UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITY
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File Number 33-22142
REDOX TECHNOLOGY CORPORATION
--------------------------------------------------------
(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
(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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the average bid and asking price of the stock on December
31, 2001 was $4,849,931.00.
(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:
----- --------------------------------
Common Stock April 20,2002
-----------------
par value $0.00005 59,395,945
PAGE 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 product 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 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") That license is limited to electronic applications, and that "field
of use" limitation is described in our license agreement with Clark.
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. Lab
prototypes have been developed, and are distinguishable from production
prototypes in that they are functionally the same as production prototypes,
however lab prototypes do hot have the casings or packaging of "production"
prototypes. Additional funding is necessary to make production prototypes
from the lab prototypes, which will be accomplished only after testing on the
lab 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. Certification numbers
(sometimes called iso numbers or ul numbers) are provided by the testing lab
to validate the integrity of the product that is being tested. It is upon
the receipt of this designated number that a technology is considered
"certified." . This certification is significant in that the lab providing
such certification is confirming the integrity of the patent or design.
Potential users of the technology will look to such a certification as a seal
of approval by the testing laboratory.
We hope to generate sufficient revenues from our software technologies to
fulfill our business objectives, including the completion of our testing
necessary for our battery technology. Our development of production
prototypes took considerably longer than we initially anticipated, and we
intend to invest our efforts in marketing our software technologies first. It
is our belief that the final development and marketing of our battery
technology will be delayed until the fourth quarter of 2002.
PAGE 2
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 to the retail sale of the computer,
thereby generating revenue from royalties. Our role, then, will be more
focused on marketing and selling than on research and development.
Richard Szymanski, the founding and majority shareholder, has spent varying
amounts of time since 1993 on these business 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.
In the past three years, a total of $933,390 was charged as expenses.
Activities that generated these expenses were primarily domestic and
international airfares to meet with various scientists and inventors and on
general operating expenses.
The two announced ventures that were significantly delayed or terminated were
as follows: (i) an announcement was made about the Company's venture with NCE
and Ling Dynamic in one press release; (i) an announcement was made about the
Company's venture with the Government of Uttar Paradesh in India. Due to
problems of a political nature in Malaysia, the NEC and Ling Dynamic ventures
were put on indefinite hold. We do not believe that these deals will ever
materialize. The Government of Uttar Paradesh changed significantly in the
several months after it made its initial verbal commitment with the Company.
With new representatives and a new family in power in the Government of Uttar
Paradesh, the terms of the agreement in principal changes so radically. The
Company decided that it was not in the best interest of its shareholders to
carry it forward.
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. There are
several types of batteries that are used for specific applications. There is
the lead-acid battery, as found in motor vehicles and heavy equipment,
alkaline batteries that you would use in your remote control or radio, and
lithium-ion or Nickel Cadmium batteries that are used in cellular phones and
lap-top computers. Each of these particular batteries has performed a vital
function in our everyday lives, but the advent of ReDOX technology will
provide consumers and manufacturers with a light weight, smaller and much
longer lasting technology that is safe to the environment. 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.) Energy density is then higher than other batteries on
the market today, and more energy can be packed in a smaller receptacle.
One of the largest complaints about batteries is their life span. In
particular, cellular phones always seem to die right when you need them most.
Average battery life has become shorter as energy requirements increase. The
actual life span of a battery depends on usage; 6 months to 48 months, yet
less than 30% of all batteries actually reach their maximum capacity and shelf
life.
Traditional batteries are made of the following:
The commercial use of the lead acid battery is over 100 years old. It is one
of the most popular types of batteries produced today and is composed of a 35%
sulfuric acid and 65% water solution. This solution is called electrolyte and
causes a chemical reaction with lead, producing electrons. This solution is
very volatile due to the hydrogen that is created. Sulfuric acid is a very
reactive substance and because of its instability, it is able to distribute
itself very evenly throughout the electrolyte in the battery. This is why
lead-acid batteries have a propensity to explode, as well as, why they must be
discarded properly through an authorized hazardous disposal facility. The
physical components of the lead-acid battery are made up of a series of lead
plate separators, cathodes and an electrolyte.
Each positive plate is a cast metallic frame that contains a lead dioxide
active material. The negative plates contain a spongy lead active material and
both plates usually have the same surface areas. Many plates are placed
together in order to produce the required energy. The more energy that is
required means more plates must be put together, producing larger and bulkier
batteries.
Batteries in portable consumer devices, such as laptops, camcorders and
cellular phones utilize one of three principal batteries: Nickel Cadmium
(NiCad), Nickel Metal Hydride (NiMH) or Lithium Ion (Li-Ion) technologies. The
Li-Ion battery has become increasingly more popular as it is lighter, and
safer for the environment. Li-Ion does not contain toxic materials such as
Cadmium or Mercury and produces the same energy as NiMH; however the Li-Ion
remains cost prohibitive.
The alkaline battery is the world's most mass produced battery. Duracell alone
sells 3 billion per year. Alkaline batteries, although less common than
lead-acid, also pose a threat to individuals, as they are prone to leakage,
rupturing or exploding if exposed to intense heat.
PAGE 3
The alkaline cathode is a mixture of manganese dioxide, graphite and an
electrolyte. This mixture is granulated, aged in storage and then compacted
into hollow cylinders called preforms. These preforms are inserted into a
steel can. The steel can and mixture now become the cathode, or the positive
charge of the alkaline. To keep the material from leaking, an indentation and
sealant are used.
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
third quarter of 2002.
ONSLR e2001 is a computer software product that was developed for use in
various computer systems. Its 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 using 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 ONSLR e2001, 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.
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. BAPco was paid for its testing, and is unrelated to
the company and therefore, independent. Further testing was completed using
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.
Industry Background/ Market for Anti-Piracy Software
Losses related to the unauthorized reproduction and use of music CDs present a
continuing concern for the recording industry as well as performing artists.
According to the Recording Industry Association of America, a national trade
organization, the recording industry loses currently about $4.2 billion
annually to global piracy of recorded music. The widespread use of new
technologies enables the distribution of music files electronically via the
Internet, further exacerbating the piracy problem.
The cost of producing good quality copies of CDs has been declining steadily
over the past four years. Until recently, to produce good quality CDs required
a significant investment. Recent developments in consumer electronics
technology have enabled consumers to purchase a CD burner (recorder) from a
local retail outlet for as little as $100. CD burners now often are bundled
with new computers. Blank recordable discs are widely available for less than
$0.50. With this technology, even the casual user can easily copy unprotected
CDs.
Additionally, it is now possible to easily download music via the Internet due
to the widespread use of MP3 compression technology. This technology has made
the Internet a feasible vehicle for the electronic transmission of music.
Today there are thousands of websites offering music files in MP3 format.
According to a recent survey, 1.9 billion music tracks are exchanged or
downloaded each month on one popular website. Additionally, there exists today
many peer to peer file sharing services and software that facilitates the
exchange of music without a central server. Most of the music being
downloaded, however, is pirated; i.e., no royalties are being paid to the
artists or to the record companies that produced this music. The music
industry, in an effort to gain a foothold in this market and limit the
consequences of piracy has launched various subscription services allowing
online access to music for a
PAGE 4
monthly fee. Subscribers use the service to download music files to their
computers. The downloaded music is, however, locked to the computer and my not
be moved from the computer to which it was downloaded, thereby interfering
with consumers' enjoyment of the music. According to a recent report by
Jupiter, portability is a priority for on-line music subscribers.
Attempts by third parties to circumvent copy protection technologies have been
and are expected to be a persistent problem, despite the United States Digital
Millennium Copyright Act. Effective as of May 2000, the Act outlaws copy
protection circumvention devices and technologies and provides for both
criminal and civil penalties for companies or individuals who import, produce
or distribute devices designed to circumvent copy protection devices and
technologies.
Several companies have developed copy protection technologies to prevent
unauthorized CD burning. These have gained the interest of the major music
labels and others in the music industry. To management's knowledge, to date no
commercial contracts have been announced respecting the license or other use
of any of the available technologies or products providing copy protection for
audio content distributed on CDs.
Competition
Battery 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.
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, easy to verify that our components are substantially less expensive
than the other components used in batteries. One source, in particular, for
that type of comparative information, is Metal Suppliers Online Business
Procurement Center which confirms the price differentiation;
http://www.suppliersonline.com.
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;
PAGE 5
* is 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. We cannot
conceive of any known disadvantages to this technology.
Software Competition
- --------------------
Anti-Piracy Software
To management's knowledge, there are currently four other companies active in
the field of designing and developing technology designed to prevent the
unauthorized copying of compact discs. MidbarTech, a private Israeli company,
has a solution that has been, to management's knowledge, tested by the major
labels in Europe and the United States and is currently marketed under the
tradename "Cactus Data Shield". We believe that Sony also has a product that
it is marketing to the industry under the tradename "Key2Audio". SunnComm, a
U.S. based company whose securities are traded on over-the-counter market,
publicly announced the execution of use agreements for CD anti-copy
technology. Finally, a company called TTR Technologies, Inc. has anti-piracy
software in development.
Speed Acceleration Software
Management knows of no other software product on the market designed to
accelerate the processor speed. Generally, the speed of the computer is
regulated by hardware. Our product is innovative, and to the best of
management's knowledge, unique.
Employees
- ---------
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.
ITEM 2. PROPERTY OF THE COMPANY
Offices
We maintain our principal office at 340 North Sam Houston Parkway East, Suite
250, Houston, Texas 77060. 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 October 23, 2001 at an annual
rental of $34,437.50 payable in monthly installments of $2,869.80. The office
area is 2,755 square feet, divided into a reception area, a conference room, a
file/storage/utility room and five 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.
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.
PAGE 6
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. The term of this contract, referred
to as the "license period" is defined to be in force "for so long as there is
any proprietary rights or interest in the Confidential Information or the
Intellectual Property, starting on the Effective Date." The Effective Date
was August 28, 2000. There are no license fees due, nor are there any
royalties due and payable until such time as the Company generates revenue
from the sale of the Divine Logic software. The license is assignable and
transferable.
On May 4, 2001, we entered into an exclusive License Agreement, effective
December 12, 2000 with ONSLR e2000 and a group of individuals, namely, Nick
Mascia, Amit Kumar Singh, Kushal Kumar and 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. Mr. Mascia, the individual that introduced the
Company to the Licensor, is being paid a finder's fee in the form of a
share in the royalty.
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.
ITEM 3. LEGAL PROCEEDINGS.
On July 15, 2002, Robert M. Overholt, the Company's former counsel and
corporate consultant, filed a complaint in the District Court of Harris
County, Texas against the Company and Messrs. Szymanski and Douglas. The
plaintiff is seeking deferred salary and the right to purchase a significant
number of shares of the Company's Common Stock at the par value. Management
is confused by his demand, and believes this matter will be disposed of in the
near future.
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
2001.
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".
PAGE 7
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,'01 $ 0.52 $0.17
2nd Qtr,'01 $ 0.26 $0.125
3rd Qtr,'01 $ 0.37 $0.115
4th Qtr '01 $ 0.33 $0.102
On December 31, 2001, there were a total of 1032 shareholders. No dividends
were paid.
When the business of Redox became the business of the Company in 1993, there
were approximately 900 shareholders. Since that time, there has not been an
increase in the shareholder base attributable to a private or public offering
of securities, with the exception of the issuance of 1,000,000 shares to a
single investor, who invested $120,000 in April of 2001.
a. January 1, 1998 -- 844 shareholders of record;
b. January 1, 1999 -- 952 shareholders of record;
c. January 1, 2000 -- 979 shareholders of record;
d. January 1, 2001 --1008 shareholders of record;
e. January 1, 2002 --1032 shareholders of record.
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. Mr. Homer Stephens. This issuance is considered
exempt by reason of Section 4(2) of the Securities Act of 1933 and Regulation
D of the Securities Act of 1933, and Rule 506 promulgated thereunder.
On July 18, 2001, Redox issued a total of 3,302,088 shares of common stock to
two officers and a consultant valued at the then trading price of $.25 per
share for a total value of $825,522. This issuance is considered exempt by
reason of Section 4(2) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
(Restated) (Restated)
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
(Loss) from continuing
operations) $(1,212,314) $( 427,855) $ (324,288) $ (168,879) $ (532,820)
(Loss) from continuing
operations per share $ (0.02) $ (0.01) $ (0.01) $ (0.004) $ (0.012)
Total assets $ 22,534 $ 19,442 $ 20,194 $ 18,887 $ 8,981
Long term debt $ 0 $ 0 $ 0 $ 0 $ 0
PAGE 8
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.
COMPARATIVE OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, 1999
I CASH OPERATING EXPENSES 2001 2000 1999
----------------------- ---------- ---------- ----------
Auto Expense 2,998 933 $ 3,662
Contract Labor 1,060 -0- -0-
Dues & Subscription 1,559 1,338 -0-
Insurance 3,008 867 -0-
Office 12,441 10,561 9,076
Legal & Professional 89,705 53,867 50,864
Public Relations 50,936 41,525 8,174
Rent 30,441 33,313 42,005
Research 73,450 -0- -0-
Telephone 17,765 16,394 17,639
Travel 35,318 64,468 150,949 (1)
Taxes 1,744 962 2,368
Royalty 34,000 35,000 35,000
---------- ---------- ----------
Total Cash Expenses $ 354,425 $ 259,228 $ 319,737
II NON CASH OPERATING EXPENSES
---------------------------
Interest Expense $ 25,228 $ 40,527 $ -0-(2)
Depreciation 7,139 5,600 $ 4,551
Paid in Stock 825,522 $ 122,500 $ -0-(3)
---------- ---------- ----------
Total Non Cash Expenses $ 857,889 $ 168,627 $ 4,551
----------------------- ---------- ---------- ----------
Total Shares for Period $1,212,314 $ 427,855 $ 324,288
----------------------- ---------- ---------- ----------
Notes:
(1) Extensive Travel to India & Malaysia
(2) Interest was forgiven by note holder
(3) The $825,522 for compensation was for the period 7/1/96 - 12/31/01
(4) The $122,500 was paid in stock to consultants.
ITEM 7. 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. Mr. Szymanski has outside
investments and a trust that support him. He has made assurances to the
Company that he will continue to finance the Company through 2006 if
necessary.
We expect that our software technologies will start generating revenues in the
third quarter of 2002.
PAGE 9
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 product development 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 fourth 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 ONSLR e2001 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.
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. It is our intention to thoroughly
test our products before taking them to market.
Products and our Target Market: Our primary software technologies consist of
Divine Logic 2000 and ONSLR 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 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 we have already
established contact and a strong level of interest with.
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:
PAGE 10
1. field product inquiries precipitated by marketing and public relations
processes already in motion;
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.
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 through our software
technologies over the next 12 to 24 months, and a portion of our profits will
be used to complete the product 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
four additional national representatives.
Aside from the single investment in 2001 of Mr. Homer Stephens, Mr. Szymanski
has personally financed this Company since his acquisition of DCUSA in 1993.
There has never been a public or private solicitation for funding. Mr.
Szymanski has made assurances to the Company that he will continue to finance
the Company on an as needed basis through 2006 if necessary.
Operating Data:
There was no revenue from sales and ancillary income for the calendar years
ended December 31, 1998, December 31, 1999, December 31, 2000 and December 31,
2001.
General and Administrative expenses (operating expenses) were $287,543 in cash
and 825,522 in common stock; and $259,228 in cash and 122,500 shares in
common stock for the year ending December 31, 2000.
Liquidity and Capital Resources:
Prior to 1996, Mr. Szymanski had advanced a total of $1,080,712 to the
Company, and had a Promissory Note from the Company. In February 2001, the
Board elected to convert Mr. Szymanski's promissory note of $1,080,712 to
equity of 11,937,311 shares of Common Stock, which conversion was not
effectuated until September of 2001. Based upon the recommendation of the SEC,
our counsel and our independent auditors, we have recalculated the conversion
ratio to reflect 75% of the fair market value at the time of conversion, which
reduced the number of shares by 7,793,454 shares. As a result of this
recalculation using a share value of $0.26 per share ($0.26 x 75%) the shares
issued should have been 4,143,857. A total of 7,793,454 shares were returned
to our authorized shares in April of 2002. Mr. Szymanski has made assurances
that he will continue to personally finance the Company, to the best of his
ability, through 2006, on an as needed basis.
On July 18, 2001, Redox issued a total of 3,302,088 shares of common stock to
two officers and a consultant valued at the then trading price of $.25 per
share for a total value of $825,522.
Previously, 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.
There were no issuances made by the Company in 1998 or 1999.
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, Mr. Homer Stevens. 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
PAGE 11
(1) Amount listed under Working Capital has not yet been specifically
allocated.
Our commitments to our licensors, Divine Logic, ONSLR e2001 and 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.
PAGE 12
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. 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.
PART III
ITEM 10. 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 60 President/Director
Clifton D. Douglas 73 Secretary/Treasurer/Director
James R. Schuler 65 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 seeking to develop and improve 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. Mr. Szymanski has outside
investments and a trust, both of which provide him with ample support and they
enable him to assist the Company in times of financial need.
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. Mr. Douglas continues to work as 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
PAGE 13
(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 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
sales experience spans over 18 years, covernig 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. Mr. Mascia exceeded 100% of Ad Calcomp, Inc.'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.
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; a 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.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
In 2001, Maria M. Douglas, wife of Clifton Douglas, sold a total pf 216,500
share of her common stock of the Company pursuant to Rule 144 of the
Securities Act of 1933, as amended. In January of that year, she sold 35,000
shares; in April, she sold 30,000 shares; in September, she sold 30,000
shares; in November, she sold 75,000 shares; and in December she sold 50,000
shares. Pursuant to Section 16(a) and 23(a) of the Securities Exchange Act of
1934, she was required, as the spouse of an affiliate, to file a Form 4 with
the United States Securities and Exchange Commission as she was a deemed
control person as defined by the Act. The Form 4 sets forth and discloses
changes of beneficial ownership of his Common Stock of the Company. As of the
date of this amended filing, Maria Douglas has filed a Form 5 to cover the
Form 4 disclosures that she failed to make.
In 2001, the Clifton D. Douglas Family Trust (the Douglas Trust") sold a total
of 299,500 shares of the Company's common stock pursuant to Rule 144 of the
Securities Act of 1933, as amended. In June of that year, he sold 35,000
shares; in July, he sold 125,000 shares; in August, he sold 22,000 shares; in
September, he sold 40,000 shares; and in October, he sold 77,500 shares.
Pursuant to Section 16(a) and 23(a) of the Securities Exchange Act of 1934, he
was required to file a Form 4 with the United States Securities and Exchange
Commission as he was a control person as defined by the Act. The Form 4 sets
forth and discloses changes of beneficial ownership of his Common Stock of the
Company. As of the date of this amended filing, The Douglas Trust has filed a
Form 5 to cover the Form 4 disclosures that it failed to make.
PAGE 14
the Richard Szymanski Trust #1 sold a total of 2,139,000 shares of
the Company's common stock pursuant to Rule 144 of the Securities Act of 1933,
as amended. In January, he sold a total of 335,000 shares; in February, he
sold a total of 250,000 shares; in March he sold a total of 452,700 shares;
in April, he sold 100,700 shares; in May, he sold 90,000 shares; in June, he
sold 55,000 shares; and in July, he sold 245,500 shares; in August, he sold
35,500; in September, he sold 120,000 shares; in October, he sold 129,999
shares; in November, he sold 93,000 shares; and in December, he sold 209,400
shares. Pursuant to Section 16(a) and 23(a) of the Securities Exchange Act of
1934, he was required to file a Form 4 with the United States Securities and
Exchange Commission as he was a control person as defined by the Act. The Form
4 sets forth and discloses changes of beneficial ownership of his Common Stock
of the Company. As of the date of this amended filing, The Douglas Trust has
filed a Form 5 to cover the Form 4 disclosures that it failed to make.
ITEM 11. EXECUTIVE COMPENSATION.
Officers 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 2001 2000 1999
---- ----- ---- ---- ----
Richard Szymanski President -0- (1) -0- -0-
Clifton D. Douglas Secretary/Treasurer -0- (2) -0- -0-
(1)(2)On April 2, 2002, the Board of Directors consented to issue shares to
Messrs Szymanski and Douglas in lieu of their deferred annual salaries for
2001 of $100,000 and $75,000 respectively. The average fail value of $0.09
per share was used, and Mr. Szymanski was issued 1,111,111 shares, and Mr.
Douglas was issued 8,333,333 shares.
Directors Compensation
Our Directors have not historically been compensated for serving on the Board.
However, for 2001, the Board consented unanimously to the issuance of 67,500
shares to James Schuler for his services as a non-employee Director. That
issuance was made in April of 2002.
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 and 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
PAGE 15
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. Since the Company is not certain, after consulting with counsel,
that the Preferred series was designated properly under Delaware state law.
The Company will no longer issue shares from this series, and in a Board
resolution, unanimously consented to canceling the series.
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 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. This was later recalculated.
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.
In January of 2000, we filed an S-8 Registration with the Securities and
Exchange Commission for 250,000 shares, and we subsequently issued those
shares to two individuals, Larry Bell and Valery Oksamento, were brought on as
members of the Redox advisory board. While they were supposed to receive
reimbursement for their attendance at meetings and were to receive some shares
of the Company's Common Stock, they believed that they should be issued
100,000 shares of stock; considerably more than the Company felt they earned
or deserved. Bell and Oksamento demanded such issuance in October of 1995.
They filed a complaint against Redox, and prior to going to trial in December
of 1999, the parties mediated a settlement for 250,000 shares, which had a
value of $108,375. While there was a dispute as to the number of shares that
Bell and Oksamento were to receive, the parties acknowledged that consultant
services were performed, and S-8 is legally available for this purpose.
Form S-8 is available for the issuance of securities to consultants or
advisors only if:
i) They are natural persons;
ii) They provide bona fide services to the registrant; and
iii) The services are not in connection with the offer or
sale of securities in a capital-raising transaction, and do not directly
or indirectly promote or maintain a market for the registrant's
securities.
The services provided were not in connection with the offer or sale of
securities, nor did they directly or indirectly promote or maintain a market
for the Company's securities.
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 initially 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
PAGE 16
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, the Board elected to convert Mr. Szymanski's promissory note
of $1,080,712 to equity of 11,937,311 shares of Common Stock, which conversion
was not effectuated until September of 2001. Based upon the recommendation of
the SEC, our counsel and our independent auditors, we have recalculated the
conversion ratio to reflect 75% of the fair market value at the time of
conversion, which reduced the number of shares by 7,793,454 shares. As a
result of this recalculation using a share value of $0.26 per share ($0.26 x
75%) the shares issued should have been 4,143,857. A total of 7,793,454
shares were returned to authorized in April of 2002.
On July 18, 2001, Redox issued a total of 3,302,088 shares of common stock to
two officers and a consultant valued at the then trading price of $.25 per
share for a total value of $825,522. These issuances were considered exempt
by reason of Section 4(2) of the Securities Act of 1933.
ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of April 20, 2002, 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 April 20, 2002 there were 59,395,945 shares issued
and outstanding of record.
Name and Address of Number of Percent
Beneficial Owner Common Shares As of 4/20/02(1)
------------------- --------------- ---------------
Richard Allen Szymanski 50,000 .08%
15 White Oak Manor
Conroe, Texas 77304
Richard Alan Szymanski Trust #1 17,069,856(2) 29%
15 White Oak Manor
Conroe, Texas 77304
Clifton D. Douglas 352,160(4) 0.6%
14674 F. Perthshire
Houston, Texas 77079
Clifton D. Douglas Family Trust 1,507,833 2.54%
14674 F. Perthshire
Houston, Texas 77079
James R. Schuler 67,500 .11%
1141 Harbor Bay Parkway
Alameda, CA 94502
All officers and
directors as a group(3) 18,979,849 32.33%
_________________________
(1) Based on 59,395,945 shares of Common Stock issued and outstanding as of
4/20/02.
(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. The total presented reflects the conversion of the
outstanding Note Payable of $1,080,712 into 4,156,585 shares (which was
initially calculated to convert into 11,937,311 but was recalculated). The
recalculation was approved by the board upon recommendation of the SEC,
counsel and the Company's independent auditor.
(4) These shares have been transferred by Mr. Douglas to his wife. Mr. Douglas
may have a beneficial interest in these shares.
PAGE 17
Name and Address of Number of Percent
Beneficial Owner Preferred Shares As of 4/20/02(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.
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
PAGE 18
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.
*^ Previously filed in our 2000 10-K amendment
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: August 3, 2002
By: /s/ Clifton D. Douglas
----------------------------------
Clifton D. Douglas, CFO
Date: August 3, 2002
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: August 3, 2002
PAGE 19
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
As of December 31, 2001 and 2000
(Restated)
2001 2000
----------- -----------
ASSETS
Cash $ 305 $ 633
Property and equipment, net of $44,664 and
$39,384 accumulated depreciation 19,359 17,650
Security deposits 2,870 1,159
----------- -----------
Total Assets $ 22,534 $ 19,442
=========== ===========
LIABILITIES
Accounts payable $ 69,745 $ 30,011
Note payable to founder 1,121,239
----------- -----------
Total Liabilities 69,745 1,151,250
----------- -----------
STOCKHOLDERS' 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, 59,395,945 and 50,950,000
shares outstanding respectively 2,969 2,547
Additional paid in capital 4,052,845 1,756,356
Deficit accumulated during the development stage (4,103,025) (2,890,711)
----------- -----------
Total Stockholders' Deficit ( 47,211) (1,131,808)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 22,534 $ 19,442
=========== ===========
See accompanying summary of accounting policies
and notes to financial statements.
F-1
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
STATEMENTS OF EXPENSES
For the Years Ended December 31, 2001, 2000, and 1999, and
the Period from April 9, 1993 (Inception) Through December 31, 2001
Inception
Through
(Restated) (Restated) Dec. 31,
2001 2000 1999 2001
----------- ----------- ----------- -----------
General & administrative
- paid in cash $ 287,543 $ 259,228 $ 319,737 $ 1,488,693
- paid in stock 825,522 122,500 2,435,172
Research & development 66,882 66,882
Interest 25,228 40,527 65,755
Depreciation 7,139 5,600 4,551 46,523
----------- ----------- ----------- -----------
Net loss $(1,212,314) $ (427,855) $ (324,288) $(4,103,025)
=========== =========== =========== ===========
Net loss per common share $(.02) $(.01) $(.01)
Weighted average common
shares outstanding 56,755,999 50,950,000 50,700,000
See accompanying summary of accounting policies
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, 2001
(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 stock 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 6,000,000 $6,000 600,000 30
Conversion of preferred stock to
common stock (1,000,000) (1,000) 5,000,000 250
Deficit accumulated during the
development stage
------------ ------- ------------ -------
Balances at December 31, 1998 5,000,000 5,000 50,700,000 2,535
Cash contributed by founder
Net loss
------------ ------- ------------ -------
Balances at December 31, 1999 5,000,000 5,000 50,700,000 2,535
Shares issued for settlement
of a lawsuit 250,000 12
Cancellation of preferred shares (5,000,000) (5,000)
Reclassify additional paid in capital
to note payable to founder
Cash contributed by founder
Net loss
------------ ------- ------------ -------
Balances at December 31, 2000 0 0 50,950,000 2,547
Shares issued for
- - cash 1,000,000 50
- - services 3,302,088 165
- - note payable to founder 4,143,857 207
Cash contributed by founder
Net loss
------------ ------- ------------ -------
Balances at December 31, 2001 0 $ 0 59,395,945 $2,969
============ ======= ============ =======
See accompanying summary of accounting policies
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, 2001
(Restated)
Deficit
Accumulated
Additional During The
Paid in Development
Capital Stage 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 stock split
Additional shares issued due
to error in original split ( 105) 0
Cash contributed by founder 663,134 663,134
Options issued to an officer
for services 129,950 129,950
Options exercised by an officer 50
Shares issued for services 1,334,970 1,341,000
Conversion of preferred stock to
common stock 750
Deficit accumulated during the
development stage $(2,138,568) (2,138,568)
----------- ----------- -----------
Balances at December 31, 1998 2,143,099 (2,138,568) 12,066
Cash contributed by founder 316,136 316,136
Net loss ( 324,288) ( 324,288)
----------- ----------- -----------
Balances at December 31, 1999 2,459,235 (2,462,856) 3,914
Shares issued for settlement
of a lawsuit 122,488 122,500
Cancellation of preferred shares 5,000
Reclassify additional paid in capital
to note payable to founder (1,080,712) (1,080,712)
Cash contributed by founder 250,345 250,345
Net loss ( 427,855) ( 427,855)
----------- ----------- -----------
Balances at December 31, 2000 1,756,356 (2,890,711) (1,131,808)
Shares issued for
- - cash 119,950 120,000
- - services 825,357 825,522
- - note payable to founder 1,146,260 1,146,467
Cash contributed by founder 204,922 204,922
Net loss (1,212,314) (1,212,314)
----------- ----------- -----------
Balances at December 31, 2001 $ 4,052,845 $(4,103,025) $( 47,211)
=========== =========== ===========
See accompanying summary of accounting policies
and notes to financial statements.
F-4
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000, and 1999, and
the Period from April 9, 1993 (Inception) Through December 31, 2001
Inception
Through
(Restated) (Restated) Dec. 31,
2001 2000 1999 2001
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(1,212,314) $ (427,855) $ (324,288) $(4,103,025)
Adjustments to reconcile
net loss to cash used by
operating activities:
Stock issued for lawsuit 122,500 122,500
Stock issued for patent 1,500
Stock issued for services 825,522 2,311,172
Depreciation 7,139 5,600 4,551 46,523
Accrued interest 25,228 40,527 65,755
Increase in deposits ( 1,711) ( 2,870)
Increase in accounts payable 39,734 13,731 9,459 69,745
----------- ----------- ----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES ( 316,402) (245,497) (310,278) (1,488,700)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets ( 8,848) ( 7,448) ( 2,811) ( 65,882)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Sales of common stock 120,000 120,350
Contributions to capital
by founder 204,922 250,345 316,136 1,434,537
----------- ----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 324,922 250,345 316,136 1,554,887
----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH ( 328) ( 2,600) 3,047 305
CASH AT BEGINNING OF PERIOD 633 3,233 186 0
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 305 $ 633 $ 3,233 $ 305
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 0 $ 0 $ 0 $ 0
Income taxes paid 0 0 0 0
NONCASH ACTIVITIES:
Paid in capital converted
into note to founder 1,080,712 1,080,712
Note to founder exchanged
for common stock (1,146,467) (1,146,467)
See accompanying summary of accounting policies
and notes to financial statements.
F-5
REDOX TECHNOLOGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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 ("Redox").
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 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 accounting principles generally accepted in the United States. Actual
results could differ from those estimates.
Cash and Cash Equivalents. For purposes of the statements of cash flows,
Redox 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
Redox 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 had no remaining
book value at December 31, 2000.
Income taxes. Redox 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. Redox 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. Redox accounts for stock options and warrants
issued to employees under the intrinsic value method. Under this method,
Redox recognizes no compensation expense for stock options or warrants granted
when the number of underlying shares is known and exercise price of the option
or warrant is greater than or equal to the fair market value of the stock on
the date of grant.
Recently issued accounting pronouncements. Redox does not expect the adoption
of recently issued accounting pronouncements to have a significant impact on
Redox results of operations, financial position or cash flow.
F-6
NOTE 2 NOTE PAYABLE TO FOUNDER
Mr. Szymanski has advanced Redox $1,434,537 from inception through December
31, 2001. From inception through August 2000, Redox recorded these advances
as contributions to capital. As of August 2000, the advances totaled
$1,229,615. In August 2000, Redox 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 bore
interest at 18% until paid. The balance of $148,903 was still carried as a
contribution to capital from Mr. Szymanski.
On February 18, 2001, Redox issued the founder 4,143,857 shares of common
stock in exchange for the principal of $1,080,712 and accrued interest of
$65,755. The number of shares issued was determined by dividing the principal
and interest of $1,146,467 by the closing price of the stock on February 18,
2001 less a nominal discount because the shares were not freely salable. The
share price used was $.28 per share.
NOTE 3 INCOME TAXES
Deferred tax assets $ 510,509
Less: valuation allowance (510,509)
---------
Net deferred taxes $ 0
=========
Redox has net operating losses of $324,288, $264,828, and $361,564 at December
31, 1999, 2000 and 2001 respectively which each can be carried forward 20
years.
NOTE 4 CAPITAL
COMMON STOCK
Redox 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 Redox, the holders of common
stock are entitled to share ratably in all assets of Redox 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
Redox 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 ISSUANCES
At inception, Redox 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, Redox issued 3,000,000 shares to the former
shareholders of DCUSA at par for a total value of $300.
On June 25, 1993, the board of directors approved a reverse 10 to 1 split of
the common stock, decreasing the then 18,000,000 shares outstanding to
1,800,000 shares outstanding.
On July 20, 1993, Redox issued 300,000 options to purchase Redox'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 their fair value of $.05 per share or $15,000.
On May 26, 1994, the board of directors approved a forward 20 for 1 split of
the common stock, increasing the then 2,100,000 shares outstanding to
42,000,000 shares outstanding. In error, an additional 2,100,000 shares were
issued in connection with the split effectively making it a 21 for 1 split
with 44,100,000 shares outstanding following the split. The board has decided
to leave the split as issued at 21 for 1.
On July 6, 1995 Redox 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 Redox issued 1,000,000 options to purchase Redox'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 the then trading
price of $.13 per share or $130,000.
On August 8, 1996, Redox issued 6,000,000 shares of Redox's preferred stock to
the founder for past services valued at the then trading price of $.09 per
share for a total of $540,000. The preferred stock was convertible to common
stock on a 5 for 1 ratio.
On September 26, 1997, Redox issued 300,000 shares to a consultant for
services performed. The shares were valued at the then trading price of $2.62
per share for a total value of $786,000.
In September 1998, the founder converted 1,000,000 shares of preferred stock
to 5,000,000 shares of common stock.
In January 2000, Redox issued 250,000 shares of its common stock to two former
consultants to settle a lawsuit. Redox recorded a settlement expense of
$122,500 based on the then trading price of $.49 per share.
On July 14, 2000, the founder returned the remaining 5,000,000 shares of
preferred stock to Redox.
On April 24, 2001, Redox raised $120,000 through a private placement by
selling 1,000,000 shares of common stock at $.12 per share to a single
individual.
F-8
On July 18, 2001, Redox issued a total of 3,302,088 shares of common stock to
two officers and a consultant valued at the then trading price of $.25 per
share for a total value of $825,522.
NOTE 6 OFFICE LEASE
Redox's office lease was $1,643 per month and expired March 31, 2001. The
lease was extended in April 2001 on a month to month basis for $1,985 per
month. In October 2001 the lease was renewed until October 31, 2004. The
office space was increased, resulting in monthly rent from November 1, 2001
through October 31, 2002 of $2,640 per month. Beginning November 1, 2002
through October 31, 2004, the rent will increase to $2,870 per month. At the
time of renewal, an additional security deposit was required bringing the
total security deposit to $2,870. Redox incurred rent expense of $24,104,
$23,820 and $23,820 in 2001, 2000 and 1999 respectively.
NOTE 7 OFFICER COMPENSATION
There are two officers, each of whom work part time. Neither has an oral or
written contract. The only compensation received has been in the form of
shares of Redox preferred and common stock and options to purchase Redox
stock.
NOTE 8 CONTRACTS AND AGREEMENTS
On September 17, 1998, Redox 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 Redox received while sub-licensing
the two patents. All amounts due have been expensed. As of December 31,
2001, there have been no sales or sub-licensing under this agreement.
On August 28, 2000, Redox entered into a license agreement with Divine
Software Developing Center for use of the Divine Logic Software. Redox will
be required to pay a royalty of 27.5% of the gross revenues from all sales of
the software. As of December 31, 2001, there have been no sales under this
agreement.
On May 4, 2001 Redox entered into a license agreement effective December 12,
2000, with ONSLR for exclusive use of the ONSLR software. Redox paid $25,000
as an advance payment against any future royalties. Redox is not required to
make any future payments until the royalties owed to ONSLR exceed the $25,000.
As of December 31, 2001, there have been no sales under this agreement.
NOTE 9 RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL STATEMENTS
In prior years, stock and options issued to employees and outsiders were not
recorded at their fair market value. From inception through December 31,
1997, 6,000,000 shares of preferred stock, 600,000 shares of common stock, and
1,300,000 options to purchase common stock at par were issued for services.
After considering the fair market value of each issuance, based on
F-9
trading price for the day of each issuance, an additional $1,540,340 has been
expensed and credited to paid in capital in connection with these services.
In prior years, $50,000 of goodwill was carried on the balance sheet
originally recorded as paid in capital. After review, this was an error.
The goodwill should not have been recorded and has been corrected as of
December 31, 1997 and a reduction to paid in capital for $50,000 has been
made.
In prior years, $21,750 of intangibles were carried on the balance sheet.
After review, the intangibles were fully impaired as of December 31, 1997 and
the $21,750 has been expensed as of December 31, 1997.
For the year ended December 31, 1998, depreciation expense and accumulated
depreciation were re-examined and both were increased by $375. Unrecorded
liabilities of $1,133 have now been recorded and a $30,000 intangible was
determined to be impaired and has been expensed. Common stock was decreased
by $750 and additional paid in capital was increased by $750 to adjust to the
actual outstanding amounts.
For the year ended December 31, 1999, depreciation expense and accumulated
depreciation were re-examined and decreased by $2,649 and increased by $2,751,
respectively. In connection with the adjustments to depreciation expense and
accumulated depreciation, additional paid in capital was decreased by $5,400
due to certain fixed assets being incorrectly credited to additional paid in
capital.
For the year ended December 31, 2000, fixed assets were re-examined and a
decrease to both accumulated depreciation and depreciation expense of $700 was
made. An increase to fixed assets of $2,598, and an increase to additional
paid in capital of $2,598 was needed for fixed assets contributed by the
majority stockholder. Unrecorded accounts payable and accrued interest of
$4,423 and $40,527 respectively, have since been recorded. An increase of $12
and $122,488 to common stock and additional paid in capital respectively, have
been recorded for the settlement of a lawsuit. A decrease to additional paid
in capital and an increase to common stock of $3,323 and $805 respectively,
was needed to adjust these accounts to their actual amounts.
A summary of these changes is as follows:
Previously Increase
For the year ended December 31, 1999: Stated (Decrease) Restated
----------- ----------- -----------
Statement of Expenses:
General & administrative
- paid in cash $ 319,737 $ 319,737
Depreciation 7,200 $( 2,649) 4,551
----------- ----------- -----------
Net loss $( 326,937) $ 2,649 $( 324,488)
=========== =========== ===========
Net loss per common share nothing presented $(.01) $(.01)
Weighted average common shares
outstanding nothing presented 50,700,000 50,700,000
F-10
Previously Increase
For the year ended December 31, 2000: Stated (Decrease) Restated
----------- ----------- -----------
Balance Sheet:
Cash $ 633 $ 633
Property & equipment, net 17,478 $ 172 17,650
License agreement 50,000 ( 50,000) 0
Patent 1,500 ( 1,500) 0
Security deposits 1,159 1,159
Goodwill 50,000 ( 50,000) 0
Organization costs, net 250 ( 250) 0
----------- ----------- -----------
Total assets $ 121,020 $( 101,578) $ 19,442
=========== =========== ===========
Accounts payable $ 24,455 $ 5,556 $ 30,011
Note payable to founder 1,080,712 40,527 1,121,239
Common stock 2,480 67 2,547
Additional paid in capital 148,903 1,607,453 1,756,356
Deficit accumulated during the
development stage (1,135,530) (1,755,181) (2,890,711)
----------- ----------- -----------
Total liabilities and equity $ 121,020 $( 101,578) $ 19,442
=========== =========== ===========
Statement of Expenses:
General & administrative
- paid in cash $ 257,323 $ 1,905 $ 259,228
- paid in stock 122,500 122,500
Interest expense 40,527 40,527
Depreciation 6,300 ( 700) 5,600
----------- ----------- -----------
Net loss $( 263,623) $( 164,232) $( 427,855)
=========== =========== ===========
Net loss per common share nothing presented $(.01) $(.01)
Weighted average common shares
outstanding nothing presented 50,950,000 50,950,000
NOTE 10 FUNDING COMMITMENT
Redox has had no revenues and has incurred significant losses since inception.
However, current overhead cost is minimal. The founder and majority
shareholder has orally committed to fund ongoing operations.
NOTE 11 QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary data relating to the results of operations for each quarter of the
years ended December 31, 2001 and 2000 is as follows:
F-11
------------Three Months Ended-----------
Mar. 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
2001:
General & administrative
expenses $ 50,583 $112,683 $860,531 $ 89,268
Depreciation 1,627 1,924 1,729 1,859
Net loss (88,438) (141,350) (880,399) (102,127)
Net loss per common share ( .00) ( .00) ( .01) ( .00)
------------Three Months Ended-----------
Previously Previously
Stated Restated Stated Restated
Mar. 31 Mar. 31 June 30 June 30
-------- -------- -------- --------
2000:
General & administrative
expenses $ 36,722 $159,222 $ 67,678 $ 72,123
Interest
Depreciation 1,800 1,230 1,500 1,229
Net loss (38,522) (160,452) (69,178) (73,352)
Net loss per common share none ( .00) none ( .00)
------------Three Months Ended-----------
Previously Previously
Stated Restated Stated Restated
Sept. 30 Sept. 30 Dec. 31 Dec. 31
-------- -------- -------- --------
2000:
General & administrative
expenses $108,481 $104,116 $ 44,442 $ 46,267
Interest 13,509 27,018
Depreciation 1,500 1,539 1,500 1,602
Net loss (109,981) (119,164) (45,942) (74,887)
Net loss per common share none ( .00) none ( .00)
For details on restated numbers, see note 9.
F-12
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 (a development stage company), as of December 31, 2001 and 2000,
and the related statements of expenses, stockholders' deficit, and cash flows
for each of the three years ended December 31, 2001 and the period from April
9, 1993 (Inception) through December 31, 2001. These financial statements are
the responsibility of Redox'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
(a development stage company), as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years ended
December 31, 2001 and the period from April 9, 1993 (Inception) through
December 31, 2001 in conformity with accounting principles generally accepted
in the United States.
As discussed in Note 9 to the financial statements, certain errors resulting
in an understatement of previously reported par value of common stock,
additional paid in capital, and deficit accumulated during the development
stage as of December 31, 2000, were discovered by management of Redox during
the current year. Accordingly, adjustments have been made as of December 31,
2000, to correct the errors.
MALONE & BAILEY, PLLC
Houston, Texas
www.malone-bailey.com
February 27, 2002