EXHIBIT 10.14
AMENDMENT TO AGREEMENT
BETWEEN XXXXX X. XXXXXXXX, X .X. XXXXXXXX & SONS LTD AND
PRIME BATTERY PRODUCTS LTD. APRIL 1ST 2003
To the following is an amendment to an agreement dated November the 1st 2002
between Xxxxx X. Xxxxxxxx and Prime Battery Products Ltd.
The following changes are agreed to:
1. Xxxxx X. Xxxxxxxx agrees to relinquish its rights to perform all logistic
operations on behalf of Prime Battery Products Ltd. Subject to clause (2)
(3).
2. Xxxxx X. Xxxxxxxx is the exclusive Canadian sales agent for Prime Battery
Products Ltd. for battery products sold through retailers, distributors,
OEM's and battery specialists. This agreement shall also cover the
following specific accounts in the United States: (a) Xxxxxx and (b)
99stuff (c) Shop Rite (d) Xxxxx Close-Out Centers.
Prime Battery Products Ltd will retain all rights related to "School Fuel"
and "Mighty Cell" programs currently being developed by Prime Battery
Products Ltd. as well as retaining the right to have as house accounts any
hotel or hotel chain or nursing home or nursing home chain.
XXXXX X. XXXXXXXX SHALL ALSO BE PAID COMMISSIONS ON ANY CUSTOMER IN UNITED
STATES DEVELOPED BY XXXXXXXX BY WRITING A LEGITIMATE BUSINESS ORDER.
ADDITIONALLY ANY NON-INDUSTRIAL CUSTOMER IN THE UNITED STATES THAT GOES
INACTIVE FOR A PERIOD OF SIX MONTHS OR GREATER LOSES THE EXCLUSIVE
PROTECTION AND PRIME BATTERY PRODUCTS LTD. MAY APPOINT ANOTHER AGENT TO
CALL ON THAT CUSTOMER. DECISIONS REGARDING EXCLUSIVITY SHALL REMAIN WITH
PRIME BATTERY PRODUCTS LTD.
3. Xxxxx X. Xxxxxxxx will receive a commission based on the final net margins
including volume rebates of any invoice to a Xxxxx X. Xxxxxxxx customer.
The commission rate shall be: 8% ON MARGINS OF 25 % OR LESS, 9 % ON MARGINS
OF 25.1-35% AND 10% ON MARGINS AT 35.1% AND OVER. WHILE WE REQUEST AND
EXPECT AN INPUT FROM XXXXX X. XXXXXXXX ON PRICING, FINAL PRICING DECISIONS
WILL REMAIN AT THE DISCRETION OF PRIME BATTERY PRODUCTS. THE COMMISSION
RATES SHALL APPLY TO CUSTOMERS IN NORTH AMERICA AND WHEN AGREED IN WRITING
TO OTHER TERRITORIES YET TO BE DETERMINED.
COMMISSIONS SHALL BE PAID ON THE FOLLOWING SCHEDULE:
CUSTOMER PAYMENTS RECEIVED BETWEEN THE 1ST AND 15TH OF ANY MONTH WILL BE
PAID ON THE 25TH OF THAT MONTH WHILE PAYMENTS RECEIVED BETWEEN THE 16TH AND
31ST WILL BE PAID ON THE 10TH OF THE FOLLOWING MONTH. WHEN MUTUALLY AGREED,
COMMISSION RATES MAY BE ADJUSTED ON LOWER MARGIN INVOICES.
4. X. X. Xxxxxxxx shall be responsible for all costs relating to the operation
of X. X. Xxxxxxxx and Sons and Xxxxx Xxxxxxxx, including any sales
commissions payable to sub agents of Xxxxx X. Xxxxxxxx, travel and
entertainment or any other expenses associated with Xxxxx X. Xxxxxxxx.
While Prime Battery Products Ltd. may from time to time request Xxxxx X.
Xxxxxxxx to travel on its behalf and in that event Prime will be
responsible for those expenses pre-approved by Prime Battery Products Ltd.
only. It is understood that Xxxxx X. Xxxxxxxx is prohibited from making any
financial commitment, issuing purchase orders, signing contracts of any
kind verbal or written on behalf of Prime Battery Products Ltd.
5. It is understood that Xxxxx Xxxxxxxx is to resign his position as President
and Director of Prime Battery Products Ltd on execution of this amendment
to become its commissioned agent. It is also understood that in lieu of the
management fee previously paid for your services as President Xxxxx X.
Xxxxxxxx will now receive a higher commission rate, will no longer be
burdened with the responsibilities and costs associated with logistics.
41
6. Xxxxx X. Xxxxxxxx will be responsible for all order entry functions on
sales to their customers.
7. X. X. Xxxxxxxx has agreed to allow Prime Battery Products to continue to
use the existing warehouse inventory and control system currently operated
on their computers. It s understood that this is a temporary solution
requiring online access to the warehouse module of X. X. Xxxxxxxx and Sons'
computer software.
8. Xxxxx X. Xxxxxxxx may transfer this agreement to another company controlled
by Xxxxx X. Xxxxxxxx with written permission from Prime Battery Products
Limited. This written permission will not be unreasonably withheld. The
agreement referred to above and this amendment shall supersede any other
agreements in now place, verbal or written, and shall be in effect for a
period of one year. Mutual agreeable sales targets will be set each year.
If these sales targets are met the agreement will be automatically renewed
for a period of one year. If targets are not attained a 6 month warning
period will begin. If after 6 months they are still not attained, 3 months
notice of termination may be given.
------------------------------- -----------------
Xxxxx X. Xxxxxxxx Dated.
-------------------------------
Xxxx Xxxxxxxxx
Witness
------------------------------- ------------------
Xxxxxx X. Pearl Dated
Prime Battery Products Ltd.
------------------------------- -----------------
Xxxxx X. Xxxxxxxx Dated.
X. X. Xxxxxxxx & Sons Ltd.
42
PIVOTAL SELF-SERVICE
TECHNOLOGIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
DECEMBER 31, 2002 AND 2001
CONTENTS
Independent Auditor's Report 1
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in Stockholders' Deficiency 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
INDEPENDENT AUDITOR'S REPORT
To the Directors of
Pivotal Self-Service Technologies Inc.
We have audited the accompanying consolidated balance sheet of Pivotal
Self-Service Technologies Inc., as of December 31, 2002, and the related
consolidated statements of operations, changes in stockholders' deficiency
and cash flows for the year ended December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pivotal Self-Service
Technologies Inc. at December 31, 2002, and the results of its operations and
its cash flows for the year ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. At December 31, 2002 the Company
had a working capital deficit of $458,261 and an accumulated deficit of
$8,516,926. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Management's plans in regard to these matters are also discussed in note 1.
Toronto, Ontario Xxxxx & Partners, LLP
April 7, 2003 Chartered Accountants
INDEPENDENT AUDITOR'S REPORT
To the Directors of
Pivotal Self-Service Technologies Inc.
We have audited the statement of operations, changes in stockholders' deficiency
and cash flows of Pivotal Self -Service Technologies Inc. for the year ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Pivotal
Self-Service Technologies Inc. for the year ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. During 2002, the Company sold its operating
subsidiary. Additionally, at December 31, 2001 the Company had a working capital
deficit of $546,914 and an accumulated deficit of $8,391,552. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Management's plans in regard to
these matters are also discussed in note 1.
/s/ PKF
New York, New York Certified Public Accountants
April 9, 2002 A Professional Corporation
1.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2002
---------------------------------------------------------------------------------------------------------------------------
A S S E T S
CURRENT
Cash $ 38,677
Accounts receivable 122,129
Note receivable (note 4) 40,000
Assets of discontinued operations (note 6) 23,749
---------------
TOTAL CURRENT ASSETS 224,555
INTANGIBLE ASSETS (note 5) 240,000
ASSETS OF DISCONTINUED OPERATIONS (note 6) 117,251
---------------
TOTAL ASSETS $ 581,806
===============
L I A B I L I T I E S A N D S T O C K H O L D E R S' D E F I C I E N C Y
CURRENT LIABILITIES
Accounts payable, including amounts due to affiliates
of $27,356 (note 9) $ 124,805
Accrued liabilities
Interest, including amounts owed to affiliates of $10,489 (note 9) 43,035
Professional fees 10,650
Director's fees 18,300
Other 7,152
Notes payable (note 8) 317,774
Senior subordinated convertible debentures (note 7) 141,500
Liabilities of discontinued operations (note 6) 19,600
---------------
TOTAL CURRENT LIABILITIES 682,816
NOTES PAYABLE (note 8) 70,000
---------------
TOTAL LIABILITIES 752,816
---------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $100 par value, 8%, non-voting, convertible,
2,000 shares authorized, no shares issued and outstanding -
Common stock, $.001 par value, 150,000,000 shares authorized,
53,953,606 shares issued and outstanding (note 12) 53,953
Common stock subscribed (note 12) 252,750
Additional paid-in capital 8,039,213
Accumulated deficit (8,516,926)
---------------
TOTAL STOCKHOLDERS' DEFICIENCY (171,010)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 581,806
===============
--------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES 3.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31
FOR THE YEARS ENDED 2002 2001
-----------------------------------------------------------------------------------------------------------------------------
Revenues $ 193,923 $ -
Cost of goods sold 163,490 -
--------------- --------------
Gross profit 30,433 -
Operating expenses
Selling, general and administrative (note 9) 95,735 353,812
Occupancy (note 14) 40,096 13,294
Interest (notes 7 and 8) 25,529 74,516
--------------- --------------
Total operating expenses 161,360 441,622
Other (income) expense
Non-cash financing expense (note 10) 92,000 2,317,594
Realized loss/write down of marketable securities (note 3) 14,400 17,000
Other income - (5,000)
--------------- --------------
Total expenses 267,760 2,771,216
--------------- --------------
Loss before extraordinary item and discontinued operations (237,327) (2,771,216)
Extraordinary item
Cancellation of indebtedness (note 11) - 180,251
--------------- --------------
Loss before discontinued operations (237,327) (2,590,965)
Discontinued operations (note 6)
Income (loss) from operations of discontinued operations, net of tax 18,913 (48,131)
Gain from management fee forgiveness 54,037 20,083
Gain on disposal of subsidiary, net of tax 39,003 -
-------------- --------------
Income (loss) from discontinued operations 111,953 (28,048)
-------------- --------------
Net loss $ (125,374) $ (2,619,013)
=============== ==============
Basic net loss per share of common stock (note 2)
Weighted average number of common shares outstanding (note 2) 45,917,502 27,576,124
Basic loss per share $ (0.00) $ (0.09)
Loss from continuing operations $ (0.00) $ (0.10)
Extraordinary item - $ 0.01
Loss from discontinued operations $ (0.00) $ (0.00)
--------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES 4.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
Common Stock Common Additional Total
----------------------------- Stock Paid-In Accumulated Stockholders'
Shares Amount Subscribed Capital Deficit Deficiency
------------- ------------ ------------- ------------ ------------- -------------
Balance, December 31, 2000 16,651,278 $ 16,651 $ - $ 1,262,273 $ (5,772,539) $ (4,493,615)
Exercise of warrants 5,533,777 5,534 - 2,564,841 - 2,570,375
Issuance of common
stock in connection
with conversion of notes
and accrued interest 8,431,251 8,431 - 3,683,166 - 3,691,597
Shares cancelled in
connection with purchase
of subsidiary 10,000,000 10,000 - (10,000) - -
Stock issue costs - - - (3,245) - (3,245)
Issuance of common stock in
settlement of outstanding
debts 2,426,000 2,426 - 271,074 - 273,500
Common stock subscribed - - 41,250 - - 41,250
Net (loss) for year ended
December 31, 2001 - - - - (2,619,013) (2,619,013)
------------- ------------ ------------- ------------ ------------- -------------
Balance, December 31, 2001 43,042,306 43,042 41,250 7,768,109 (8,391,552) (539,151)
Issuance of common
stock in connection with
private placements 9,950,000 9,950 (22,500) 131,550 - 119,000
Adjustment arising from
warrants issued pursuant
to notes payable (note 12) 92,000 92,000
Issuance of common stock in
connection with services
provided 420,000 420 (18,750) 21,030 - 3,000
Issuance of common stock in
settlement of outstanding
debts (note 14) 541,300 541 - 26,524 - 27,065
Common stock subscribed
(note 12) - - 252,750 - - 252,750
Net loss for year ended
December 31, 2002 - - - - (125,374) (125,374)
------------- ------------ ------------- ------------ ------------- -------------
Balance, December 31, 2002 53,953,606 $ 53,953 $ 252,750 $ 8,039,213 $(8,516,926) $ (177,010)
------------- ------------ ------------- ------------ ------------- -------------
--------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES 5.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
DECEMBER 31
FOR THE YEARS ENDED 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Year Ended
December 31
-----------------------------------
2002 2001
---------------- ---------------
Cash flows from operating activities
Net (loss) $ (125,374) $ (2,619,013)
Adjustment to reconcile net (loss) to net cash
(used) by operating activities
Common stock issued and subscribed for services 21,450 26,750
Common stock issued in rent settlement 27,065 -
Cancellation of indebtedness - (200,334)
Non-cash financing expense 92,000 2,317,594
Realized loss/write down of marketable securities 14,400 17,000
Changes in operating assets and liabilities
Receivables (120,575) (1,554)
Other receivable (40,000) -
Prepaid expenses 5,879 306
Accounts payable (45,177) 80,077
Accrued expenses (12,889) 29,261
---------------- ---------------
Net cash (used) by operating activities (182,681) (349,913)
---------------- ---------------
Cash flows used in investing activities
Purchase of equipment - (7,806)
Acquisition and disposal of subsidiaries (6,577) -
---------------- ---------------
Net cash used in investing activities (6,577) (7,806)
---------------- ---------------
Cash flows from financing activities
Change in bank overdraft (11,839) 11,882
Proceeds from issuance of notes payable 126,774 -
Payment of stock issue costs - (3,245)
Proceeds from common stock subscribed - 22,500
Proceeds from exercise of warrants - 159,937
Proceeds from issuance of common stock 113,000 -
Payment on note payable - (5,000)
Payment on note payable - shareholder - -
Due to/from related parties, net - 171,548
---------------- ---------------
Net cash provided by financing activities 227,935 357,622
---------------- ---------------
Net increase (decrease) in cash 38,677 (97)
Cash, beginning of year - 97
---------------- ---------------
Cash, end of year $ 38,677 $ -
---------------- ---------------
--------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES 6.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
Supplemental disclosure of non-cash financing activities
- During 2002, the Company issued 6 million common shares valued at
$240,000 to acquire certain business assets. At December 31, 2002
these shares had not yet been issued and were recorded in common stock
subscribed.
- During 2002, the Company acquired a subsidiary with net assets of
$29,526 in exchange for $40,000 in cash and a note payable of $120,000
($106,000 discounted value, see note 8c).
- During 2002, the Company issued 541,300 common shares valued at
$27,065 to a third party as partial settlement on an office lease.
- During 2002, the Company issued 375,000 common shares valued at
$18,750 for investor and public relations services provided and 45,000
common shares valued at $2,700 for general consulting services
provided.
- During 2001, Xxxxxxxx Capital Limited converted its $2 million
convertible debenture plus accrued interest of $194,195 partially
offset by an amount payable to the Company of $82,469 into 2,111,726
shares of common stock.
- During 2001, $1,524,550 of senior subordinated convertible debentures
plus accrued interest of $55,324 were converted into 6,319,525 shares
of common stock.
- During 2001, the purchaser of a former subsidiary confirmed its
liability for $101,000 of the senior subordinated convertible
debentures previously reflected as a liability by the Company.
Accordingly, $101,000 plus related accrued interest of $2,430 was
reflected as cancellation of debt.
- During 2001, the Company issued 10 million shares of its common stock
as partial consideration for the purchase of certain intangible assets
valued at $ -0-.
- During 2001, a portion of accounts payable in the amount of $416,821
was satisfied by issuance of a note payable of $160,000 and issuance
of 1.8 million shares of common stock valued at $180,000, resulting in
a cancellation of debt of $76,821.
- During 2001, accrued directors' fees in the amount of $93,500 were
satisfied by issuance of 626,000 shares of common stock.
- During 2001, a portion of accounts payable in the amount of $20,083
was forgiven and was reflected in cancellation of debt.
- During 2001, the Company issued 160,000 shares of its common stock and
375,000 shares of common stock were subscribed in settlement for
services valued at $26,750.
- During 2001, $84,841 of accrued interest to convertible debenture
holders was utilized to satisfy exercise of warrants.
--------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES 7.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
GOING CONCERN BASIS OF PRESENTATION
The consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
liquidation of liabilities in the ordinary course of business. As shown
in the accompanying financial statements, the Company has assets of
$581,806, has a working capital deficit of $458,261 and a stockholders'
deficiency of $171,010 at December 31, 2002. As a result, substantial
doubt exists about the Company's ability to continue to fund future
operations using its existing resources.
In order to ensure the success of the new business, the Company will
have to raise additional financing to satisfy existing liabilities and
to provide the necessary funding for future operations.
DESCRIPTION OF BUSINESS
Pivotal Self-Service Technologies Inc. ("Pivotal" or the "Company"),
formerly known as Wireless Ventures, Inc., conducts it business through
a wholly-owned Canadian subsidiary Prime Battery Products Limited.
("Prime Battery"). Prime Battery distributes batteries and other
ancillary products in North America. During the year ended December 31,
2002, the Company acquired certain assets of DCS Battery Products
Limited through a newly incorporated Prime Battery subsidiary (see note
5).
The Company also conducted its business during a part of fiscal 2002
through another wholly-owned Canadian subsidiary known as Prime
Wireless Inc. ("Prime Wireless"). The Company acquired all of the
issued and outstanding Prime Wireless common shares on June 7, 2002 and
disposed of the subsidiary on March 13, 2003 (see note 6b).
Between June 2001 and February 2002, the business of Pivotal was
conducted through a wholly-owned Canadian subsidiary called 4CASH ATM
Services Canada Inc. ("4CASH"). 4CASH operated in the self-service
technology sector (defined as the deployment of Automated Teller
Machines, information kiosks and Point of Sale debit machines). During
February 2002, the Board of Directors made the decision not to continue
to pursue the self-service technology business plan. On March 5, 2002,
the Company sold its wholly-owned subsidiary, 4CASH, to IRMG Inc.
("IRMG"), a private corporation controlled by the Company's former CEO
and current CFO (see note 6a).
Between October 1999 and June 2000, the business of the Company was
conducted through its wholly-owned subsidiary, xxxxXxxx.xxx Inc. Due to
continuing operating losses, effective June 26, 2000 the Company sold
all of the shares of xxxxXxxx.xxx Inc.
Subsequent to the sale of xxxxXxxx.xxx Inc., at a special meeting of
shareholders held on September 25, 2000, the Company changed its name
from xxxxXxxx.xxx Inc. to Wireless Ventures, Inc.
On June 15, 2001, Pivotal acquired the 4CASH from IRMG and began to
execute a business plan involved in the self-service technology sector.
--------------------------------------------------------------------------------
/CONTINUED... 8.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
On September 21, 2001, the Company changed its name from Wireless
Ventures, Inc. to Pivotal Self-Service Technologies Inc. and increased
the number of authorized shares from 75,000,000 to 150,000,000.
The financial statements in 2002 include the accounts of the Company
and its wholly-owned subsidiary Prime Battery. The operating results of
Prime Wireless in 2002 and 4CASH in 2002 and 2001 have been classified
as discontinued operations. The assets and liabilities of Prime
Wireless and 4CASH have been separately disclosed as held for sale. All
intercompany accounts and transactions are eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenue and expenses during the period. Actual results will
differ from these estimates.
Revenue recognition
Revenue from product sale is recognized when the rights of
ownership of the product are transferred to the purchaser on
shipment or delivery and collection is reasonably assured.
Shipping and delivery costs
The Company includes shipping and delivery costs in cost of
goods sold.
Allowance for Doubtful Accounts
The Company records an allowance for doubtful accounts based
on specifically identified amounts that management believes to
be uncollectible. The criteria for allowance provision are
determined based on historical experience and the Company's
assessment of the general financial conditions affecting its
customer base. If the Company's actual collections experience
changes, revisions to the allowance may be required.
Acquisitions and business combinations
The Company accounts for acquisitions and business
combinations under the purchase method of accounting. The
Company includes the results of operations of the acquired
business from the acquisition date. Net assets of the
companies acquired are recorded at their fair value at the
acquisition date. The excess of the purchase price over the
fair value of net assets acquired are included in intangible
assets in the accompanying consolidated balance sheets.
Intangibles and goodwill
The Company regularly reviews all of its long-lived assets,
including goodwill and other intangible assets, for impairment
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors
--------------------------------------------------------------------------------
/CONTINUED... 9.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
the Company considers important that could trigger an
impairment review include, but are not limited to, significant
underperformance relative to historical or projected future
operating results, significant changes in the manner of use of
the acquired assets or the strategy for the Company's overall
business, and significant negative industry or economic
trends. When management determines that an impairment review
is necessary based upon the existence of one or more of the
above indicators of impairment, the Company measures any
impairment based on a projected discounted cash flow method
using a discount rate commensurate with the risk inherent in
our current business model. Significant judgement is required
in the development of projected cash flows for these purposes
including assumptions regarding the appropriate level of
aggregation of cash flows, their term and discount rate as
well as the underlying forecasts of expected future revenue
and expense. To the extent that events or circumstances cause
assumptions to change, charges may be required which could be
material.
Investments
The Company's marketable securities are classified as
available-for-sale and are recorded at fair value. Available
for sale unrealized gains and losses, net of tax, are recorded
in stockholders' equity. Realized fair value gains or losses
and other than temporary declines in value, if any, are
reported in other income or expense as incurred.
Advertising and marketing costs
The Company expenses the costs of advertising and marketing as
incurred. The Company did not incur any advertising and
marketing expenses for the years ended December 31, 2002 and
2001.
Income taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred tax
assets and liabilities are determined based on temporary
differences between the financial statement and tax bases of
assets and liabilities and net operating loss and credit
carryforwards using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. A provision
for income tax expense is recognized for income taxes payable
for the current period, plus the net changes in deferred tax
amounts.
Financial instruments
The fair values of the financial assets and liabilities are
indicated by their carrying value.
Net loss per share
For both 2002 and 2001, net loss per share has been computed
using the net loss for the year divided by the weighted
average number of shares outstanding.
Diluted loss per share is not presented as the effects of
convertible debentures, warrants and options are
anti-dilutive.
--------------------------------------------------------------------------------
/CONTINUED... 10.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
Foreign currency
The functional currency of the company is the U.S. dollar and
the functional currency of the wholly owned subsidiary located
in Canada is the Canadian dollar. Assets and liabilities of
this subsidiary are translated to U.S. dollars at year-end
exchange rates and income statement items are translated at
the exchange rates present at the time such transactions
arise. Resulting translation adjustments, if material, are
recorded as a separate component of accumulated other
comprehensive income, a component of stockholders' equity
(deficit). The net exchange differences resulting from these
translations were included in the statement of operations in
2001 and 2002. For both 2002 and 2001 such exchange
differences were not material.
Comprehensive income
The only component of Comprehensive Income would be net
exchange differences arising from the translation of
Canadian dollar transactions as recorded in the statement of
operations. As described above for 2002 and 2001 these
differences were not material.
3. MARKETABLE SECURITIES
In 2000, the Company purchased 160,000 shares of common stock of a
publicly-traded entity for $480,000. In 2001 the Company pledged the
securities and granted power of attorney rights to dispose of the
shares to the Company's attorneys as part of a settlement agreement on
amounts owed (note 8a).
During the year ended December 31, 2002 the market value of the
securities declined from $16,000 to $1,600 and accordingly the Company
recorded a realized loss of $14,400. Effective December 31, 2002, the
Company reflected the transfer of ownership of the shares to the
attorneys by offsetting the remaining value of the securities with
amounts owed to the Company's counsel.
During the year ended December 31, 2001 the market value of the
securities declined from $33,000 to $16,000. Management determined that
the decline in value of this investment was not of a temporary nature
and accordingly the Company recorded a write down of $17,000 during the
year ended December 31, 2001.
4. NOTE RECEIVABLE
On October 15, 2002, the Company entered into a letter of intent to
acquire an exclusive license for the manufacture and sale of a new line
of high-end stone like products in the United States from a third
party. Subsequently the Company, with the consent of the third party
opted not to pursue the opportunity. During 2002 the Company had
advanced $40,000 to the third party. On December 6, 2002, the advances
were converted to a note receivable secured by the Company retaining
the exclusive rights for the products. The note is non-interest bearing
and is due and payable on June 30, 2003.
5. PRIME BATTERY ACQUISITION AND INTANGIBLE ASSET
Effective November 1, 2002, the Company, through a newly incorporated
wholly owned subsidiary named Prime Battery, acquired certain assets
of DCS Battery Products Ltd. ("DCS Battery").
DCS Battery is owned by a relative of the Company's Chief Executive
Officer and one of its Directors.
Under the terms of the agreement Prime Battery acquired assets as
follows:
- All assets and intellectual property rights of DCS Battery
including all trademarks, tradenames, distribution
agreements with Konnoc Battery in
--------------------------------------------------------------------------------
/CONTINUED... 11.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
Canada and the United States of America, and all agreements
OR relationships with dollar stores in Canada and the United
States,
- All inventory, and
- All contracts, books and records.
in exchange for:
- 6,000,000 newly issued common shares of the Company's common
stock, and
- The right to earn an additional 2,000,000 newly issued
common shares of Pivotal for every $100,000 of net profit
earned by the Prime Battery business during the two year
period beginning on November 1, 2002 to a maximum of
10,000,000 additional shares.
Under the terms of the agreement the Company also agreed as follows:
- To finance the newly acquired business with $126,780
(CAD$200,000) in cash,
- To share up to 50% of the net gross profit (subject to the
Prime Battery business earning a minimum gross profit of
15%) of the business with X.X. Xxxxxxxx and Sons ("ACS" an
entity also owned by a relative of the Company's Chief
Executive Officer) in exchange for management, distribution
and logistical services provided by ACS to the Prime
Battery business, and
- To sell any battery products to ACS intended to be sold to
industrial accounts at cost plus 10%.
During the year ended December 31, 2002 the Company opted not to
acquire any of the inventories owned by DCS Battery for its own
account. All inventory transferred between DCS Battery and the Company
was sold to third parties.
The purchase price has been allocated to intangible assets and
represents the trade name and other intellectual property associated
with the acquisition. Management has valued the Prime Battery
intangible assets at $240,000 based on the share price of the Company's
common stock on December 31, 2002.
6. DISCONTINUED OPERATIONS
In 2002, the Board of Directors made the decision to focus the business
of the Company on the battery distribution business unit.
During the first quarter of 2002 the Board of Directors committed to
sell or close down the 4CASH subsidiary primarily due to the
incremental financing that would be required to make the business
successful. Two of the Company's directors, through a company they
controlled IRMG Inc. ("IRMG") offered to acquire the subsidiary. The
4CASH subsidiary was sold to IRMG on March 5, 2002.
During the fourth quarter of 2002, the Company committed to a plan ,
approved by the Board of Directors prior to year end, to dispose of the
Prime Wireless subsidiary. Management initiated an active plan to sell
the subsidiary at a price in relation to its market value and held
discussions with a prospective buyer. The Company came to terms on a
transaction and sold the subsidiary on March 13, 2003.
The Company has accounted for the disposition of 4CASH and Prime
Wireless in accordance with Financial Accounting Standards Board
("FASB") Statement No. 144.
--------------------------------------------------------------------------------
/CONTINUED... 12.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
Under FASB No. 144 the net gain or loss from the disposition of these
assets is classified as discontinued operations in the Consolidated
Statements of Operations and the assets and liabilities of 4CASH and
Prime Wireless are separately disclosed as held for sale in the
Consolidated Balance Sheets.
Accounting for the discontinued operations is summarized below:
2002 2001
Loss from 4CASH operations (4,247) (48,131)
Income from Prime Wireless operations 23,160 -
----------- -----------
Income (loss) from operations of discontinued
operations, net of tax 18,913 (48,131)
Gain from management fee forgiveness 54,037 20,083
Effect of disposal of 4CASH 52,378 -
Loss from write off of 4CASH advances (13,375) -
----------- -----------
Gain on disposal of subsidiary, net of tax 39,003 -
----------- -----------
Income (loss) from discontinued operations 111,953 (28,048)
----------- -----------
(a) 4CASH ACQUISITION AND DISPOSITION
On June 15, 2001, the Company acquired certain intangible assets of
4CASH from IRMG (an affiliated entity by virtue of its ownership
position in the Company) through an asset purchase agreement. Pursuant
to the Asset Purchase Agreement, the Company issued 10 million shares
of its common stock to IRMG and issued warrants to purchase 1.1 million
common shares at $0.10 per share to the President of IRMG. In addition,
(1) the Company issued three-year warrants to IRMG to purchase 5
million common shares at $0.10 per share which vest subject to the
achievement of cumulative net profits from the date of closing and (2)
subject to achieving cumulative pre-tax net profits of $1 million
within 2 years from closing, the Company agreed to issue an additional
10 million common shares to IRMG. The Company also agreed to enter into
a 3-year management services agreement with IRMG under which IRMG would
provide certain management services to the Company. The historical cost
basis of the intangible assets acquired amounted to $-0- and,
accordingly, no value was assigned to the assets acquired or the
consideration paid.
On March 5, 2002, the Company entered into an agreement whereby the
4CASH subsidiary was sold back to IRMG. In exchange for the 4CASH
subsidiary, IRMG and certain directors of IRMG agreed to surrender and
cancel; 1) its rights to obtain an additional 10 million common shares
subject to achieving certain net profit levels, and 2) warrants to
purchase 6.1 million shares as originally issued as part of the
acquisition in June 2001. The original 10 million shares of the
Company's common stock issued in the purchase transaction in June 2001
were retained by IRMG.
The discontinued operations of 4CASH are summarized as follows:
2002 2001
Revenues 729 2,499
----------- -----------
--------------------------------------------------------------------------------
/CONTINUED... 13.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
Expenses
Direct costs 295 1,016
Selling, general and administrative 4,546 49,205
Depreciation 135 409
----------- -----------
4,976 50,630
----------- -----------
Net loss from discontinued operations (4,247) (48,131)
============ ============
Under the terms of the sale of the 4CASH subsidiary to IRMG, IRMG
granted the Company an option to satisfy, for full and complete
settlement, the outstanding fees under the management services
agreement, totalling approximately $104,350, owed to IRMG for a cash
payment of $15,753 (CAD$25,000). During the year ended December 31,
2002 the payment was made and the Company recorded a $34,560 credit to
general and administrative expenses in respect of expenses previously
recorded in 2002. Additionally $54,037 was recorded as a gain from
forgiveness of management fees representing fees accrued in prior
years.
On March 5, 2002 as a result of the disposition of 4CASH the Company
recorded the effect of the disposal of $52,378 (representing primarily
net losses of the subsidiary while owned by the Company) and wrote off
advances and intercompany amounts totalling $13,375 made by the
Company to 4CASH since June 2001.
During 2001 IRMG forgave management fees of $185,083 which was recorded
as a $165,000 reduction of management fees expense for the year ended
December 31, 2001 and $20,083 as a gain on forgiveness of accrued
management fees.
(b) PRIME WIRELESS ACQUISITION AND DISPOSITION
On June 7, 2002, the Company purchased all of the issued and
outstanding common shares of Prime Wireless from an affiliate in
exchange for:
(1) $40,000 in cash,
(2) A non-interest bearing note payable for $120,000 payable over 5
years at $2,000 per month commencing July 1, 2002 (this note has
been discounted to $106,000 representing its present value using
a 5% discount rate), and
(3) Fifty percent (50%) of all net proceeds from the sale of any
related asset payable 30 days after receipt of funds, such assets
are recorded on the Company's books at a nominal value.
Prime Wireless, prior to the acquisition was, owned by a shareholder
of the Company.
Accounting for the acquisition is summarized as follows:
Net working capital assets acquired $ 29,526
Intangible assets acquired 116,474
--------------
Purchase consideration $ 146,000
==============
--------------------------------------------------------------------------------
/CONTINUED... 14.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
The excess of purchase price over net assets acquired has been
allocated to intangible assets and represents mainly tooling, trade
name and intellectual property associated with the acquisition.
Subsequent to the end of the year, on March 13, 2003, the Company
disposed of its investment in Prime Wireless and related assets to
another publicly traded company in exchange for 1,500,000 common shares
of the purchaser (of which 750,000 shares were transferred, pursuant to
the June 7, 2002 purchase and sale agreement, to the related party that
the Company acquired Prime Wireless from).
The proforma financial operating results, assuming the Prime Wireless
acquisition was made as of the January 1, 2001, have not been included
herein due to the sale of Prime Wireless subsequent to year end and
as that proforma information would not materially add to the
disclosure.
The discontinued operations of Prime Wireless are summarized as
follows:
Revenues
Commission income 65,923
Sales 255
-------
Total revenues 66,178
Less:
Cost of sales 200
-------
Gross profit 65,978
Operating expenses 42,631
-------
Operating income 23,347
Depreciation 187
-------
Net income from discontinued operations 23,160
=======
In accordance with FASB Statement No. 144 the major categories of
Prime Wireless assets and liabilities held for sale as at December 31,
2002 were as follows:
Cash $ 836
Accounts receivable 22,913
--------------
Assets of discontinued operations - current $ 23,749
--------------
Equipment, net $ 777
Intangible assets 116,474
--------------
Assets of discontinued operations - non current $ 117,251
--------------
Liabilities of discontinued operation - current
- accounts payable $ 19,600
--------------
--------------------------------------------------------------------------------
/CONTINUED... 15.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
7. SENIOR SUBORDINATED CONVERTIBLE DEBENTURES
The senior subordinated convertible debentures totalling $141,500 at
December 31, 2002, are subordinated to all other indebtedness, and bear
interest at 8% payable in arrears annually commencing March 6, 2001.
The principal portions mature on March 6, 2005. Each $0.25 of principal
is convertible into one share of common stock and one three year
warrant (see note 12) to purchase an additional share of common stock
at an exercise price of $0.50 per share. Management had determined that
the value attached to the conversion feature and the related warrants
is insignificant and, therefore has not made an adjustment to the
debentures' carrying amount for these features. Interest expense on
these notes during 2002 and 2001 amounted to $11,320 and $74,516,
respectively. No payments of interest have been made by the Company.
The notes are technically in default and therefore have been classified
as current liabilities.
During the year ended December 31, 2001, $1,524,550 of senior
subordinated convertible debentures plus accrued interest of $55,324
was converted to 6,319,525 common shares. Also, certain accrued
interest was effectively repaid during the year upon the exercise of
warrants under the revised warrant exercise offer as discussed in
notes 10 and 12. In addition, the Company recorded the cancellation of
$101,000 of existing debentures during the year as confirmation was
received during the year that the debenture liability had been
transferred to the purchaser of xxxxXxxx.xxx Inc. (note 1)
8. NOTES PAYABLE
Non-interest bearing note payable (a) $ 155,000
90 day note payable - director (b) 63,387
90 day note payable - affiliate (b) 63,387
5 year non-interest bearing note payable (c) 106,000
-------------
Total $ 387,774
Less: current portion 317,774
Long term portion (c) $ 70,000
=============
(a) During the year ended December 31, 2001, the Company
restructured a $416,821 payable with a creditor, whereby $76,821
was forgiven (see note 11), $180,000 was satisfied through the
issuance of 1.8 million shares of the Company's common stock,
and a note payable of $160,000 was issued. The note is
non-interest bearing and is repayable with progressively
increasing payments over a period of 15 months with final
payment due in December 2002. The Company's marketable
securities have been pledged as security for the note payable
(see note 3). The Company is currently in default of the
agreed-upon payment terms.
(b) On November 12, 2002, a director and an affiliate of the Company
each provided $63,387 (CAD$100,000) 90-day loans to the Company.
Under the terms of the agreements the lenders will receive a 5%
fee of the amount borrowed, monthly interest of 2% of the
balance borrowed (24% on an annual basis), warrants to purchase
1,000,000 common shares at $0.01 per share for each 30 days the
loan is outstanding and another 5% of the loan balance if not
repaid in 90 days.
--------------------------------------------------------------------------------
/CONTINUED... 16.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
(c) On June 7, 2002, the Company issued a non-interest bearing note
payable to an affiliate for $120,000 payable over 5 years at
$2,000 per month commencing July 1, 2002 (this note has been
discounted to $106,000 representing its present value using a 5%
discount rate). The Company issued this note as part of the
acquisition of Prime Wireless that was later disposed of on
March 13, 2003 (note 6b).
9. RELATED PARTY TRANSACTIONS
Amounts due to/from related parties, which are included in accounts
payable, generally result from transactions with companies under
common control and are non-interest bearing with no specific terms for
repayment. As at December 31, 2002 $27,356 was due to related parties.
During 2001, IRMG provided management services to the Company. The
agreement was renegotiated and fees charged during 2001 amounted to
$162,800. The parties have informally agreed that monthly fees will be
charged at $19,300 beginning November 1, 2001 to February 22, 2002. In
conjunction with the sale of 4CASH, the agreement was terminated
effective February 22, 2002. Subsequent to February 22, 2002 a
shareholder and officer of IRMG agreed to provide consulting services
to the Company on an hourly basis for the period up to October 31, 2002
and for the period after October 31, 2002 for a monthly fee of $1,585
(CAD$2,500).
During 2002, the Company acquired certain assets of DCS Battery from
DCS Battery Products Ltd. an entity owned by a relative of the
Company's Chief Executive Officer and one of its Directors and
agreed to share a portion of the gross profit earned from sales
generated by these assets with ACS (note 6). During 2002 ACS earned
$8,168 (CAD$12,886) under this agreement, all of which remained unpaid
at December 31, 2002.
During 2002, the Company also entered into a management services
agreement with a shareholder of DCS Battery who is also related to the
Company's Chief Executive Officer. Under the terms of the agreement the
Company will pay $4,754 (CAD$7,500) per month for the services.
In November 2002, a director of the Company provided a $63,387
(CAD$100,000) 90 day loan to the Company (see note 8). In addition, a
shareholder of an affiliate of the Company provided another $63,387
(CAD$100,000) loan on the same basis. These loans were issued in the
normal course of business with terms as described in Note 8.
10. NON-CASH FINANCING EXPENSE
During the year ended December 31, 2002, the Company issued warrants to
purchase 2,000,000 common shares of the Company at $0.01 per share to
related parties who had provided short term loans to the Company (note
8b and 12). The warrants are immediately exercisable and have a term to
expiry of the later of December 31, 2004 or 90 days after the
effectiveness of a registration statement. Management has valued the
warrants, using a Black-Scholes pricing model at an aggregate value of
$92,000.
Management used the following assumptions in the valuation;
1) expected life of 2.1 years, 2) 5% risk free interest rate, 3)
expected volatility of 183.6% based on twenty share price observations
between May 2001 and December 2002, and 4) 0% expected dividend yield.
Accordingly, $92,000 has been recorded as a non-cash financing expense
during the year ended December 31, 2002.
During the year ended December 31, 2001, as an incentive to senior
subordinated convertible debenture holders to convert their debentures
to common stock (Note 7), the Board of Directors approved a special
resolution. Upon the conversion of the debenture to shares
--------------------------------------------------------------------------------
/CONTINUED... 17.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
of the Company's common stock, the warrant exercise price would be
reduced from $0.50 to $0.05 per share for warrants exercised through
July 31, 2001.
The Board of Directors approved another resolution, also during 2001,
to further enhance the offer as an incentive to debenture holders to
convert and exercise their warrants. Under the revised offer, debenture
holders who chose to convert their debenture and exercise their
warrants had the total costs of the warrants reduced by the accrued
interest to date. In effect, the accrued interest was paid to the
debenture holders if they exercised their warrants. This offer expired
on September 30, 2001. As a result, approximately 5,100,000 warrants
were exercised in 2001 at the reduced price of $0.05 per share. In
addition, the Company agreed to issue approximately 440,000 shares of
its common stock (valued at $0.05 per share) to stockholders who
exercised their warrants prior to the enhanced offer. In connection
with these warrant exercises, the Company recorded a non-cash financing
expense in the amount of $2,317,594.
11. EXTRAORDINARY ITEM
The Company recorded a gain from cancellation of indebtedness of
$180,251 as an extraordinary item during the year ended December 31,
2001. The balance includes $103,430 of debentures payable and accrued
interest payable that was transferred from the Company to the purchaser
of xxxxXxxx.xxx Inc. During 2001, the purchaser of xxxxXxxx.xxx Inc.
confirmed its liability for debentures with principal balance of
$101,000 and corresponding accrued interest of $2,430. The balance also
includes $76,821 that resulted from a settlement with the Company's US
legal counsel on amounts owed for services provided.
12. CAPITAL STRUCTURE
Capital stock
The Company is authorized to issue up to 150,000,000 common
shares.
Common stock subscribed
During 2002, 6,637,500 shares of the Company's common stock
valued at $252,750 have been subscribed (6,000,000 of which
are to be issued in an acquisition made by the Company as
described in note 5).
Voting rights
The holders of shares of common stock are entitled to receive
notice of, attend and vote at all meetings of the
stockholders. Each share of common stock carries one vote at
such meetings.
Warrants
The following is a summary of warrant activity for 2002 and
2001:
--------------------------------------------------------------------------------
/CONTINUED... 18.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
Number of Shares to
Purchase under Warrants Expiry Date
------------------------- ---------------------------
Balance, December 31, 2000 5,000,000
Issued 12,419,525 Between July 31, 2001
and July 31, 2004
Exercised (5,092,010)
----------
Balance, December 31, 2001 12,327,515
Issued 2,000,000 December 31, 2004(1)
Surrendered and cancelled (6,100,000)
Exercised -
----------
Balance, December 31, 2002 8,227,515
(1) Warrants issued on December 12, 2002 expire on the later
of December 31, 2004 or 90 days after the effectiveness of a
registration statement.
Warrants outstanding at December 31, 2002 are summarized as
follows:
Number Price Year of Issue Vesting Period Term
----------------- ---------------- --------------- ----------------- ----------------
5,000,000 $ 0.50 1999 Immediately 5 years
1,227,515 0.50 2001 Immediately 3 years
2,000,000 0.01 2002 Immediately 2 years(1)
---------
8,227,515
---------
Should all outstanding warrants be exercised, the total
additional consideration available to the Company is
approximately $3,133,758. A maximum of 8,227,515 common shares
would be issued.
In 2002, 2,000,000 warrants were issued to related parties
pursuant to the terms of loan agreements (note 8b and 10). The
Company has determined the fair value of these warrants to be
$92,000 and accordingly has recorded a charge to non-cash
financing expense during the current period.
Also, 6,100,000 warrants issued to IRMG in 2001 were
subsequently cancelled in 2002 (see note 6a).
During 2001, in connection with the conversion of debentures
along with of accrued interest into common stock, the Company
issued warrants to purchase 6,319,525 shares of common stock
at $0.50 per share. During 2001, 5,092,010 of these warrants
were exercised (see note 10). Accordingly, 1,227,515 warrants
remain outstanding at December 31, 2002. Management has
determined that the value attached to the warrants is
insignificant and therefore no amount has been recorded in the
accounts.
In 1999, 5,000,000 five-year warrants to purchase an aggregate
of 5,000,000 common shares, at exercise prices of between $1
per share and $3 per share, were issued to a stockholder. As
part of the agreement to convert debentures into equity in
2001, the exercise price of the warrants was reduced to $0.50,
the expiration was revised to December 31, 2004 and all
warrants became immediately exercisable.
--------------------------------------------------------------------------------
/CONTINUED... 19.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
Stock options
In connection with the Company's reorganization in 1999, the
2000 stock option plan (2000 Plan) was established. The
Company reserved a maximum of 3,000,000 options to be issued
under the 2000 Plan.
Options granted under both plans are being accounted for under
Accounting Principles Board Opinion No. 25 (APB Opinion No.
25), "Accounting for Stock Issued to Employees". All options
have been granted at a price equal to or greater than the fair
value of the Company's common stock at the date of the grant.
The following is a summary of stock option activity for 2002
and 2001:
2000 Plan
---------------------------------------------
Weighted
Average
Exercise
Shares Price
------------------ ---------------------
Balance, December 31, 2000 1,750,000 $ 0.25
Surrendered and cancelled (1,500,000) 0.25
Granted 1,500,000 0.10
-----------
Balance, December 31, 2001 1,750,000 $ 0.12
Surrendered and cancelled (500,000) 0.10
Expired (100,000) 0.10
-----------
Balance, December 31, 2002 1,150,000 $ 0.13
During the year 2001, as part of a restructuring of management
of the Company, 1,500,000 options issued to former directors
were surrendered. Additionally in 2001, 1,500,000 options were
issued to current and former directors and to employees.
During the year 2002, 500,000 options issued in 2001 to
directors were returned to the Company. In addition 100,000
options issued in 2001 to employees were amended to expire on
December 31, 2002 and expired unexercised.
Options outstanding at December 31, 2002 are summarized as
follows:
Number Price Year of Issue Vesting Period Term
----------------- ---------------- --------------- ----------------- ----------------
250,000 $ 0.25 2000 Immediately 3 to 5 years
500,000 0.10 2001 2 years 10 years
400,000 0.10 2001 Immediately 3 years
----------
1,150,000
----------
At December 31, 2002, options exercisable according to the
vesting period amounted to 962,500 with a weighted average
exercise price of $0.14. The weighted average remaining
contractual life of options outstanding and exercisable was
4.8 years and 4.0 years, respectively at December 31, 2002.
--------------------------------------------------------------------------------
/CONTINUED... 20.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
In 2001, the fair value of the options granted in 2001 was
estimated at $-0. There were no options granted during 2002.
The fair value has been estimated on the date of grant using
the Black-Scholes option-pricing model with the following
weighted average assumptions, dividend yield of 0%; expected
volatility of 0%; risk-free interest rate of 6%; and expected
life of 3 to 5 years.
13. INCOME TAXES
The deferred tax asset results from net operating loss carryforwards
(for U.S. tax purposes) which approximate $1,700,000 as of December
31, 2002 and expire in the years 2019 and 2020. Under certain
conditions and subject to certain limitations, these operating losses
may be utilized to offset future taxable income.
The deferred tax asset and valuation allowance at December 31, 2002
are as follows:
Deferred tax assets resulting from
operating loss carryforwards $ 579,000
Valuation allowance (579,000)
-------------
$ -
-------------
The Company has recorded a 100% valuation allowance against the
deferred tax assets due to uncertainties surrounding their
realization. The change in the valuation allowance from 2001 to 2002
is not material.
--------------------------------------------------------------------------------
/CONTINUED... 21.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
14. COMMITMENTS AND CONTINGENCIES
Commitments
The Company was committed under an operating lease for rental of
premises to July 30, 2002. Monthly lease payments approximate $6,800.
During 2001, certain monthly payments due under the lease were assumed
by IRMG. Subsequent to December 31, 2001, the Company and the landlord
entered into an agreement to terminate the lease whereby the landlord
is to receive $15,850 in cash and 541,300 shares of the Company's
common stock. The Company has not made the cash payment and is in
default under the agreement at December 31, 2002. The amount remains
accrued in the balance sheet.
In October 2002, the Company entered into a vehicle lease extension
agreement under which the Company will pay monthly lease payments of
approximately $1,123 until October 31, 2004.
Subsequent to the end of the year, on January 31, 2003, the Company
entered into an office lease with an entity that an officer and
director of the Company is a shareholder in. The Company is committed
under the lease agreement for rental payments until January 31, 2004.
Minimum monthly lease payments are approximately $951.
Contingencies
--------------------------------------------------------------------------------
/CONTINUED... 22.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
During 2001, the President of an entity the Company planned to acquire
in 2001, had requested that the Company return the sum of $200,000,
which he paid to purchase 200,000 shares of the Company's common stock
in a private transaction (facilitated by the Company) in October 2000.
The Company received $200,000 from the seller of the shares, which
shares had been pledged to the Company as security for other
obligations. The individual registered complaints about the Company's
conduct with certain regulatory authorities, including the Securities
and Exchange Commission. The SEC requested certain information from the
Company, which the Company provided. During the year ended December 31,
2002 the Company settled the disagreement with this individual by
allowing him to participate in a $.02 private placement.
15. SEGMENT INFORMATION
During the year the Company operated primarily in one segment - the
purchase and sale of batteries. All other businesses are categorized
as discontinued operations.
16. SUBSEQUENT EVENTS
In addition to the sale of Prime Wireless described in note 6b the
events occuring subsequent to December 31, 2002 are as follows:
Loan Agreement
On January 23, 2003, subsequent to the end of the year, the Company
entered into loan and security agreements with a third party to borrow
up to $253,560 (CAD$400,000) to finance the working capital
requirements of the Prime Battery business. Under the terms of the
agreements the lender provided a 90 day loan in exchange for a $2,536
(CAD$4,000) facility fee and interest payable at 18% per annum. The
Company provided inventory, accounts receivable and other personal
property as security for the loan.
On March 14, 2003, the Company and the lenders mutually agreed to
increase the limit of the loan to $412,035 (CAD$650,000) and to extend
the term of the loan to May 23, 2003 in exchange for a $7,924
(CAD$12,500) extension fee.
Joint Venture
On March 1, 2003, the Company entered into a joint venture agreement
with Collectible Concepts Group, Inc. to market batteries and related
products that include various licensed logos, images and brand names.
Under the terms of the agreement the Company will own 50% of the joint
venture. The joint venture will operate under the name MightyCell.
Amendment to DCS Battery Asset Purchase Agreement
On April 1, 2003 the Company and vendor of the DCS Battery Assets
agreed to amend the November 1, 2002 (note 5) purchase agreement as
follows:
- ACS (note 5) will no longer provide logistic operations to Prime
Battery, and
- The former owner of DCS Battery will become the exclusive sales
agent to certain Canadian retailers, distributors, etc., and
will receive a commission based on net margins on DCS Battery
customers as follows:
- 8% on gross margins of 25% or less,
- 9% on gross margins between 25% and 35%,
- 10% on gross margins above 35%, and
--------------------------------------------------------------------------------
/CONTINUED... 23.
PIVOTAL SELF-SERVICE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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17. ECONOMIC DEPENDENCE
During 2002 the Company derived 98% of its revenue from two customers.
The following table summarizes revenues from customers during 2002:
Customer A $150,302 78%
Customer B 38,173 20%
All others 5,448 2%
During 2002, the Company purchased 99% of its purchases from two
suppliers. The following table summarizes purchases from suppliers
during 2002:
Supplier A $136,125 71%
Supplier B 53,557 28%
All others 2,024 1%
18. COMPARATIVE FIGURES
The comparative figures have been reclassified in accordance with the
current year presentation.
