously expensed as research and
development. The total value of the issuance was $1,500. In connection with the
reverse acquisition, the Company issued 3,000,000 shares to the former
shareholders of DCUSA at par for a total value of $300. The Company has not
incurred any research and development expenses since that time.
On July 20, 1993, the Company issued 300,000 options to purchase the Company's
common stock to 5 directors for services performed at an exercise price of par
or $.00005 per share. The options were immediately exercised upon grant and
recorded at fair value of $.05 per share or $15,000.
On July 6, 1995 the Company issued 300,000 shares to First London for consulting
services. The shares were valued at fair value of $.05 per share or $15,000.
On July 1, 1996 the Company issued 1,000,000 options to purchase the Company's
common stock to an officer for an exercise price of par or $.00005 per share.
The options were immediately exercised upon grant and recorded at fair value of
$.13 per share or $130,000. On August 8, 1996, the Company issued 1,000,000
shares of the Company's preferred stock to the founder for past services. The
preferred stock was convertible to common stock on a 5 for 1 ratio. The issuance
was recorded at fair value of $.09 per share or $450,000.
On September 26, 1997, the Company issued 300,000 shares to a consultant for
services performed. The shares were valued at fair value of $1.53 per share or
$459,300.
In January 2000, the Company issued 250,000 shares of its common stock to two
former consultants to settle a lawsuit. The Company recorded a settlement
expense of $125,000 based on the fair value of the common shares.
NOTE 6 CONVERSION AND CANCELLATION OF PREFERRED STOCK
In September 1998, the founder converted 1,000,000 shares of convertible
preferred stock into 5,000,000 shares of the company's common stock.
NOTE 7 SUBSEQUENT EVENT
In February 2001, the Company issued the founder 11,937,311 shares of common
stock in exchange for the promissory note dated August 2000 in the amount of
$1,080,712, and the accrued interest.
In April 2001, the Company raised $120,000 through a private placement by
selling 1,000,000 shares of common stock at $.12 per share to a single
individual.
NOTE 8 OFFICE LEASE
The Company's office lease expired March 31, 2001 and is currently
month-to-month at $1,985 per month. The Company incurred rent expense of
$23,820, $23,820 and $20,896 in 2000, 1999 and 1998 respectively.
NOTE 9 OFFICER COMPENSATION
There are two officers, each of whom work full time. Neither has been
compensated for their time.
F-8
NOTE 10 CONTRACTS AND AGREEMENTS
On September 17, 1998, the Company entered into a license agreement with Clark
University ("Clark") for the use of two patents owned by Clark. The agreement
required an up front payment of $30,000 to Clark and a minimum annual payment of
$35,000 to be paid to Clark as well as 5% of the gross sales of the licensed
products and 20% of any payments the Company received while sub-licensing the
two patents. All amounts due have been expensed.
On August 28, 2000, the Company entered a license agreement with Divine Software
Developing Center for use of the Divine Logic Software. The Company will be
required to pay a royalty of 27.5% of the gross revenues from all sales of the
software.
On May 4, 2001 the Company entered into a license agreement effective December
12, 2000, with ONSLR for exclusive use of the ONSLR software. The Company paid
$25,000 as an advance payment against any future royalties. The Company is not
required to make any future payments until the royalties owed to ONSLR exceed
the $25,000.
NOTE 11 RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL STATEMENTS
Restatements of 1998, 1999, and 2000 were made to (a) eliminate intangible
assets inappropriately capitalized in earlier years, and (b) value shares and
share options at fair value on each date of issuance in prior years. These
restatements were made from inception. All prior periods have been adjusted as
follows:
Paid in Accumulated
Par Capital Deficit
------ ---------- -----------
Balance at 12/31/00 as previously stated $2,480 $ 148,903 $(1,135,530)
Write off of intangibles (50,000) ( 51,750)
Re-value stock and options issued for services 1,123,640 (1,123,640)
Correct depreciation expense ( 5,400) 2,974
Adjustment for unrecorded liabilities ( 5,556)
Record the conversion of preferred stock
to common stock (750) 750
Re-value stock issued for settlement of
lawsuit 12 124,988 ( 125,000)
Record interest expense previously
unrecorded 36,024 ( 36,024)
Record purchase of equipment 2,598
Adjustment for number of shares outstanding 805
Adjustment to loans from founder (39,347) 38,542
------ ---------- -----------
Restated balances at 12/31/00 $2,547 $1,342,156 $(2,435,984)
====== ========== ===========
F-9
NOTE 12 QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary data relating to the results of operations for each quarter of the years
ended December 31, 2000 and 1999 follows:
Three Months Ended
Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- --------
December 31 2000:
General & administrative
expenses $36,722 $67,678 $108,481 $135,323
Depreciation 1,800 1,500 1,500 800
Net loss (38,522) (69,178) (109,981) (172,147)
Net loss per common share ( .001) ( .001) ( .002) ( .003)
Three Months Ended
Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- --------
December 31, 1999:
General & administrative
Expenses $74,655 $89,384 $ 50,192 $105,506
Depreciation 1,800 1,800 1,800 ( 849)
Net loss (76,455) (91,184) ( 51,992) (104,657)
Net loss per common share ( .002) ( .002) ( .001) ( .002)
Fourth quarter 2000 contains the following non-recurring adjustments: $125,000
in stock issued in the first quarter for settlement of a lawsuit was not
recorded.
F-10
INDEPENDENT AUDITORS REPORT
To the Board of Directors
Redox Technology Corporation
(A Development Stage Company)
Houston, Texas
We have audited the accompanying balance sheets of Redox Technology Corporation,
as of December 31, 2000 and 1999, and the related statements of expenses,
stockholders equity (deficit), and cash flows for each of the three years ended
December 31, 2000 and the period from April 9, 1993 (Inception) through December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audit provides 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 Redox Technology Corporation,
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years ended December 31, 2000 and the period from
April 9, 1993 (Inception) through December 31, 2000 in conformity with
accounting principles generally accepted in the United States.
MALONE & BAILEY, PLLC
Houston, Texas
June 13, 2001
F-11