UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Fiscal Quarter ended March 31, 2000
Commission File No: 0-28093
GREENLEAF TECHNOLOGIES CORPORATION
(Name of small business issuer in its charter)
Delaware 13-34291593
- ---------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
8834 Capital Of Texas Highway North, Suite 150, Austin, Texas 78759
(Address of principal executive offices) (Zip Code)
(512) 343-1300
(Issuer's telephone number, including area code)
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
----- ----
As of August 7, 2000, 115,294,655 shares of the Common Stock were outstanding.
GREENLEAF TECHNOLOGIES CORPORATION
(A Development Stage Company)
Form 10-QSB Index
March 31, 2000
PART I
Page
Number
Item 1. Financial Statements..................................................................3
Balance Sheet at March 31, 2000 and March 31, 1999....................................3
Statements of Operations - Consolidated for the quarter
and six months ended March 31, 2000 and March 31, 1999................................5
Statement of Cash Flows - Consolidated for the six months
ended March 31, 2000 and March 31, 1999...............................................7
Notes to Financial Statements.........................................................8
Item 2. Management's Discussion and Analysis or Plan Of Operations...........................19
PART II
Item 1. Legal Proceedings....................................................................21
Item 2. Changes in Securities................................................................24
Item 3. Defaults Upon Senior Securities......................................................27
Item 4. Submission of Matters to a Vote of Security Holders..................................27
Item 5. Other Information....................................................................28
Item 6. Exhibits and Reports on Form 8-K.....................................................30
Signatures .....................................................................................33
2
Greenleaf Technologies, Inc.
(A Development Stage Company)
Balance Sheet - Consolidated
March 31, 2000 and March 31, 1999
March 31, March 31,
ASSETS 2000 1999
------------ ------------
CURRENT ASSETS
Cash and Equivalents $ 2,657,225 $ 87,438
Prepaid Expense 159,275 23,925
Stock Subscriptions and Interest Receivable 4,558,459 2,770,727
Other Current Assets 0 9,700
------------ ------------
TOTAL CURRENT ASSETS 7,374,959 2,891,790
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Net 192,731 156,179
OTHER ASSETS
Organization Expense - Net 0 1,506
Security Deposits 8,281 6,131
Investment in SMR Licenses 1,237,500 0
Investment in Subsidiaries 200,000 10,000
------------ ------------
TOTAL OTHER ASSETS 1,445,781 17,637
------------ ------------
TOTAL ASSETS $ 9,013,471 $ 3,065,606
============ ============
See accompanying notes to financial statements
3
Greenleaf Technologies, Inc.
(A Development Stage Company)
Balance Sheet - Consolidated
March 31, 2000 and March 31, 1999
March 31, March 31,
2000 1999
------------ ------------
CURRENT LIABILITIES
Accounts Payable $ 81,665 $ 210,643
Accrued Expense and Taxes Payable 4,709,743 149,953
Due to Related Parties 74,683 98,380
------------ ------------
Loans Payable 388,247 0
TOTAL CURRENT LIABILITIES 5,254,338 458,976
LONG-TERM LIABILITIES
TOTAL LONG-TERM LIABILITIES 0 0
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value, 300,000,000
Shares and 99,522,969 and 61,895,550
Shares issued and outstanding, respectively 99,523 61,896
Additional Paid in Capital 23,001,241 15,718,070
Less Cost of Treasury Stock, 489,093 shares (36,682) (36,682)
Accumulated (Deficit) (19,304,949) (13,136,654)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,759,133 2,606,630
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,013,471 $ 3,065,606
============ ============
See accompanying notes to financial statements
4
Greenleaf Technologies, Inc.
(A Development Stage Company)
Statement of Operations - Consolidated
Three Months Ended March 31, 2000 and March 31, 1999
March 31, March 31,
2000 1999
------------- -------------
REVENUES $ 0 $ 0
COST OF SALES 0 0
------------- -------------
GROSS PROFIT 0 0
OPERATING AND ADMINISTRATIVE EXPENSES
Compensation 563,739 213,338
Selling Expenses (1,253) 33,267
Administrative 6,492,539 1,865,537
------------- -------------
7,055,025 3,112,142
OTHER INCOME/(EXPENSE):
Interest Income 35,864 980
Interest Expense (9,271) (165)
Settlement of Lawsuit Expense (60,000) 0
------------- -------------
(33,407) 815
------------- -------------
NET LOSS (7,088,432) (2,111,327)
Accumulated (deficit) - beginning (12,216,517) (11,025,327)
------------- -------------
Accumulated (deficit) - ending $(19,304,949) $(13,136,664)
============= =============
Earnings Per Share - basic $ (0.081) $ (0.038)
============= =============
See accompanying notes to financial
5
Greenleaf Technologies, Inc.
(A Development Stage Company)
Statement of Operations - Consolidated
Six Months Ended March 31, 2000 and March 31, 1999
March 31, March 31,
2000 1999
------------- -------------
REVENUE $ 0 $ 0
COST OF SALES 0 0
------------- -------------
GROSS PROFIT 0 0
OPERATING AND ADMINISTRATIVE EXPENSES
Compensation 924,733 472,777
Selling Expenses 5,728 59,008
Administrative 7,265,849 2,550,131
------------- -------------
8,196,310 3,081,916
OTHER INCOME AND EXPENSE
Interest Income 71,729 2,179
Interest Expense (9,332) (165)
Settlement of Lawsuit Expense (60,000) 0
Equity in Net Loss of Subsidiary, FutureCom, Inc. (1,050,000) 0
Equity in Net Loss of Subsidiary, Gameverse, Inc. 0 (5,875,034)
------------- -------------
(1,047,603) (5,873,020)
------------- -------------
NET LOSS (9,243,913) (8,954,936)
Accumulated (deficit) - beginning (10,061,036) (4,181,718)
------------- -------------
Accumulated (deficit) - ending $(19,304,949) $(13,136,664)
============= =============
Earnings Per Share - basic $ (0.111) $ (0.204)
============= =============
See accompanying notes to financial statements
6
Greenleaf Technologies, Inc.
(A Development Stage Company)
Statement of Cash Flows- Consolidated
Six Months Ended March 31, 2000 and March 31, 1999
March 31, March 31,
2000 1999
------------- -------------
Cash flows from operating activities
Net Income (Loss) $ (9,243,913) $ (8,954,936)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 21,284 11,123
(Increase) decrease in prepaid expenses 5,037 (23,925)
(Increase) decrease in other assets 0 (9,700)
Increase (decrease) in accounts payable (226,999) 61,536
Increase (decrease) in accrued liabilities 423,246 0
(Increase) decrease in stock subscriptions received (1,678,973) (2,770,727)
Increase (decrease) in payroll taxes payable (150,510) 0
(Increase) decrease in security deposits (300) 0
Total adjustments (1,607,215) (2,731,693)
Net cash provided (used) by operating activities 10,851,128) (11,686,629)
Cash flow from investing activities:
Cash payments for the purchase of property (74,425) (20,675)
Cash payments for investments (1,437,500) (10,000)
Net cash provided (used) by investment activities (1,511,925) (30,675)
Cash flow from financing activities:
Proceeds from issuance of common stock 10,673,101 11,683,857
Net borrowings from stockholders (179,194) 89,145
Payments for treasury stock 0 (36,682)
Proceeds from issuance of long-term debt 4,440,000 0
Net cash provided (used) by financing activities 14,933,907 11,736,320
Net increase (decrease) in cash and equivalents 2,570,854 19,016
Cash and equivalents, beginning of year 86,371 68,422
Cash and equivalents, end of year $ 2,657,225 $ 87,438
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest Expense $ 9,332 $ 165
See accompanying notes to financial statements
7
GREENLEAF TECHNOLOGIES INC.
(A Development stage Company)
Notes to Financial Statements
Six Months Ended March 31, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Greenleaf Technologies
Corporation (GTC) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations of
GTC's management, who is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Nature of Operations
GTC was incorporated as Greenleaf Capital Corporation in the State of
Delaware on October 9, 1986. On December 3, 1997, a certificate of amendment was
filed with the State of Delaware changing the name of the corporation to
Greenleaf Technologies Corporation.
GTC is a Security Software Provider, which provides new marketing
opportunities via DVD and the Internet that creates new revenue possibilities
for its customers. Examples include GTC's DigiGuard(TM) applied to the OEM
(original equipment manufacturer) distribution of encrypted games linked to
virtually any intellectual property.
GTC is considered to be in the development stage, as defined in Statement
of Financial Accounting Standards No. 7. There have been minimal income
producing operations since inception.
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 financial
statements and reported revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Depreciation
GTC's equipment and leasehold improvements are depreciated using primarily
the straight-line method.
8
Amortization
The organization expense of GTC will be amortized over a five-year term
using the straight line method. Purchased goodwill of GTC has been written off
and $1,050,000 was charged to amortization expense.
Advertising and Promotion
GTC expenses advertising and promotion costs as they are incurred.
Advertising and promotion expenses for the six months ended March 31, 2000 were
$5,727.
Earnings Per Share
Computed by dividing the net loss by weighted average number of shares
outstanding during the year. Earnings per share diluted is not presented since
such would be anti-dilutive.
Deferred Income Taxes
Income taxes are provided for the tax effects on transactions reported in
financial statements and consist of taxes currently due plus deferred taxes
related primarily to the difference between bases of certain assets and
liabilities, depreciation of property and equipment, and charitable
contributions, for financial reporting and income tax reporting. The deferred
taxes represent the future tax return consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are recognized for operating losses
that are available to offset future federal income taxes.
For income tax reporting, Greenleaf Technologies Corporation uses
accounting methods that recognize depreciation sooner than for financial
statement reporting. As a result, the basis of property and equipment for
financial reporting exceeds its tax basis by the cumulative amount that
accelerated depreciation exceeds straight-line depreciation. Deferred income
taxes have been recorded for the excess, which will be taxable in future periods
through reduced depreciation deductions for tax purposes.
Product and Development Costs
GTC charges product and development costs, which are not incurred in
conjunction with contractual obligations, to expense as incurred. During the six
months ended March 31, 2000, product and development costs are recorded as part
of Administrative Expense. Consolidation Policy.
9
The consolidated financial statements include all the accounts of GTC and
controlled entities. GTC accounts for its investment in consolidated
subsidiaries on the equity method.
NOTE B - BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the going
concern basis, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. As shown in the financial
statements, GTC has experienced substantial operating losses. The continuation
of GTC as a going concern is dependent on its ability to generate sufficient
cash flows to meet its obligations and sustain its operations.
GTC's cash requirements for the balance of the year is estimated to be
approximately $2,700,000 and management believes it has sufficient cash on hand
or has the ability to raise the necessary capital to meet that requirement.
However, there can be no assurances that it can.
NOTE C - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at historical cost.
Expenditures for maintenance and repairs are charged against operations.
Renewals and betterments that materially extend the life of assets are
capitalized. Depreciation of equipment and amortization of leasehold
improvements is calculated by the straight-line method for financial reporting
purposes at rates based on the following estimated useful lives:
Years
-----
Office Equipment 5
Furniture and Fixtures 7
Leasehold improvements 7
The modified accelerated cost recovery system is used for federal income
tax purposes.
Equipment and leasehold improvements are summarized by major
classifications as follows:
March 31, 2000
--------------
Office Equipment $ 204,179
Office Furniture 52,382
Leasehold Improvements 4,459
--------------
$ 261,020
Less accumulated Depreciation (68,289)
--------------
$ 192,731
==============
10
NOTE D - INCOME TAXES
Operating Loss
GTC as of March 31, 2000 has loss carryforwards totaling $19,304,949 that
may be offset against future taxable income.
Components - Current and Deferred
The provision for income taxes consist of the following components:
March 31, 2000
--------------
Current Taxes $ 0
Deferred (6,129,947)
--------------
$ (6,129,947)
--------------
Based on management's present assessment, GTC has not yet determined it to
be more likely than not that a deferred long term tax asset of $6,129,947
attributable to the future utilization of $19,304,949 of net operating loss
carryforwards as of March 31, 2000, will be realized. Accordingly, GTC has
provided 100% allowance against the net deferred tax asset in the financial
statements as of March 31, 2000. GTC will continue to review this valuation
allowance and make adjustments as appropriate. Net operating loss carryforwards
will expire as follows:
Year Ended Deferred
September 30 Tax Asset
-----------------------------------------
2012 $ 84,854
2013 1,340,159
2014 1,996,350
2015 2,708,584
------------
$ 6,129,947
-----------
Net deferred tax benefit $ 6,129,947
------------
NOTE E - LEASING ARRANGEMENTS
GTC conducts its Austin operations from facilities that are leased under a
five year non-cancelable operating lease from Colina West Limited with 39 months
remaining before expiring on June 30, 2003. The monthly minimum rental
obligation amount to be paid to Colina West Limited is $12,405.40. The monthly
minimum rental obligation escalates after each anniversary date, July 1, 1999.
After July 1, 1999, the rental obligation amount will be $12,982.50. After July
1, 2000, the rental obligation amount will be $13,848.00.
The following is a schedule of future minimum rental payments required
under the above operating lease as of March 31,2000:
11
Year Ended
September 30 Amount
---------------------------------------
2000 $ 79,626
2001 166,176
2002 166,176
2003 124,632
----------
$ 536,610
----------
GTC formerly conducted its New Jersey operations from facilities that are
leased under a three-year noncancelable operating lease from MRC Holdings, Inc.,
with 48 months remaining before expiring on March 15, 2004. The monthly minimum
rental obligation amount to be paid to MRC Holdings, Inc., is $5,659.92. The
facilities are currently subleased with no monthly payment shortage obligation
by GTC. The following is a schedule of contingent future minimum rental payments
required under the above operating lease as of March 31, 2000:
Year Ended
September 30 Amount
---------------------------------------
2000 $ 33,960
2001 67,919
2002 67,919
2003 67,919
2004 33,960
----------
$ 271,677
----------
GTC has leased a corporate apartment to house its out of town business
guests in Austin, Texas, under a six-month non-cancelable operating lease from
Riata Apartments. The lease took effect October 1, 1999, and will have six (6)
months remaining before expiring on March 31, 2000. The monthly minimum rental
obligation to be paid to Riata Apartments is $1,040. No additional future
minimum rental payments are required under the above operating lease as of March
31, 2000.
GTC executed an operating lease with Great America Leasing Corporation for
a Toshiba 1710 copier at the Austin office. The terms of the lease call for 36
monthly rental payments of $95.37 including tax. The lease was executed on March
3, 1998. On March 1, 2000, the lease was paid in full, exercising an option to
purchase the equipment. No additional furniture rental payments are required
under the above operating lease as of March 31, 2000.
GTC executed an operating lease with SecurityLink Corporation for a
five-zone security system and monitoring services at the Austin office. The
terms of the lease call for 60 monthly rental payments of $25.70 including tax.
The lease was executed May 1, 1998. The following is a schedule of future
minimum rental payments required under the above operating lease as of March 31,
2000.
Year Ended
September 30 Amount
---------------------------------------
2000 $ 154
2001 308
2002 308
2003 180
----------
$ 950
----------
12
NOTE F - NOTES RECEIVABLE
GTC issued 29,708,583 restricted shares of common stock to various
directors, officers, employees, and other individuals for notes receivable that
are collateralized by promissory notes receivable which are payable in 30 months
at 6% and 8% per annum as follows:
Cumulative Cumulative
Number Notes Principal Accrued Total
of Shares Receivable Reduction Interest Note
-----------------------------------------------------------------------------------------
Officers and
Directors 22,638,583 $3,220,788 $ 0 $ 80,140 $3,300,928
Employees 100,000 25,000 0 1,880 26,880
Other 6,970,000 1,572,500 453,903 112,054 1,230,651
------------------------------------------------------------------------------------------
Total 29,708,583 $4,818,288 $ 453,903 $ 194,074 $4,558,459
------------------------------------------------------------------------------------------
NOTE G - VALUATION OF STOCK ISSUED FOR SERVICES AND ADDITIONAL EMPLOYEE
COMPENSATION
The Board of Directors from time to time has authorized the issuance of
common stock in payment of services provided by non-employees and as additional
compensation to employees.
Statement of Financial Standards No. 123, Accounting for Stock-Based
Compensation, (SFAS 123) establishes a fair value method for accounting for
stock-based compensation plans, either through recognition in the statements or
disclosure.
GTC applies SFAS 123 to report the issuance of common stock in payment of
services provided non-employees and as payment of additional compensation to
employees, using fair value method to account for such transactions. All stock
issued was restricted stock and the related services or employee compensation
was recorded in the financial statements at 50% of the market value at the time
services were received or additional compensation paid.
13
Note H - LONG TERM DEBT
On October 1, 1999 GTC entered into an agreement with Best Holdings, Ltd.,
whereby Best Holdings, Ltd., will be responsible for the placement of up to
$4,440,000 in denominations of $10,000, 4% subordinated convertible debentures,
pursuant to a private placement under Regulation D of the Securities Act of
1933, as amended. The holders of these debentures are entitled to convert the
debentures into that number of fully paid and non-assessable shares of GTC
common stock calculated in accordance with the following formula: Number of
shares issued upon conversion equals (Principal + Interest)/Conversion Price,
where Principal equals the principal amount of the Debenture(s) to be converted,
Interest equals Principal times (N/365) times .04 (less the amount of any
interest previously paid), where N equals the number of days between (i) the
date of issue of the debenture, and (ii) the applicable date of conversion for
the debenture for conversion is being elected, and Conversion Price equals the
less of (x) 80% (The "Applicable Discount") of the Closing Bid Price for GTC's
Common Stock for the five (5) trading days immediately preceding the Date of
Conversion, as defined below, or (y) $0.20. The term "Closing Bid Price" is the
closing bid price of GTC's Common Stock as reported on the OTC Bulletin Board
(or, if not reported, as reported by such other principal exchange or market
where traded).
GTC agreed to pay Best Holdings, Ltd., a consulting fee of 10% of all
capital raised. GTC also agreed to issue for each one million dollars raised, a
five year warrant to purchase 200,000 shares of GTC common stock exercisable at
$.20 per share.
As of March 31, 2000, $4,440,000 has been received towards the issuance of
the subordinated convertible debentures. The exact issue date and final terms of
the debenture were not finalized until May 5, 2000. The $4,440,000 is reported
on GTC's balance sheet under other accrued liabilities. No interest expense has
been accrued or reported on these financial statements.
NOTE I - COMMITMENTS AND CONTINGENT LIABILITIES
1. GTC has employment contracts with the following directors and officers:
Annual Date of Length of
Position Name Compensation Agreement Time
- -----------------------------------------------------------------------------------------------------------
Officer W. Hubert $55,000 1/26/00 3 Yrs. to 01/26/03
Off/Dir. x R. E. Wachs $96,000 12/15/97 5 Yrs. to 12/15/02
Off/Dir. C.J. Webster $250,000 12/15/97 10 Yrs. to 12/14/07
Off/Dir. L. Berg $250,000 12/15/07 10 Yrs. to 12/14/07
Off. G Warnero $110,000 10/01/99 5 Yrs. to 10/01/04
Off L. Berg $85,000 08/01/99 5 Yrs. to 02/01/04
Off/Dir F. LoVerme $195,000 03/30/00 3 Yrs. to 03/30/03
Off y W. Gale $96,000 11/04/99 5 Yrs. to 11/04/04
Off y W. Blanck $96,000 11/04/99 5 Yrs. to 11/04/04
x Terminated 10/13/99
y Terminated 02/24/00
Each of the above is also entitled to be reimbursed for proper business
expenses, and any other benefits offered by GTC, either currently existing
or adopted at a later date. These benefits will include, but will not be
limited to, health and accident insurance, life insurance and stock option
plans, if any.
14
2. Under the terms of the five-year noncancelable operating lease with Colina
West Limited, GTC has provided a Letter of Credit in the amount of $67,304
drawn on Bank of America. Conditioned upon GTC's performance of the lease
without default such letter of credit shall be reduced by $16,826 per year
at the anniversary of the lease term. The amount of $13,271 of the letter
of credit shall serve as a security deposit. Bank of America has guaranteed
the letter of credit pursuant to GTC's maintaining a certificate of deposit
in an amount equal to the letter of credit. The $68,282 certificate of
deposit is reported in cash and equivalents.
At March 31, 2000 there were five lawsuits or claims pending against GTC.
1. Corporate Express, Inc. vs. Greenleaf Technologies, Inc., Case No. 716-570,
Civil Court Harris County, Texas
This legal matter involves the collection of $14,400 for office furnishings
provided to GTC offices located in Austin, Texas. The Matter was settled on
August 17, 1999 in which the Company agreed to pay Corporate Express
$14,400 over a six month period at $2,400 per month, beginning September
15, 1999. The final payment on account was recorded in accounts payable on
February 29, 2000. The balance owed to Corporate Express, Inc. in March 31,
2000 is zero.
2. Elizabeth Xan Wilson vs. Greenleaf Technologies Corporation and Related
Corporations and Corporate Officers Leonard Berg and Nicholas Soriano. Case
No. 97-04423 Judicial District Court Travis County, Texas
This legal matter involves Plaintiff, Elizabeth Xan Wilson, who claims that
National Capital Corporation (NCC) (previously a wholly owned subsidiary of
GTC) and Nicholas Soriano (President of the former NCC) fraudulently
converted over $80,000 from her in a fraudulent lending scheme. GTC
believes that exposure for Nicholas Soriano is great, but is unable to
assess GTC's liability. Because the claim was partially settled by the sale
of Mr. Soriano's stock by the Bankruptcy Trustee in a separate matter, GTC
anticipates that it will be able to settle the matter with the issuance of
restricted stock. A final settlement is pending as of the date of the
financial statement. No provision for this matter has been provided in the
financial statements for the six months ended March 31, 2000.
3. Darrel and Gabriel McEver vs. Greenleaf Technologies Corporation Case No.
99- 00490 District Court of Travis County, Texas
Legal matter involving GTC's alleged refusal to issue stock and severance
benefits pursuant to employment agreement with Darrel and Gabriel McEver. A
settlement was reached in May, 2000 whereby GTC paid to the McEver's,
$50,000 cash, 3,000,000 shares of restricted common stock and an additional
3,000,000 shares that are in escrow and may be released to the McEvers in
May 2001 depending on GTC's stock price at that time. No provision for this
matter has been provided in the financial statements for the six months
ended March 21, 2000. GTC has agreed to issue 100,000 shares of restricted
common stock in payment for legal fees included in this matter.
15
4. Case No. 99-09044. Judicial Court Travis County, Texas, Kenneth McGowan vs.
Richard Wachs
On August 5, 1999, three individual shareholders of a non-active
corporation filed suit against a then officer, Richard Wachs, two other
employees and corporate counsel. The cause of action alleges that the above
individuals misappropriated assets and trade secrets belonging to the
non-active corporation. Plaintiffs seek unspecified damages and request an
injunction seeking to prevent any further use of the converted assets and
trade secrets. GTC does not expect that any significant liability will be
imposed on it or its officers and employees.
5. Greenleaf Technologies Corporation vs. David Mendelow and Paul A. Forgue,
Case No. 99-1222 District Court of Travis County, Texas.
This legal matter involves the alleged breach of employment contract on
behalf of David Mendelow and Paul Forgue. The controversy involves whether
or not GTC had contracts with Mr. Mendelow and Mr. Forgue to issue stock
and pay them compensation for services. One individual was employed for
less than a week before he was terminated. The other was never employed by
GTC. There was no signed employment agreement for either individual.
Because the case is in the early discovery stage, GTC is unable to express
an opinion on the outcome of the lawsuit.
NOTE J - ACQUISITIONS
1. On July 17, 1998 GTC formed a wholly owned subsidiary, Greenleaf Research
and Development, Inc., which was incorporated in the State of Delaware.
Greenleaf Research and Development, Inc. was inactive and had no assets as
of September 30, 1998. For the year ended September 30, 1999, and six
months ended March 31, 2000, Greenleaf Research and Development, Inc. is
part of the consolidated financial statements.
2. On April 13, 1998, GTC acquired 500 shares of common stock of NetHome
Media, Inc. This represented a 33-1/3 percent ownership interest at a cost
of $300,000. NetHome Media, Inc. ceased doing business and as of September
30 1998, the stock had no market value. The entire investment of $300,000
was deemed worthless and charged to expense.
16
3. GTC acquired 100% of the outstanding common stock of Gameverse, Inc., from
Cybermax, Inc., which is a wholly owned subsidiary of Riverside Group,
Inc., based in Jacksonville, Florida. GTC has accounted for the acquisition
using the purchase method of accounting and carries the investment using
the equity method. GTC acquired Gameverse because of the potential
agreement between WAMO/Accolade and GTC to market multiple computer game
titles on a single DVD for distribution through the personal computer
Original Equipment Manufacturers (OEM) market. The Gameverse network was
viewed as another distribution avenue for the DVD's.
4. In payment for the Gameverse acquisition, GTC agreed to issue to Cybermax
14,687,585 shares of GTC common stock. In addition, GTC granted options to
Cybermax to purchase, no later then September 30, 2003, 5,733,333 shares at
$0.25 per share, and 1,581,249 shares at $0.15 per share.
5. On December 6, 1999, GTC filed a complaint with the United States District
Court, District of New Jersey, whereby GTC alleged that Riverside Group,
Inc., Cybermax and certain other involved individuals made numerous
misrepresentations to GTC to induce GTC to enter into an agreement for the
purchase of Gameverse. These misrepresentations included Cybermax's claim
that it had developed an expansive Internet network throughout the United
States that included numerous "points of presence" (POPS). GTC also alleged
that Gameverse represented to have adequate resources and experience to
complete the development of various projects that were underway when, in
fact, it was inexperienced and inadequate.
Additionally, GTC alleged that Gameverse claimed to have owned or
controlled at least 27 Internet services throughout the United States when,
in fact, these representations were false. GTC also alleged that Gameverse
knew or should have known that it lacked the capacity to meet obligations
set forth in various contracts it was party to. Finally, GTC claimed that a
misleading business plan and other materials were presented by Gameverse to
corroborate the various misrepresentations noted.
As a result of the complaint, a settlement agreement was entered into as of
January 28, 2000 whereby Cybermax retained 10,000,000 of the GTC shares and
2,000,000 GTC options exercisable at $.25 cents each. A total of 1,687,585
GTC shares and 5,314,582 of GTC options were canceled by GTC without
payment to Riverside or Cybermax. Also, 3,000,000 GTC shares were placed in
escrow to be sold upon mutually agreeable terms.
The proceeds will fund a mutually agreeable joint venture for the marketing
of technology and Internet related products to be owned in equal amounts by
GTC and Riverside. Additionally, Riverside agreed to forgive and discharge
GTC's current indebtedness to Riverside in the amount of $111,820,
representing reimbursement for employee expenses paid by Riverside
subsequent to the closing of the Purchase Agreement. Riverside also made
certain other concessions to GTC as part of the settlement agreement.
17
The approximate market value of the GTC shares given up under the original
terms, exclusive of the value of the options, was in excess of $5,000,000.
The financial condition of Gameverse at the time of acquisition showed a
net worth of $21,977. At the time of acquisition, based on representation
the Directors of GTC believed that valuable intangible assets existed
within Gameverse, but shortly after the acquisition concluded that such
intangibles did not exist or were seriously impaired.
Due to the facts noted above, the acquisition of Gameverse has been
recorded by GTC under the purchase method using the net worth of $21,977 of
Gameverse at the time of acquisition, thereby not attaching any value to
intangible assets.
6. On February 23, 1999 GTC announced that it signed an agreement with
Infogrames, Inc. and Warner Advanced Media operations, a business unit of
Time-Warner, Inc., to form a joint venture called
Warner/Infogrames/Greenleaf. The three companies are marketing multiple
computer game on a single DVD for distribution through the personal
computer Original Equipment Manufacturers (OEM) market. No expenses or
income has been generated by the joint venture.
7. On November 4, 1999 GTC acquired all the outstanding shares of FutureCom of
South Florida, Inc. in exchange for 4,000,000 shares of GTC's restricted
common stock. FutureCom intends to pursue acquisition of radio licenses and
systems and has already entered into agreements to acquire four SMR
licenses in the 220-222 MHz range at the purchase price of $175,000 per
license. The purchase price for each license is to be paid in the form of
350,000 shares of GTC restricted common stock. In addition, GTC has agreed
to issue warrants to purchase the same number of shares at $0.50 per share
until November 4, 2000. FutureCom has also entered into agreement to
acquire a dedicated communication satellite license at a purchase price of
$687,500, which price includes amounts to be paid in order to eliminate an
encumbrance on the license. The purchase price to be paid in the form of
1,375,000 shares of GTC's restricted common stock, plus warrants to
purchase 75,000 shares of common stock at an exercise price of $0.50. GTC
also agreed to issue, to the holder of the encumbrance, options to purchase
1,300,000 shares of common stock at a price of $0.50 per share until
November 4, 2000. The GTC shares, options and warrants to be issued in
connection with SMR licenses and satellite license will be delivered to the
sellers and the holder of the encumbrance when the Federal Communications
Commission approves the transfer of the respective licenses to FutureCom.
In addition to the purchase price, GTC has agreed to repay $300,000 owed by
FutureCom pursuant to two promissory notes issued. These notes accrue
interest at the rate of eight percent per year and payment of all accrued
and unpaid principal and interest is due and payable on demand at any time
after November 4, 2004. In addition, the notes provide that any payments on
the notes prior to November 4, 2004 will be made only at such time the
Board of Directors of FutureCom determines that sufficient funds are
available for payment. The existing employees of FutureCom were issued
400,000 options to purchase GTC common stock at $0.50 per share until
November 4, 2000.
18
NOTE K - SUBSEQUENT EVENTS
In July 2000, the Company tentatively agreed to acquire certain assets (the
"MCSLink Assets") in exchange for 750,000 shares of the Company's common stock.
This transaction also would require the Company to assume approximately $132,000
of MCSLink's liabilities. MCSLink is a newly formed entity created to operate
customer service call centers and related information tracking systems for
business clients but has not conducted any operations. The Company intends to
operate the MCSLink Assets in connection with the unlocking procedures described
above under "Background". The MCSLink Assets and the liabilities that may be
assumed by the Company were acquired by MCSLink from MultiCom. By July 2000,
MultiCom had incurred aggregate net losses of approximately $2,280,000. Also,
the Company had previously forwarded funds to and on behalf of MultiCom,
including approximately $90,000 to cover MultiCom's payroll during Spring 2000
and approximately $70,000 towards liabilities incurred by MultiCom. Funds
advanced in connection with MultiCom's liabilities may offset the liabilities
ultimately assumed in the Company's proposed transaction with MCSLink. The
Company also has agreed that, if the transaction with MCSLink is consummated,
the Company will enter into employment agreements with two of MultiCom's
employees. Each agreement is proposed to be for a three-year term. If
consummated, one of the employees will receive a salary of $95,000 per year,
will be issued 250,000 shares of the Company's restricted common stock upon
entering the agreement, and will receive options to purchase up to 100,000
shares for $.75 per share until two years after entering the agreement. The
other employee will receive a salary of $80,000 per year, will be issued 25,000
shares of the Company's restricted common stock upon entering the agreement, and
will receive options to purchase up to 100,000 shares for $.75 per share until
two years after entering the agreement.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation
The Company is marketing its encryption products to other businesses as
alternatives to traditional marketing devices. For example, if a manufacturer of
computer games did not have access to encryption devices, it would be faced with
the prospect of packaging only one game per CD-ROM disc; if an end user desired
to purchase additional games, the manufacturer would incur additional packaging
and shipping costs for each disc delivered. The Company's products are designed
to save packaging and shipping costs by allowing multiple games to be packaged
on a single CD-ROM disc. In addition, the Company's Internet-related encryption
devices allow games to be sold directly to the end user without incurring any
packaging or shipping costs.
The Company's strategy is to build strategic alliances with businesses
involved in the manufacture, marketing and distribution of products on computer
discs or over the Internet. The Company revenues would result from sales of its
encryption devices to those businesses. To this end, the Company has built
interlocking strategic relationships with product providers, distributors, and
support providers. The Company believes that the largest opportunity for its
products and services is the entertainment industry and its strategic alliances
are aimed at capturing revenues by selling to businesses in that industry.
19
The principal accountant's report on the financial statements for the past
year contains a statement to the effect that the Company has an accumulated
deficit at September 30, 1999, which raised substantial doubt about the
Company's ability to continue as a going concern. The continuation of the
Company as a going concern is dependent on its ability to generate sufficient
operating cash flows and/or equity or debt financing to meet its obligations and
sustain its operations. There can be no assurance that the Company will be
successful in raising any required additional financing.
The management of the Company has identified and intends to pursue new
business opportunities in the communications industry. Specific opportunities in
this area include the wireless high-speed delivery of data to end users via
satellite. For example, the speed of traditional data delivery is limited
because it is conducted through ground-based wires and cables. Because satellite
communications are not constrained by these physical limitations, data is
delivered much more quickly.
Management believes that consumer demand for digital entertainment,
software products and high-speed Internet access is strong and will increase as
access systems, such as the Company's proposed new product, become more widely
available. The Company is attempting to gain an advantage over potential
competitors by developing a fully operational delivery system within the next
twelve months. The Company believes that it will offer the first fully developed
and operational system of this type. If the Company successfully launches the
first such system, it may gain an advantage over potential competitors in this
area and that revenues from this new product will eventually enable the Company
to become profitable. There are no assurances, however, that the Company will be
able to successfully develop this new business.
Revenues
The Company did not have any operating revenues for the six months ended
March 31, 2000 or for the comparable period ending March 31, 1999.
Gross Profit
The Company did not report any gross profits due to the absence of any
revenues during the reporting periods.
Compensation Expenses
Compensation expenses totaled $924,733 for the six months ended March 31,
2000, or an increase of $451,956 or 96%. The increase was due to new employment
contracts with current officers and additional personnel hired during the
period.
20
Selling Expenses
Selling expenses for six months ended March 31, 2000 decreased by $53,280
or 90% as compared with these expenses for the six months ended March 31, 1999.
The decrease was principally due to a reduction in travel and marketing
expenses.
Administrative Expenses
Administrative expenses for the six months ended March 31, 2000 increased
by $4.7 million, or 185% as compared to the same category of expenses for the
six months ended March 31, 1999. The increase was principally due costs
associated with ongoing software development, as well as increased spending for
consulting fees.
Other Income and Expense
Other income and expense for the six months ended March 31, 2000 amounted
to a net expense of $1,047,603 compared to a net expense for the six months
ended March 31, 1999 of $5,873,020. The decrease of $4,825,417 in other income
and expense was primarily due to the equity in net loss of the Gameverse
subsidiary, which occurred in the period ending March 31, 1999.
Liquidity and Capital Resources
Greenleaf's cash position was $2,657,225 as of March 31, 2000 as compared
with $87,438 as of March 31, 1999, or an increase of $2,569,787.
Cash flows from activities during the six month period used cash of
$10,010,192, which resulted from a net loss of $9,243,913 adjusted for
depreciation and amortization, an increase in assets of $1,674,236, offset by a
decrease in current liabilities of $390,816. In addition, cash was used to
purchase fixed assets totaling $74,425.
The net cash provided by financing activities of $14,933,907 for the six
months March 31, 2000 consisted of proceeds from the issuance of common stock
amounting to $10,673,101, a decrease in borrowing of $179,194 offset by the
issuance of long term debt totaling $4,440,000. These proceeds funded operating
activities during the six-month period.
PART II
Item 1. Legal Proceedings.
The Company is currently involved in certain legal proceedings.
On August 5, 1999, three individuals associated with a non-active
corporation filed a complaint in the 53rd Judicial District Court, Travis
County, Texas. The defendants in that suit are the Company, one of its officers,
two other employees, and an attorney for the Company. Plaintiffs allege that
defendants misappropriated assets and trade secrets allegedly belonging to the
non-active corporation. Plaintiffs seek unspecified monetary damages and also
request an injunction seeking to prevent further use of the allegedly converted
corporate assets and trade secrets. The Company and the individual defendants
have answered the complaint and intend to vigorously defend against the
plaintiffs' claims. No discovery proceedings have been completed at this time.
21
On April 11, 1997, a complaint was filed against National Capital
Corporation ("NCC"), a former subsidiary of the Company, and against the former
President of NCC, by an individual who previously loaned money to the former
President of NCC. The complaint was filed in the 200th Judicial District Court,
Travis County, Texas. Plaintiff contends that approximately $86,000 was
illegally converted by NCC and/or the former President of NCC, who has since
declared bankruptcy. This claim has been partially settled through the
application of proceeds from a sale of the former President's property by the
bankruptcy trustee. The Company believes that its potential liability in this
matter could be approximately $50,000.
On July 7, 2000, a former employee of the Company filed suit in the 201st
Judicial District Court, Travis County, Texas, against the Company, Leonard
Berg, Christopher Webster, Richard Margulies, and Richard Wachs. The former
employee alleges that (1) in July 1998 he entered into a settlement agreement in
connection with his termination of employment by the Company, and (2) the
Company breached the alleged settlement agreement.
The former employee seeks approximately 34,782 shares of the Company's
common stock, options to purchase approximately 44,268 shares, and unspecified
monetary damages alleged to have been suffered. The Company intends to
vigorously defend against the former employee's claim. On October 18, 1999, the
Company filed a petition for declaratory judgment and injunctive relief in the
201st Judicial District Court, Travis County, Texas, against two defendants. One
defendant is a former at-will employee of the Company who was employed by the
Company for less than two weeks. After the Company terminated its at-will
employment of the first defendant, that defendant sent the Company a letter
which demanded that the Company pay him cash, shares of common stock and options
to purchase common stock pursuant to an alleged three-year employment agreement.
The Company did not enter into any such agreement with the first defendant.
After the first defendant was terminated by the Company, the second defendant
also sent the Company a letter alleging that the Company agreed to employ him
for three years and that he was an employee of the Company. The Company never
employed the second defendant and did not enter into any agreement to employ the
second defendant. In the second defendant's letter to the Company, he also
demanded that the Company pay him money, shares of common stock and options to
purchase common stock. The Company seeks return of proprietary information
improperly retained by the first defendant, a declaration that the employment
agreements alleged by the defendants are unenforceable, and an injunction
preventing the defendants from providing Company information to any other
persons. The Company has filed a motion for summary judgment in this matter
which currently is expected to be considered by the court in August 2000.
The Company currently does not believe that adverse rulings in any of these
proceedings would have a material adverse effect on the Company's operations.
In a lawsuit filed in the 261st Judicial District Court, Travis County,
Texas, on January 14, 1999, a former officer of the Company and a former
consultant to the Company alleged that the Company breached employment and/or
service agreements. In May 2000, this matter was settled by the Company's
agreeing to pay $50,000 in cash as well as to issue an aggregate of 3,000,000
shares of restricted stock to the plaintiffs plus an aggregate of 100,000 shares
in payment of legal fees. An additional 3,000,000 shares of common stock were
issued in the claimants' names but are being held in escrow until May 6, 2001.
After that date, the shares in escrow will be distributed to the Company if the
average closing price for the Company's common stock for the 90-day period
ending on May 5, 2001 (the "May 2001 Average Price") is at least $1.00 per
share. If the May 2001 Average Price is less than $1.00 per share, the
plaintiffs will receive that number of shares equal to 3,000,000 multiplied by
the May 2001 Average Price and any remaining shares will be returned to the
Company.
22
On December 6, 1999, the Company filed the Gameverse lawsuit. The Gameverse
Lawsuit was filed in the United States District Court for the District of New
Jersey against Riverside Group, Inc., Cybermax, Jared Nielsen, Catherine Gray
and J. Stephen Wilson. At the time the Acquisition Agreement was entered into,
Gameverse was a wholly owned subsidiary of Cybermax, and Cybermax, in turn, was
a wholly-owned subsidiary of Riverside Group, Inc. ("Riverside"). The three
individual defendants were officers and/or employees of Cybermax and/or
Riverside at all times relevant to the Gameverse Lawsuit. In the Cybermax
lawsuit, the Company sought formal rescission of the Acquisition Agreement,
return of all payments made by the Company (including all common stock and
options to purchase common stock issued to Cybermax), compensatory and punitive
damages, interest, and all costs incurred by the Company in connection with the
Gameverse lawsuit. By written agreement dated January 28, 2000, all the parties
to the Gameverse Lawsuit except Jared Nielsen settled their disputes without
admitting fault or liability and agreed to dismiss the suit.
The material terms of the Gameverse Lawsuit settlement consisted of the
following:
o Cybermax retains options to purchase 2,000,000 shares of the Company's
common stock for $.25 per share until September 30, 2003;
o All other options issued to Cybermax in connection with the Gameverse
acquisition are cancelled;
o Cybermax retains 10,000,000 shares previously issued in connection with the
Gameverse acquisition;
o 1,687,585 shares previously issued to Cybermax are cancelled;
o 3,000,000 shares are held in escrow (the "Gameverse Escrow");
o Shares held in the Gameverse Escrow are to be sold and the proceeds used to
fund a mutually agreeable, equally owned, joint venture by the Company and
Riverside for the marketing of technology and Internet-related products.
If, after utilizing their best efforts and negotiating in good faith, the
Company and Riverside are unable to agree on the form and operation of the
joint venture, the proceeds from the Gameverse Escrow shares will be
distributed equally to the Company and Riverside;
23
o The Company receives an option to purchase up to five percent of the
outstanding equity interest in Cybermax for $1,000,000 until September 30,
2003;
o Riverside appoints the Company as its exclusive vendor for
encryption-related products on an as-needed basis at fair market value;
o Riverside agrees to retain Future Com, the Company's wholly-owned
subsidiary, for the use of satellite air time and related technology on an
as-needed basis at fair market value;
o Riverside forgives and discharges $111,820 previously owed by the Company
to Riverside in connection with employee-related expenses incurred in the
acquisition of Gameverse; and
o The defendants who participated in the settlement have agreed to indemnify
the Company against any costs or damages that may be incurred by the
Company in connection with any claims that may be brought by Mr. Nielsen
regarding Gameverse.
Item 2. Change in Securities - Recent Sales of Unregistered Securities.
During the past three years, the Company has issued shares of its common
stock, warrants to purchase shares of its common stock and convertible
debentures in the transactions described below which were not registered under
the Securities Act of 1933 (the "1933 Act"). These securities were issued in
reliance on the exemption from registration provided by Section 4(2) of the 1933
Act and by the provisions of Regulation D promulgated under the 1933 Act. In
relying on these exemptions, the Company believed that the individuals and/or
entities to whom the securities were issued are either (1) sophisticated
investors who were knowledgeable about the Company's operations and financial
condition at the time of receipt of the securities and were able to evaluate the
risks and merits of receipt of the securities, or (2) accredited investors, as
that phrase is defined in Rule 501 of Regulation D.
In some instances, stock was issued to certain persons in exchange for
services performed for the benefit of the Company and each of those persons
agreed to accept the shares as compensation for the designated portions of the
services they had performed. For additional information regarding shares issued
to employees and/or directors of the Company, see "Item 7. Certain Relationships
and Related Transactions". The transactions included the following:
o Between October 1, 1999, and May 15, 2000, the Company raised a total of
$4,440,000 through private placement sales of its 4% Subordinated
Convertible Debentures. The terms of the private placement sales were
negotiated during September and October 1999, during which time the market
price for the Company's common stock was between $.40 and $.50 per share.
The debentures accrue interest at the rate of four percent per year and are
convertible into shares of the Company's common stock. Unpaid principal and
interest on $1,750,000 of the debentures may be converted into shares at a
rate equal to the lesser of (i) 80 percent of the average closing bid price
for the Company's common stock for the five trading days immediately
preceding conversion, or (ii) $.25. Unpaid principal and interest on
$2,690,000 of the debentures may be converted into shares at a rate equal
to the lesser of (i) 80 percent of the average closing bid price for the
Company's common stock for the five trading days immediately preceding
conversion, or (ii) $.20. The Company utilized the services of Best
Holdings, Ltd. and J.P. Carey Securities, Inc. as placement agents in
connection with the placement of the debentures.
24
o The Company has agreed to pay each placement agent compensation in an
amount equal to 10 percent of the principal amount of all debentures sold
by that placement agent. The Company also has agreed to issue to the
respective placement agents, for each $1 million of debentures sold by that
placement agent, a five-year warrant to purchase up to 200,000 shares of
common stock at $.50 per share.
o During the period from October 1, 1999 to August 3, 2000, an aggregate of
10,545,805 shares were issued in private placement transactions to 59
persons in exchange for aggregate cash consideration of $3,179,225. An
aggregate of 5,831,200 shares, valued by the Company at $5,783,213, were
issued to 14 employees and/or directors of the Company for
employment-related services on behalf of the Company. Also, separate
issuances were made to seven persons, none of whom was a director or
executive officer of the Company, of an aggregate of 3,312,379 shares,
valued by the Company at $1,894,746, as compensation for services performed
on behalf of the Company.
o In July 2000 the Company sold to an investor an aggregate of 4,370,356
shares of common stock in exchange for a total cash investment of
$1,090,589. This investor originally desired to purchase 4% Subordinated
Convertible Debentures described above. However, the Company determined
that the potential sales of common stock described in this paragraph would
be more desirable to the Company, and it was able to negotiate these terms.
This investor may ultimately invest up to a total of $6,000,000 as
negotiated with the investor based on the investor's original inquiry
regarding the possibility of acquiring debentures. In initial negotiations,
the Company and the investor agreed on a $4,250,000 investment for shares
of common stock at the rate of $.25 per share. The investor later desired
to increase its investment, and the additional $1,750,000 of the investment
was agreed for shares of common stock at the rate of $.30 per share, which
price was negotiated based on an increase in the market price of the
Company's common stock after the initial negotiations with the investor.
The investment has been, and the possible additional investment will be,
consummated in reliance on the exemption from registration provided by
Section 4(2) of the 1933 Act and by the provisions of Regulation D
promulgated under the 1933 Act. In relying on these exemptions, the Company
believes that the entity to whom the stock has been and may be sold is an
accredited investor, as that phrase is defined in Rule 501 of Regulation D.
The Company utilized the services of GPS, Ltd. as placement agent in
connection with this transaction, and has agreed to pay the placement agent
compensation in an amount equal to 10 percent of the investor's total
investment pursuant to this transaction.
25
o In May 2000, the Company sold to an investor an aggregate of 1,200,000
shares of common stock and warrants to purchase up to 1,200,000 shares of
common stock for $.50 per share until May 11, 2002, in exchange for a total
cash investment of $600,000.
o During the Company's fiscal year ended September 30, 1999, an aggregate of
9,005,000 shares were issued in private placement transactions to 28
persons in exchange for aggregate cash consideration of $1,513,200. Also
during this period, 4,000,000 shares, valued by the Company at $750,000,
were issued in connection with the Company's acquisition of Future Com. An
additional 14,687,785 shares, valued by the Company at $5,875,034, were
issued in connection with the Company's acquisition of Gameverse. For
further description of these acquisitions, see "Item 1. Description of
Business". In addition, separate issuances were made to 19 persons, none of
whom was a director or executive officer of the Company, of an aggregate of
3,689,188 shares as compensation for services performed on behalf of the
Company. The total amount owed by the Company for these services was
$1,864,765. An additional 2,000,000 shares, valued by the Company at
$938,000, were issued to a consultant in exchange for the consultant's
commitment to enter into an agreement to provide professional services to
the Company. Finally, an aggregate of 2,449,356 shares, valued by the
Company at $1,611,980, were issued to seven employees and/or directors of
the Company for employment-related services on behalf of the Company.
o During the Company's fiscal year ended September 30, 1998, an aggregate of
5,244,999 shares were issued in private placement transactions to 13
persons in exchange for aggregate cash consideration of $1,548,999.
Also during this period, an aggregate of 8,765,069 shares were issued to 21
holders pursuant to an employment agreement between the Company and Richard
Wachs, who then was an officer and director of the Company. (As described
above in "Item 1. Description Of Business", Mr. Wachs has since resigned
from all positions with the Company and its subsidiaries.) In addition,
separate issuances were made to 25 persons, none of whom was a director or
executive officer of the Company, of an aggregate of 3,450,200 shares as
compensation for services performed on behalf of the Company. The total
amount owed by the Company for these services was $991,737. In addition, an
aggregate of 1,215,000 shares, valued by the Company at $167,500, were
issued to 13 employees and/or directors of the Company for
employment-related services on behalf of the Company.
o During the Company's fiscal year ended September 30, 1997, an aggregate of
302,113 shares were issued in connection with the acquisition of BCI. Also
during this period, separate issuance's were made to 18 persons, none of
whom was a director or executive officer of the Company, of an aggregate of
4,139,082 shares as compensation for services performed on behalf of the
Company. The total amount owed by the Company for these services was
$1,335,335. In addition, an aggregate of 100,000 shares, valued by the
Company at $50,000, were issued to two employees of the Company for
employment-related services on behalf of the Company.
26
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on January 5, 2000.
(b) Leonard Berg and Christopher J. Webster were elected as Directors at
the Annual Meeting.
(c) The following proposals were voted upon at the meeting and the vote
with respect to each matter was:
(1) Election of Directors
NOMINEE FOR AGAINST ABSTAINED
Leonard Berg 22,286,830 63,913 5,300
Christopher J. Webster 22,286,830 63,913 5,300
(2) Proposal to amend the Company's Certificate of Incorporation to
increase authorized shares of Common Stock from 100,000,000 to
300,000,000
FOR: 21,942,836
AGAINST: 105,859
ABSTAIN: 307,348
(3) Proposal to ratify the Company's acquisition of FutureCom of South
Florida, Inc., and related transactions.
FOR: 21,952,460
AGAINST: 131,000
ABSTAIN: 0
(4) Proposal to ratify the selection by the Board of Directors of Gerald
Brignola, C.P.A., P.A. as independent certified accountants for the
fiscal year ending September 30, 2000.
FOR: 22,224,943
AGAINST: 1,100
ABSTAIN: 130,000
(d) There was no proxy contest, so there was no settlement between the
Company and any participant.
27
Item 5. Other Information - Certain Relationships and Related Transactions
Leonard Berg has loaned money to the Company for use by the Company as
working capital. These loans accrued interest at the rate of nine percent per
year. At September 30, 1999 a total of $191,794.91 was owed to Mr. Berg. Since
that time, the Company has repaid all monies owed to Mr. Berg.
In January 2000, the Company agreed to issue to each of Leonard Berg and
Christopher J. Webster options to purchase shares of the Company's common stock
(the "January 2000 Options"). The January 2000 Options provided that Mr. Berg
could purchase up to 7,000,000 shares for $.10 per share until January 10, 2003,
and that Mr. Webster could purchase up to 7,000,000 shares for $.10 per share
until January 10, 2003. Each of Messrs. Berg and Webster subsequently exercised
all of the January 2000 Options as well as all other options held by each of
them. Mr. Berg paid the exercise price for all of his January 2000 Options and
other options by delivering to the Company a promissory note in the face amount
of $1,403,060.80 with interest at the rate of eight percent per year, as well as
shares of common stock owned by him. Mr. Webster paid the exercise price for all
of his January 2000 and other options by delivering to the Company a promissory
note in the face amount of $738,790.45 also with interest at the rate of eight
percent per year as well as shares of common stock owned by him. None of the
shares of stock delivered towards the exercise price of the options consisted of
shares delivered upon exercise of the options. A portion of the shares issued
upon the exercise of options have been placed in escrow (the "Option Escrow").
The shares in the Option Escrow consist of those shares for which a portion of
the exercise price was paid for in the form of promissory notes.
As of the date of filing this Amendment No. 1 to the Company's General Form
For Registration Of Securities on Form 10-SB, a total of 9,187,072 shares are
being held in the Option Escrow for the benefit of Mr. Berg and a total of
7,258,603 shares are being held in the Option Escrow for the benefit of Mr.
Webster.
On February 12, 1999 and October 2, 1998, certain of the Company's
directors and officers, as well as a beneficial owner of more than five percent
of the Company's Common Stock, exercised options to purchase shares of Common
Stock. In all cases, promissory notes were used in payment of the exercise price
for the options, and the shares received upon exercise were subject to the
Option Escrow provisions described above. Each of the notes bears interest at
the rate of six percent per year. Following is a schedule of each exercise:
28
Face value of
promissory note in Payment of
Number of shares favor of the Company in note due
Date of Exercise price received upon payment of exercise on or
Name exercise per share exercise price before
- ----------------------------------------------------------------------------------------------------------------------
Leonard Berg 02/12/99 $.25 2,100,000 $525,000 08/01/01
10/02/98 $.25 900,000 $225,000 04/02/01
Christopher J. Webster 02/12/99 $.25 1,467,908 $366,977 08/01/01
10/02/98 $.25 225,000 $56,250 04/02/01
Richard E. Wachs (1) 02/12/99 $.15 1,700,000 $255,000 08/01/01
Richard Margulies (2) 02/12/99 $.25 2,100,000 $525,000 08/01/01
10/02/98 $.25 900,000 $225,000 04/02/01
(1) As of October 13, 1999, Mr. Wachs resigned from all positions with the
Company and its subsidiaries.
(2) At the time of this transaction, Mr. Margulies was a beneficial owner
of more than five percent of the Company's outstanding Common Stock.
As of August 7, 2000, Mr. Margulies has paid a total of approximately
$122,500 towards the notes issued by him in connection with the option exercises
described in the preceding table, and the shares corresponding to the amounts
paid by Mr. Margulies have been released to Mr. Margulies out of the Option
Escrow. Except as described above regarding Messrs. Berg and Webster, all the
other shares issued upon the exercise of options described in the preceding
table remain in the Option Escrow.
The following schedule details issuances of Common Stock valued at greater
than $60,000 for services performed on the Company's behalf by the Company's
directors, executive officers and each other person known by the Company to be
the beneficial owner of more than five percent of the Company's Common Stock:
29
October 1, 1999 to August 7, 2000:
Closing price
per share
Date of # of on date of
Name transaction shares issued transaction
- --------------------------------------------------------------------------------
Christopher J. Webster (1) 10-19-99 500,000 $0.435
Christopher J. Webster (1) 3-28-00 1,000,000 $2.375
Leonard Berg (2) 4-28-00 500,000 $1.26
Lon T. Berg (3) 3-24-00 100,000 $2.52
Fiscal year ended September 30, 1999:
Closing price
per share
Date of # of on date of
Name transaction shares issued transaction(1)
- --------------------------------------------------------------------------------
Leonard Berg (2) 7-6-99 286,673 $0.51
Leonard Berg (2) 2-2-99 258,292 $1.312
Thelma Berg (4) 2-2-99 459,708 $1.312
Christopher J. Webster (1) 4-8-99 1,000,000 $1.187
Lon T. Berg (3) 2-2-99 300,000 $1.312
Richard Margulies (5) 6-29-99 500,000 $0.56
Fiscal year ended September 30, 1998:
Closing price
per share
Date of # of on date of
Name transaction shares issued transaction(1)
- --------------------------------------------------------------------------------
Leonard Berg (2) 11-19-97 500,000 $0.25
Thelma Berg (4) 11-19-97 350,000 $0.25
Richard Margulies (5) 11-19-97 500,000 $0.25
(1) Mr. Webster is the Vice-Chairman, Executive Vice President and a
director of the Company.
(2) Mr. Leonard Berg is the Chairman Of The Board, Chief Executive Officer,
President and a director of the Company. Leonard Berg is the father of
Lon T. Berg, the Company's Vice President of Marketing.
(3) Lon T. Berg is the Company's Vice President Of Marketing and is the son
of Leonard Berg the Chairman Of The Board, Chief Executive Officer,
President and a director of the Company.
(4) Thelma Berg is the wife of Leonard Berg.
(5) At the time of these transactions, Mr. Margulies was a beneficial owner
of more than five percent of the Company's common stock.
30
Except as described above, during the past two years there were no
transactions between the Company and its directors, executive officers or known
holders of more than five percent of the Company's Common Stock in which the
amount involved exceeded $60,000 and in which any of the foregoing persons had
or will have a material interest.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits marked with a footnote reference were filed with a
Registration Statement on Form 10-SB filed by the Company pursuant to Section 12
(g) of the Securities and Exchange Act of 1934, as amended, and are incorporated
herein by this reference. If no footnote reference is made, the exhibit is filed
with this Report.
Number Description
2.1 Agreement with Cybermax Tech, Inc. regarding acquisition of Gameverse,
Inc. (1)
2.2 Stock Exchange Agreement regarding acquisition of Future Com South
Florida, Inc. (1)
3.1 Certificate Of Incorporation filed with the Delaware Secretary Of State
on October 9, 1986. (1)
3.2 Certificate Of Amendment to the Certificate of Incorporation filed with
the Delaware Secretary Of State on December 3, 1997. (1)
3.3 Certificate Of Amendment to the Certificate of Incorporation filed with
the Delaware Secretary Of State on May 1, 2000.
3.4 Amended And Restated Bylaws (1)
4.1 Specimen Common Stock Certificate (1)
10.1 License and Revenue Sharing Agreement regarding Broadcast DVD, Inc. (1)
10.2 License Agreement regarding Accolade, Inc. and Warner Advanced Media
Operations (1)
11.1 Statement re: computation of per share earnings- Incorporated by
reference to the financial statements included in Part F/S of this
General Form For Registration Of Securities Of Small Business on Form
10-SB (1)
21.1 Subsidiaries of the Registrant (all are 100% owned):
Greenleaf Research and Development, Inc., a Delaware corporation
Future Com South Florida, Inc., a Florida corporation
Gameverse, Inc., a Florida corporation
Greenleaf Ventures, Inc., a Delaware corporation (inactive)
ByteCast.com, Inc., a Delaware corporation (inactive)
Dotcom.com, Inc., a Delaware corporation (inactive)
Vector North America, Inc., a Delaware corporation (inactive)
o It currently is anticipated that when Vector North America, Inc.
becomes active, if ever, the Company will own 49% of the outstanding
equity interests in Vector North America, Inc.
24.1 Power of Attorney (1)
27 Financial Data Schedule
____________________
(1) Incorporated by referenced from Registrant's General Form For
Registration Of Securities Of Small Business on Form 10-SB filed with
the Commission on November 15, 1998.
(b) Reports of Form 8-K
None.
31
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
GREENLEAF TECHNOLOGIES CORPORATION
Date: August 14, 2000 By:/s/Leonard Berg
--------------------------------------------
Leonard Berg, Chief Executive Officer
By:/s/Robert A. Parsons
-----------------------
Robert A. Parson, Chief Financial Officer
32