SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): FEBRUARY 21, 2001
E-TREND NETWORKS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-28879 APPLIED FOR
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
5919 - 3RD STREET, S.E., CALGARY, ALBERTA, CANADA T2H 1K3
(Address of principal executive offices) (Zip Code)
(403) 252-7766
Registrant's telephone number, including area code
COOL ENTERTAINMENT, INC.
10900 N.E. 8TH STREET, SUITE 900, BELLEVUE, WASHINGTON 98004
(Former name or former address, if changed since last report)
Exhibit index on consecutive page 4
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
See the disclosure in Item 5 below.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
See the disclosure in Item 5 below.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not Applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
At a shareholders' meeting held January 26, 2001, the shareholders of
E-Trend Networks, Inc., then a private Nevada corporation, approved the
election of KPMG LLP to audit the financial statements for the fiscal
year ended September 30, 2001. E-Trend's Board of Directors recommended
KPMG LLP because that firm is the existing certifying accountant for
the registrant, which is now the parent company of E-Trend due to the
acquisition described in Item 5 below. Ernst & Young LLP had audited
E-Trend's financial statements for the fiscal year ended September 30,
2000.
ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE
On February 21, 2001, the registrant effected its reorganization. Cool
Entertainment, Inc., a Colorado corporation merged into E-Trend
Networks, Inc., its wholly-owned Delaware subsidiary. As a result, the
registrant changed its name to E-Trend Networks, Inc., changed its
domicile to Delaware, and effected a 1-for-100 reverse stock split. The
registrant's new CUSIP number is 26924T 10 4 and its new trading symbol
is ETDN.
Also on February 21, 2001, the registrant closed its acquisition of
E-Trend Networks, Inc., a privately-held Nevada corporation
("E-Trend"), pursuant to the terms of a Share Exchange Agreement dated
December 22, 2000 (the "Share Exchange Agreement"). E-Trend is now a
wholly-owned subsidiary of the registrant.
The registrant has issued 4,441,867 (post-reverse split) shares of its
common stock to the shareholders of E-Trend. There are now 4,825,273
shares of common stock of the registrant issued and outstanding
(without giving effect to the elimination of fractional shares).
The registrant's management now consists of designees from E-Trend,
with the exception of Len Voth:
Caroline G. Armstrong - President, Chief Executive Officer, and
Director
Michael McKelvie - Senior Vice President, Marketing &
2
Communications
Timothy J. Sebastian - Secretary and General Counsel
Trevor Hillman - Director
Gregg Johnson - Director
Paul Miller - Director
Donald Spear - Director
Roy Grant - Director
Martin McDonough - Director
William Christie - Director
Len Voth - Director
An interim chief financial officer is currently serving until a
permanent replacement is found. Effective May 7, 2001, the board of
directors will be reduced to three members: Gregg Johnson, Trevor
Hillman, and Len Voth.
Since February 22, 2001, the executive offices of the registrant have
been located at the facilities of E-Trend in Calgary, Alberta.
Founded in April 1999 as a Nevada corporation by VHQ Entertainment Inc.
(formerly Video Headquarters Inc.), a Canadian Venture Exchange
("CDNX")-listed company ("VHQ"), E-Trend develops and operates a number
of Internet websites which offers a variety of products including
music, movies on DVD and VHS, video games, PC gaming software, and
other entertainment related products.
E-Trend has two existing product-based web sites and one
under development that target purchasers of its products and one
information-based web site portal that is formatted as an online
entertainment magazine:
o WWW.MOVIESOURCE.COM, which currently offers filmed
entertainment products, including feature films both in VHS
cassette and DVD format, and educational, health and fitness
and instructional videos and special interest videos;
o WWW.VHQMUSIC.COM, which offers a broad range of compact disc
and cassette music selections, and music video products;
o WWWVHQGAMES.COM, which will offer current top-selling video
game titles in popular video game and PC formats, including
Sony Play Station, Sony Play Station II, Nintendo 64, and Sega
Dreamcast, and focuses on video game enthusiasts; and
o WWW.ENTERTAINME.COM which is an on-line entertainment magazine
that functions as a portal to E-Trend's e-commerce sites.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
Not Applicable.
3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired: E-Trend's audited
statements for the year ended September 30, 2000, and
E-Trend's unaudited statements for the three months ended
December 31, 2000, are filed herewith.
(b) Pro forma financial information: Filed herewith
(c) Exhibits
REGULATION CONSECUTIVE
S-K NUMBER DOCUMENT PAGE NUMBER
2.1 Share Exchange Agreement dated December 22,
2000 (1)<F1> N/A
2.2 Certificate of Ownership Merging Cool
Entertainment, Inc. into E-Trend Networks, Inc.
Pursuant to Section 253 of the Delaware
General Corporation Law and Articles of
Merger Pursuant to Section 7-111-105 of the
Colorado Business Corporation Act (2)<F2> N/A
2.3 Articles of Share Exchange (3) <F3> N/A
16 Letter from auditor(4) <F4> N/A
99.1 Press Release dated February 21, 2001 (3)<F3> N/A
---------------
<FN>
(1)<F1> Incorporated by reference to the registrant's
definitive proxy statement filed January 2, 2001
(2)<F2> Incorporated by reference to the registrant's Form
10-QSB for the fiscal quarter ended December 31, 2000
(3)<F3> Filed previously
(4)<F4> To be filed by amendment
</FN>
ITEM 8. CHANGE IN FISCAL YEAR
The business combination with E-Trend will be accounted for by the
purchase method as a reverse take-over transaction with E-Trend
identified as the acquiror and the registrant identified as the
acquired business. E-Trend's fiscal year end is September 30.
Accordingly, the new fiscal year end of the registrant will be
September 30 and no transition report is required.
ITEM 9. REGULATION FD DISCLOSURE
Not applicable.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
E-TREND NETWORKS, INC.
May 7, 2001 By: /s/ CAROLINE G. ARMSTRONG
-------------------------------------
Caroline G. Armstrong, President and CEO
5
Unaudited Interim Consolidated Financial Statements
E-TREND NETWORKS, INC.
Three months ended December 31, 2000
(Expressed in U.S. dollars)
6
E-TREND NETWORKS, INC.
Interim Consolidated of Balance Sheets
(Expressed in U.S. dollars)
December 31, September 30,
2000 2000
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,451,102 $ 1,866,159
Accounts receivable 307,099 69,583
Due from related company (note 3) - 207,716
Inventory 104,068 40,344
Prepaid expenses 4,995 773
Note receivable from shareholder (note 3) 333,300 -
2,200,564 2,184,575
Investment (note 4) 217,169 232,382
Due from related company (note 3) 356,706 231,709
Property and equipment 296,400 266,641
Goodwill (note 5) 180,086 175,169
------------ ------------
$ 3,250,925 $ 3,090,476
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Bank indebtedness (note 2) $ 82,547 $ 74,816
Demand loan (note 6) 333,300 -
Accounts payable and accrued liabilities 434,083 201,585
------------ ------------
849,930 276,401
Stockholders' equity
Authorized:
25,000,000 preferred shares, par value $0.001
25,000,000 common shares, par value $0.001
Issued:
Common shares (note 7) 8,854 8,854
Additional paid in capital (note 7) 3,601,406 3,601,406
Deficit (1,281,937) (866,495)
Unrealized gain from investment 66,484 89,102
Cumulative translation adjustment 6,188 (18,792)
------------ ------------
2,400,995 2,814,075
------------ ------------
$ 3,250,925 $ 3,090,476
============ ============
See accompanying notes to interim consolidated financial statements.
7
E-TREND NETWORKS, INC.
Interim Consolidated Statements of Operations and Deficit
(Expressed in U.S. dollars)
(Unaudited)
Three months Three months
ended ended
December 31, December 31,
2000 1999
Sales $ 454,517 $ -
Cost of sales 397,187 -
57,330 -
Interest and other income 43,222 -
Expenses:
Operating and development 173,698 24,965
General and administrative 257,890 267,958
Advertising costs 17,639 1,073
Sales and marketing 53,209 -
Depreciation 10,226 -
Amortization of goodwill 3,332 -
------------ ------------
515,994 293,996
------------ ------------
Net loss for the period (415,442) (293,996)
Other comprehensive income:
Unrealized gain from investment 66,484 -
Foreign currency translation adjustment 6,188 -
------------ ------------
72,672 -
------------ ------------
Comprehensive loss $ (342,770) $ (293,996)
============ ============
Deficit, beginning of period (866,495) (55,339)
Net loss for the period (415,442) (293,996)
------------ ------------
Deficit, end of period $(1,281,937) $ (349,335)
============ ============
See accompanying notes to interim consolidated financial statements.
8
E-TREND NETWORKS, INC.
Interim Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
Three months Three months
ended ended
December 31, December 31,
2000 1999
Cash was provided by (used for):
Operating activities:
Net loss for the period $ (415,442) $ (293,996)
Add (deduct) following item:
Depreciation and amortization 13,558 -
Net change in non-cash working capital (189,222) (65,610)
------------ ------------
(591,106) (359,606)
Financing activities:
Increase in bank indebtedness 7,731 -
Proceeds from demand loan 333,300 -
Proceeds from capital contributions - 61,562
Due from related company (124,997) (127,688)
------------ ------------
216,034 (66,126)
Investment activities:
Purchase of capital assets (39,985) (62,326)
------------ ------------
Decrease in cash (415,057) (488,058)
Cash, beginning of period 1,866,159 638,712
------------ ------------
Cash, end of period $ 1,451,102 $ 150,654
============ ============
See accompanying notes to interim consolidated financial statements.
9
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements, page 2
Three months ended December 31, 2000 and 1999
(Expressed in U.S. dollars)
(Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited consolidated financial statements for E-Trend
Investments, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information,
including all normal recurring adjustments that are, in the opinion of
management, necessary for a fair presentation of the financial position,
statement of operations and cash flows for the interim period. The
financial information included herein is unaudited; however there have been
no changes to the accounting policies as detailed in its audited financial
statements dated September 30, 2000 during the interim periods presented.
The consolidated financial statements include the accounts of E-Trend
Networks, Inc. its wholly owned subsidiary Langara Distribution Inc., an
Alberta, Canada Corporation and 100% of the consolidated financial results.
2. BANK INDEBTEDNESS:
The Corporation has a line of credit with a limit of $100,000 which accrues
interest at prime plus 0.5% per annum.
3. RELATED PARTY TRANSACTIONS:
The due from related company of $356,706 represents an advance to the
Corporation's major shareholder, Video Headquarters Inc. The advance bears
interest at 8% per annum, is unsecured and has no fixed terms of repayment.
For the three months ended December 31, 2000 the Corporation accrued
interest income of $6,713 from Video Headquarters Inc.
During the three months ended December 31, 2000 the Corporation sold
$207,410 of its products to Video Headquarters Inc. As at December 31, 2000
Video Headquarters Inc. owes the Corporation $186,140.
The note receivable from shareholder represents an advance to a shareholder
of the Corporation. The advance bears interest at 20% and is secured by a
promissory note. For the three months ended December 31, 2000, the
Corporation accrued interest income of $13,332 of which $5,662 remains in
accounts receivable at December 31, 2000.
10
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements, page 2
Three months ended December 31, 2000 and 1999
(Expressed in U.S. dollars)
(Unaudited)
- --------------------------------------------------------------------------------
4. INVESTMENT:
On January 21, 2000 the Corporation swapped 99,900 common shares of Video
Headquarters Inc., a publicly-traded Canadian company, for 100,000 shares
of the Corporation at a value of $150,000.
DECEMBER 31, 2000
Translated Unrealized Recorded
Cost Basis Gain Basis
Video Headquarters common shares $ 150,685 $ 66,484 $ 217,169
5. ACQUISITION:
The Corporation acquired all of the issued and outstanding shares of
Langara Distribution Inc. ("Langara") effective January 1, 2000 for
consideration of 200,000 common shares valued at $1.00 per share and
200,000 share purchase warrants exercisable at $2.00 per warrant from the
date of issuance. The ascribed value of this transaction was $200,000 and
no value has been ascribed to the warrants. This acquisition was accounted
for by the purchase method allocating all of the purchase price to
goodwill. The operating results of Langara are included in the consolidated
statements of operations and deficit from the date of acquisition.
6. DEMAND LOAN:
The Corporation has a demand loan which accrues interest at the bank's
prime rate and is secured by a pledge over specific assets.
7. SHARE CAPITAL:
Issued and outstanding common shares as at December 31, 2000 and September
30, 2000 were 8,853,734.
Outstanding options as at December 31, 2000 and September 30, 2000 are
1,488,000 and 1,438,000 respectively.
11
Financial Statements
E-TREND NETWORKS, INC.
(formerly The Moviesource.com Corp.)
September 30, 2000
12
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
E-Trend Networks, Inc.
We have audited the accompanying consolidated balance sheets of E-Trend
Networks, Inc. and subsidiary (formerly The Moviesource.com Corp.) as at
September 30, 2000 and 1999 and the related statements of operations and
deficit, stockholders' equity and cash flows for the year ended September 30,
2000 and for the period from incorporation on April 29, 1999 to September 30,
1999. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of E-Trend
Networks, Inc. (and subsidiary) as at September 30, 2000 and the results of its
operations and its cash flows for the year ended September 30, 2000 and for the
period from incorporation on April 29, 1999 to September 30, 1999 in conformity
with accounting principles generally accepted in the United States.
Calgary, Canada /S/ ERNST & YOUNG LLP
November 21, 2000 Chartered Accountants
13
E-TREND NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
As at September 30
2000 1999
(U.S. $) (U.S. $)
---------------------------
ASSETS
CURRENT
Cash and cash equivalents [NOTE 6] 1,791,343 638,712
Accounts receivable 69,583 3,297
Due from related company [NOTE 9] 207,716 --
Inventory 40,344 --
Prepaid expenses 773 45,060
---------------------------
2,109,759 687,069
INVESTMENT [NOTE 4] 232,382 --
DUE FROM RELATED COMPANY [NOTE 9] 231,709 31,487
CAPITAL ASSETS [NOTE 5] 266,641 25,000
GOODWILL [NOTE 3] 175,169 --
---------------------------
3,015,660 743,556
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 201,585 17,820
---------------------------
COMMITMENTS [NOTE 11]
STOCKHOLDERS' EQUITY
Authorized
25,000,000 preferred shares, par value $0.001
25,000,000 common shares, par value $0.001
Issued
Common shares [NOTE 7] 8,854 6,850
Additional paid in capital [NOTE 7] 3,601,406 774,225
Accumulated deficit (866,495) (55,339)
Unrealized gain from investment 89,102 --
Cumulative translation adjustment (18,792) --
---------------------------
2,814,075 725,736
---------------------------
3,015,660 743,556
===========================
SEE ACCOMPANYING NOTES
On behalf of the Board:
Director Director
14
E-TREND NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE TWELVE FOR THE PERIOD FROM
MONTHS ENDED INCORPORATION ON
SEPTEMBER 30, APRIL 29, 1999 TO
2000 SEPTEMBER 30, 1999
(U.S. $) (U.S. $)
--------------------------------------
REVENUE 665,075 --
COST OF SALES 503,938 --
--------------------------------------
161,137 --
--------------------------------------
EXPENSES
Operating and development 436,764 --
General and administrative 435,745 59,564
Advertising costs 108,703 --
Sales and marketing 28,921 --
Amortization of capital assets 31,756 --
Amortization of goodwill 20,329 --
--------------------------------------
1,062,218 59,564
--------------------------------------
LOSS BEFORE THE FOLLOWING (901,081) (59,564)
INTEREST INCOME 89,925 4,225
--------------------------------------
NET LOSS FOR THE PERIOD [NOTE 10] (811,156) (55,339)
--------------------------------------
OTHER COMPREHENSIVE INCOME
Unrealized gain from investment 89,102 --
Foreign currency translation adjustment (18,792) --
--------------------------------------
--------------------------------------
70,310 --
--------------------------------------
COMPREHENSIVE LOSS (740,846) (55,339)
======================================
DEFICIT, BEGINNING OF PERIOD (55,339) --
NET LOSS FOR THE PERIOD (811,156) (55,339)
--------------------------------------
DEFICIT, END OF PERIOD (866,495) (55,339)
======================================
BASIC AND DILUTED LOSS PER SHARE [NOTE 8] (0.10) (0.02)
======================================
SEE ACCOMPANYING NOTES
15
E-TREND NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
As at September 30, 2000
COMMON STOCK
-----------------------------
PAID IN
NUMBER OF AMOUNT CAPITAL
SHARES (U.S. $) (U.S. $)
-------------------------------------------
Issuance of common stock [NOTE 7] 6,850,000 6,850 774,225
-------------------------------------------
Balance, September 31, 1999 6,850,000 6,850 774,225
Issuance of common shares for cash [NOTE 7] 1,618,734 1,619 2,395,732
Issuance of common shares for services [NOTE 7] 85,000 85 84,915
Issuance of common shares on acquisition of subsidiary
[NOTES 3 AND 7] 200,000 200 199,800
Issuance of common shares for shares in investment
[NOTES 4 AND 7] 100,000 100 149,900
Share issue costs -- -- (3,166)
-------------------------------------------
Balance, September 30, 2000 8,853,734 8,854 3,601,406
===========================================
SEE ACCOMPANYING NOTES
16
E-TREND NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE FOR THE PERIOD FROM
MONTHS ENDED INCORPORATION ON
SEPTEMBER 30, APRIL 29, 1999 TO
2000 SEPTEMBER 30, 1999
(U.S. $) (U.S. $)
-----------------------------------------
CASH WAS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net loss for the period (811,156) (55,339)
Amortization 52,085 --
Add (deduct) following item:
Net change in non-cash working capital (86,294) (30,537)
-----------------------------------------
(845,365) (85,876)
-----------------------------------------
FINANCING ACTIVITIES
Proceeds from capital contributions 2,394,185 781,075
Due from related company (200,222) (31,487)
-----------------------------------------
2,193,963 749,588
-----------------------------------------
INVESTING ACTIVITY
Purchase of capital assets (195,967) (25,000)
-----------------------------------------
INCREASE IN CASH 1,152,631 638,712
CASH, BEGINNING OF PERIOD 638,712 --
-----------------------------------------
CASH, END OF PERIOD 1,791,343 638,712
=========================================
SEE ACCOMPANYING NOTES
17
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
1. BASIS OF PRESENTATION
The Corporation was incorporated as The Moviesource.com Corp. under the Business
Corporations Act (Nevada) on April 29, 1999. The Corporation changed its name
effective February 10, 2000 to E-Trend Networks, Inc. The Corporation is
committed to the business of e-commerce sales and distribution of filmed
entertainment, video games and music.
The consolidated financial statements include the accounts of the Corporation
and its wholly owned subsidiary, Langara Distribution Inc., an Alberta, Canada
corporation.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Corporation have been prepared in accordance
with accounting principles generally accepted in the United States. The
presentation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
CASH EQUIVALENTS
The Corporation considers cash invested in money market funds with a maturity of
90 days or less, amounting to $1,812,301 (1999 - $617,328), to be cash
equivalents.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided on the bases and
at rates designed to amortize the cost of assets over their estimated useful
lives. Amortization is recorded using the declining balance method at the
following annual rates:
Furniture and fixtures - 10%
Computer hardware - 30%
Computer software - 20%
Leasehold improvements Over term of lease
18
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
CONCENTRATION OF CREDIT RISK
The financial instruments of the Corporation that are exposed to concentration
of credit risk consist primarily of cash and short term deposits. The
Corporation's cash and cash equivalents are placed with high quality major
Canadian chartered banking institutions, limiting its exposure of credit risk.
GOODWILL
Goodwill is recorded at cost and is being amortized on a straight-line basis
over 10 years. The recoverability of goodwill is assessed periodically based on
management estimates of undiscounted future operating income from each of the
acquired businesses to which the goodwill relates.
FINANCIAL INSTRUMENTS
Financial instruments of the Corporation consist mainly of cash and cash
equivalents, accounts receivable, due from related company and accounts payable
and accrued liabilities. At September 30, 2000, there are no significant
differences between the carrying values of these amounts and their estimated
market values.
REVENUE RECOGNITION
Gross revenue from product sales is recognized as the product is delivered.
Sales returns are limited to 15% of the total sales to each unrelated customer
and are credited against future sales.
INCOME TAXES
Income taxes are computed using the liability method. Under the liability
method, deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not of realization in future periods.
INVESTMENT
Investment is publicly traded equity securities classified as available for sale
and are recorded at market. Unrealized gains and losses are reflected in other
comprehensive income.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
19
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
STOCK BASED COMPENSATION
The Corporation applies the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost is recognized in the accounts as options are granted with
an exercise price that approximates the prevailing market price.
COMPUTATION OF LOSS PER SHARE
Basic loss per stock is computed by dividing the net loss attributable to common
stockholders by the weighted average number of common stock outstanding for that
period. Diluted loss per stock is computed giving effect to all dilutive
potential common stock that were outstanding during the period. Dilutive
potential common stock consist of incremental common stock issuable upon
exercise of convertible securities. At September 30, 2000, there were no
dilutive potential common stock and therefore the dilutive loss per stock is
equivalent to the basic loss per stock.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Corporation and its subsidiary is the Canadian
dollar. Accordingly, all assets and liabilities are translated at the year end
exchange rate and revenues and expenses are translated at average exchange
rates. Gains and losses arising from the translation of the financial statements
of the Corporation are recorded in a "Cumulative Translation Adjustment" account
in stockholders' equity.
Transactions denominated in foreign currencies are translated at the exchange
rate on the transaction date. Foreign currency denominated monetary assets and
liabilities are translated at the exchange rate in effect of the balance sheet
date. The resulting exchange gains and losses on these items are included in net
earnings.
20
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
3. ACQUISITION
The Corporation acquired all of the issued and outstanding shares of Langara
Distribution Inc. ("Langara") effective January 1, 2000 for consideration of
200,000 common shares valued at $1.00 per share and 200,000 share purchase
warrants exercisable at $2.00 per warrant from the date of issuance. The
ascribed value of this transaction was $200,000 and no value has been ascribed
to the warrants. This acquisition was accounted for by the purchase method
allocating all of the purchase price to goodwill. The operating results of
Langara are included in the consolidated statements of operations and deficit
from the date of acquisition. The pro-forma loss and pro-forma loss per share
for the year ended September 30, 1999 giving effect to the acquisition of
Langara as though it had occurred as at October 1, 1998 do not differ materially
from that recorded.
4. INVESTMENT
On January 21, 2000, the Corporation swapped 99,900 common shares of Video
Headquarters Inc., ("Video Headquarters") a publicly traded Canadian company,
for 100,000 shares of the Corporation at a value of $150,000.
SEPTEMBER 30, 2000
-----------------------------------------
TRANSLATED UNREALIZED RECORDED
COST BASIS GAIN BASIS
$ $ $
-----------------------------------------
Video Headquarters common shares 143,280 89,102 232,382
=========================================
21
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
5. CAPITAL ASSETS
SEPTEMBER 30, 2000
----------------------------------------------------
ACCUMULATED NET BOOK VALUE
COST AMORTIZATION $
$ $
----------------------------------------------------
Furniture and fixtures 8,196 404 7,792
Leasehold improvements 25,545 1,277 24,268
Computer hardware 31,718 4,468 27,250
Computer software 232,938 25,607 207,331
----------------------------------------------------
298,397 31,756 266,641
====================================================
SEPTEMBER 30, 1999
----------------------------------------------------
ACCUMULATED NET BOOK VALUE
COST AMORTIZATION $
$ $
----------------------------------------------------
Computer software 25,000 -- 25,000
====================================================
6. LINE OF CREDIT
The Corporation has a line of credit with a limit of $150,000 which accrues
interest at prime plus 0.5% per annum. As at September 30, 2000, this line of
credit had an overdraft balance of $74,816.
7. SHARE CAPITAL
AUTHORIZED
25,000,000 common shares at $0.001 per value
25,000,000 preferred shares at $0.001 per value
COMMON STOCK ISSUED
As of September 30, 1999, 6,075,000 and 775,000 common shares had been issued at
$0.001 and $1.00 per share.
On October 1, 1999, 85,000 common shares were issued for services provided by
three consultants in relation to the development of the Corporation's website
for $1.00 per share.
On March 22, 2000, 1,618,734 common shares were issued for cash consideration at
prices of $1.00 and $1.50 per share.
22
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
On January 21, 2000, 100,000 common shares were issued at $1.50 in exchange for
common shares in Video Headquarters.
On January 1, 2000, 200,000 shares were issued to acquire Langara with an
ascribed value of $1.00 per share.
OPTIONS
The Company is authorized to grant employees, directors and officers options to
purchase up to 2,000,000 common shares. The following table details the options
outstanding at September 30, 2000:
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
# $
---------------------------------------
Outstanding at September 30, 1999 -- --
Granted 1,438,000 1.99
---------------------------------------
Outstanding at September 30, 2000 1,438,000 1.99
=======================================
Exercisable at September 30, 2000 9,700 1.26
=======================================
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions.
2000
$
---------------
Risk free interest rate 7.50%
Dividend yield 0%
Volatility factors of expected market price 100%
Weighted average expected life of the options 2 years
23
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
The Black-Scholes options valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, the valuation model calculates the expected
stock price volatility based on highly subjective assumptions. Because the
Corporation's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Pro forma disclosures of loss and loss per common share are presented below as
if the Corporation had adopted the cost recognition requirements under FAS 123.
The compensation cost for the stock-based compensation was approximately
$1,048,300.
2000
$
---------------
Loss As reported 811,156
Pro forma 1,859,456
Basic and diluted loss per common share As reported ($/share) (0.10)
Pro forma ($/share) (0.23)
WARRANTS
On September 30, 2000, there were 200,000 common share purchase warrants issued
and outstanding. Each warrant entitles the holder to purchase one common share
of the Corporation for $2.00 per share expiring April 20, 2002.
8. LOSS PER SHARE
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
$ $
-------------------------------
Net loss 811,156 55,339
Weighted average number of common shares outstanding 7,946,310 2,857,943
-------------------------------
Loss per common share - basic and diluted (0.10) (0.02)
===============================
9. RELATED PARTY TRANSACTIONS AND ECONOMIC DEPENDENCE
The due from related company of $231,709 represents an advance to the
Corporation's major shareholder, Video Headquarters. The advance bears interest
at 8% per annum, is unsecured and has no fixed terms of repayment. At September
30, 2000, the Corporation received interest income of $17,056 from Video
Headquarters.
24
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
The Corporation sold $608,305 of its products to Video Headquarters and at
September 30, 2000, owes the Corporation $207,716 in trade receivables. The
Corporation does not limit sales returns from Video Headquarters and receives
91.5% of its sales from Video Headquarters.
10. INCOME TAXES
The income tax benefit differs from the amount computed by applying the Canadian
federal statutory tax rates to the loss before income taxes for the following
reasons:
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
$ $
-------------------------------
Income tax benefit at Canadian statutory rates (44.62%) (373,714) (24,692)
Increase (decrease) in taxes resulting from:
Change in deferred tax asset valuation allowance 373,714 24,692
-------------------------------
Income tax benefit -- --
===============================
Future income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The components of the
Corporation's future income tax assets are as follows:
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
$ $
-------------------------------
Non-capital loss carryforwards 371,374 24,692
Undepreciated capital costs in excess of book value of capital
assets 17,961 --
-------------------------------
Net future tax assets 389,335 24,692
Valuation allowance (389,335) (24,692)
-------------------------------
-- --
===============================
11. COMMITMENTS
The Corporation is committed to the following rental payments under various
equipment leases:
$
-------------
2001 82,820
2002 53,958
2003 55,812
2004 21,404
2005 5,351
25
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
-------------
219,345
=============
12. SUBSEQUENT EVENT
On November 3, 2000, the Corporation entered into a letter of intent to be
acquired, by way of a share exchange and reorganization, by Cool Entertainment
Inc. The Corporation will be the successor company after conclusion of the
proposed transaction.
26
Pro Forma Consolidated Financial Statements of
E-TREND NETWORKS, INC.
Period ended December 31, 2000
(Unaudited)
27
E-TREND NETWORKS, INC.
Pro Forma Consolidated Balance Sheet
December 31, 2000
(Unaudited)
(Expressed in U.S. Dollars)
Pro forma
adjustments
Cool and
E-Trend Entertainment, eliminating Pro forma
Networks, Inc. Inc. entries consolidated
(note 3 (a))
Assets
Current assets:
Cash and cash equivalents $ 1,451,102 $ 205 $ (23,000) 2(d) $ 1,428,307
Accounts receivable 307,099 90 - 307,189
Inventory 104,068 - - 104,068
Prepaid expenses 4,995 - - 4,995
Note receivable from
shareholder 333,300 - - 333,300
------------- ------------- ------------- -------------
2,200,564 295 (23,000) 2,177,859
Investment 217,169 - - 217,169
Due from related company 356,706 - - 356,706
Property and equipment 296,400 10,940 68,000 2(d) 375,340
Goodwill 180,086 - - 180,086
------------- ------------- ------------- -------------
$ 3,250,925 $ 11,235 $ 45,000 $ 3,307,160
============= ============= ============= =============
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Bank indebtedness $ 82,547 $ - $ - $ 82,547
Demand loan 333,300 - - 333,300
Accounts payable and
accrued liabilities 434,083 72,646 506,729
Payable to related party - 93,789 (51,544) 2(e) 42,245
Promissory note - - 45,000 2(d) -
(45,000) 2(d)
------------- ------------- ------------- -------------
849,930 166,435 (51,544) 964,821
Shareholders' equity (deficiency):
Common stock 8,854 13,488,710 (13,488,710) 2(b) 105,398
45,000 2(d)
51,544 2(e)
Additional paid-in capital 3,601,406 11,166 (11,166) 2(b) 3,601,406
Deficit (1,281,937) (13,655,076) (155,200) 2(b) (1,437,137)
13,655,076 2(b)
Cumulative translation
adjustment 6,188 - - 6,188
Unrealized gain from
investment 66,484 - - 66,484
------------- ------------- ------------- -------------
2,400,995 (155,200) 96,544 2,342,339
------------- ------------- ------------- -------------
$ 3,250,925 $ 11,235 $ 45,000 $ 3,307,160
============= ============= ============= =============
See accompanying notes to pro forma consolidated financial statements.
28
E-TREND NETWORKS, INC.
Pro Forma Consolidated Statement of Operations
Year ended September 30, 2000
(Unaudited)
(Expressed in U.S. Dollars)
Cool
E-Trend Entertainment, Pro forma Pro forma
Networks, Inc. Inc. adjustments consolidated
(note 3(b))
Sales $ 665,075 $ 3,518 $ - $ 668,593
Cost of sales 503,938 3,092 - 507,030
------------- ------------- ------------- -------------
161,137 426 - 161,563
Interest income 89,925 79 - 90,004
Operating expenses:
Operating and development 436,764 12,639,635 - 13,076,399
Management fees - 347,064 - 347,064
General and administrative 435,745 461,097 - 896,842
Depreciation 31,756 16,754 16,000 64,510
Amortization of goodwill 20,329 - - 20,329
Advertising costs 108,703 - - 108,703
Sales and marketing 28,921 - - 28,921
------------- ------------- ------------- -------------
1,062,218 13,464,550 16,000 14,542,768
------------- ------------- ------------- -------------
Net loss for the period $ (811,156) $(13,464,045) $ (16,000) $(14,291,201)
------------- ------------- ------------- -------------
Net loss per common share, basic $ - $ (0.36) $ - $ (2.94)
============= ============= ============= =============
Weighted average common shares
outstanding, basic - 37,200,888 - 4,853,876
============= ============= ============= =============
See accompanying notes to pro forma consolidated financial statements.
29
E-TREND NETWORKS, INC.
Pro Forma Consolidated Statement of Operations
Three months ended December 31, 2000
(Unaudited)
(Expressed in U.S. Dollars)
Cool
E-Trend Entertainment, Pro forma Pro forma
Networks, Inc. Inc. adjustments consolidated
(note 3(b))
Sales $ 454,517 $ - $ - $ 454,517
Cost of sales 397,187 - - 397,187
------------- ------------- ------------- -------------
57,330 - - 57,330
Interest and other income 43,222 73 - 43,295
Operating expenses:
Operating and development 173,698 14,947 - 188,645
Management fees - 41,341 - 41,341
General and administrative 257,890 13,813 - 271,703
Depreciation 10,226 3,706 2,700 16,632
Amortization of goodwill 3,332 - - 3,332
Advertising costs 17,639 - - 17,639
Sales and marketing 53,209 - - 53,209
------------- ------------- ------------- -------------
515,994 73,807 2,700 592,501
------------- ------------- ------------- -------------
Net loss for the period $ (415,442) $ (73,734) $ (2,700) $ (491,876)
============= ============= ============= =============
Net loss per common share, basic $ - $ (0.00) $ - $ (0.10)
============= ============= ============= =============
Weighted average common shares
outstanding, basic - 37,950,611 - 4,862,642
============= ============= ============= =============
See accompanying notes to pro forma consolidated financial statements.
30
E-TREND NETWORKS, INC.
Notes to Pro Forma Consolidated Financial Statements, page 3
Three months ended December 31, 2000
(Unaudited)
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION:
These pro forma consolidated financial statements give effect to the
arrangement that closed on February 21, 2001 between E-Trend Networks, Inc.
("E-Trend") and Cool Entertainment, Inc. ("Cool") which will result in the
exchange by the shareholders of E-Trend of all of its issued and
outstanding common shares for 4,441,867 common shares of Cool. These pro
forma consolidated financial statements are not necessarily indicative of
what the financial position or results of operations would have been if the
transactions described below had been completed at the dates indicated or
purport to be indicative of the results that may be expected in the future.
The pro forma consolidated financial statements have been prepared from:
(a) the audited financial statements of E-Trend for the year ended
September 30, 2000;
(b) the unaudited interim financial statements of E-Trend as at and for the
three months ended December 31, 2000;
(c) the audited financial statements of Cool for the year ended June 30,
2000;
(d) the unaudited interim financial statements of Cool for the three months
ended September 30, 2000;
(e) the unaudited interim financial statements of Cool as at and for the
three and six months ended December 31, 2000;
(f) the additional information set out in notes 2 and 3.
The pro forma consolidated financial statements should be read in
conjunction with the financial statements of E-Trend and Cool referred to
above.
2. PRO FORMA TRANSACTIONS:
The pro forma consolidated financial statements give effect to the
following transactions relating to the proposed arrangement between E-Trend
and Cool:
(a) a redomiciliation of Cool to Delaware followed by a 1 for 100 reverse
stock split of Cool's outstanding common stock;
(b) issuance of 4,441,867 common shares of Cool to the shareholders of
E-Trend in exchange for all of the issued and outstanding shares of
E-Trend;
31
E-TREND NETWORKS, INC.
Notes to Pro Forma Consolidated Financial Statements, page 3
Three months ended December 31, 2000
(Unaudited)
(Expressed in U.S. Dollars)
2. PRO FORMA TRANSACTIONS (CONTINUED):
(c) at the closing date, each unexpired and unexercised outstanding stock
option of E-Trend will be assumed by Cool. Each option assumed shall be
subject to the same terms and conditions as the existing E-Trend
options. As at December 31, 2000 E-Trend had 1,488,000 options
outstanding at a weighted average exercise price of $2.01 per option of
which 9,700 were exercisable at a weighted average exercise price of
$1.26 per option.
(d) the cash payment of $23,000 (Cdn $35,000) and the issuance of a
promissory note of $45,000 by E-Trend to Fictional Media Inc., a
company controlled by stockholders of Cool, in exchange for property
and equipment, and the repayment of the note for consideration equal to
15,000 common shares of Cool upon completion of the proposed
arrangement.
(e) the repayment of a portion of the payable to related party, being
Fictional Media Inc., for consideration assumed to be equal to 25,000
common shares of Cool upon completion of the proposed arrangement.
On completion of these transactions, Cool proposes to change its name to
E-Trend Networks, Inc.
3. PRO FORMA ASSUMPTIONS:
(a) Pro forma consolidated balance sheet:
The pro forma consolidated balance sheet gives effect to the
transactions described in note 2 as if they had occurred on December
31, 2000. As a result of the issuance of Cool's shares on the
arrangement, the former shareholders of E-Trend will gain control over
Cool. For accounting purposes, this business combination will be
accounted for by the purchase method as a reverse-take-over transaction
with E-Trend identified as the acquiror and Cool identified as the
acquired business. For purposes of these pro forma consolidated
financial statements, the fair value of the net assets acquired is
equal to their book values. The excess of the value assigned to the
liabilities assumed over the assets acquired of $155,200 has been
recognized as a capital transaction and charged directly to deficit.
32
E-TREND NETWORKS, INC.
Notes to Pro Forma Consolidated Financial Statements, page 3
Three months ended December 31, 2000
(Unaudited)
(Expressed in U.S. Dollars)
3. PRO FORMA ASSUMPTIONS (CONTINUED):
(b) Pro forma consolidated statements of operations:
The pro forma consolidated statements of operations give effect to the
transactions described in note 2 as if they had occurred at the
beginning of the respective periods presented. As the values assigned
to the net assets acquired equal their book values, no adjustments are
required to recognize impacts of the business combination. The pro
forma consolidated statements of operations include an adjustment for
depreciation of the acquired equipment described in note 2(d) as
follows:
Three months ended December 31, 2000 $ 2,700
Year ended September 30, 2000 16,000
4. SHARE CAPITAL:
Number
of shares Amount
Authorized:
20,000,000 Common shares, no par value
Issued:
Balance before transaction per Cool financial statements 38,340,636 $ 13,488,710
Reverse stock split 1 for 100 (37,957,230) -
------------ -------------
383,406 13,488,710
Shares issued at fair value to purchase all issued
and outstanding shares of E-Trend 4,441,867 -
Adjustments of Cool share capital to comply with
reverse-take-over accounting:
Elimination of Cool share capital - (13,488,710)
E-Trend share capital - 8,854
Issued on settlement of note payable (note 2(d)) 15,000 45,000
Issued on settlement of payable to related party (note 2(e)) 25,000 51,544
------------ -------------
Pro-forma balance, December 31, 2000 4,865,273 $ 105,398
============ =============
The pro forma consolidated financial statements reflect a reduction in
authorized share capital to 20,000,000 common shares on April 20, 2001.
33
Pro Forma Consolidated Financial Statements of
COOL ENTERTAINMENT, INC.
Period ended September 30, 2000
(Unaudited)
34
COOL ENTERTAINMENT, INC.
Pro Forma Consolidated Balance Sheet
(Unaudited)
(Expressed in U.S. Dollars)
As at September 30, 2000
===============================================================================================================
Pro forma
adjustments
Cool and Cool
Entertainment, E-Trend eliminating Entertainment,
Inc. Networks, Inc. entries Inc.
- ---------------------------------------------------------------------------------------------------------------
(note 3 (a))
Assets
Current assets:
Cash and cash equivalents $ - $ 1,791,343 $ (23,000) 2(d) $ 1,768,343
Accounts receivable 90 69,583 - 69,673
Inventory - 40,344 - 40,344
Due from related company - 207,716 - 207,716
Prepaid expenses - 773 - 773
----------------------------------------------------------------------------------------------------------
90 2,109,759 (23,000) 2,086,849
Investment - 232,382 - 232,382
Due from related company - 231,709 - 231,709
Property and equipment 14,644 266,641 68,000 2(d) 349,285
Goodwill - 175,169 - 175,169
- ---------------------------------------------------------------------------------------------------------------
$ 14,734 $ 3,015,660 $ 45,000 $ 3,075,394
===============================================================================================================
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Bank indebtedness $ 1,030 $ - $ - $ 1,030
Accounts payable and
accrued liabilities 43,626 201,585 - 245,211
Payable to related party 51,544 - (51,544) 2(e) -
Promissory note - - 45,000 2(d) -
(45,000) 2(d) -
----------------------------------------------------------------------------------------------------------
96,200 201,585 (51,544) 246,241
Shareholders' equity (deficiency):
Common stock 13,388,710 8,854 (13,388,710) 2(b) 105,398
45,000 2(d)
51,544 2(e)
Additional paid-in capital 111,166 3,601,406 (111,166) 2(b) 3,601,406
Deficit (13,581,342) (866,495) (81,466) 2(b) (947,961)
13,581,342 2(b)
Cumulative translation adjustment - (18,792) - (18,792)
Unrealized gain from investment - 89,102 - 89,102
----------------------------------------------------------------------------------------------------------
(81,466) 2,814,075 96,544 2,829,153
- ---------------------------------------------------------------------------------------------------------------
$ 14,734 $ 3,015,660 $ 45,000 $ 3,075,394
===============================================================================================================
See accompanying notes to pro forma consolidated financial statements.
35
COOL ENTERTAINMENT, INC.
Pro Forma Consolidated Statement of Operations and Deficit
(Unaudited)
(Expressed in U.S. Dollars)
Year ended June 30, 2000
===============================================================================================================
Cool E-Trend
Entertainment, Networks, Pro forma Pro forma
Inc. Inc. adjustments consolidated
- ---------------------------------------------------------------------------------------------------------------
(note 3(b))
Sales $ 3,178 $ 665,075 $ - $ 668,253
Cost of sales 2,765 503,938 - 506,703
- ---------------------------------------------------------------------------------------------------------------
413 161,137 - 161,550
Interest income - 89,925 - 89,925
Operating expenses:
Operating and development 12,612,461 436,764 - 13,049,225
Management fees 261,945 - - 261,945
General and administrative 418,151 435,745 - 853,896
Depreciation 13,049 31,756 16,000 60,805
Amortization of goodwill - 20,329 - 20,329
Advertising costs - 108,703 - 108,703
Sales and marketing - 28,921 - 28,921
------------------------------------------------------------------------------------------------------------
13,305,606 1,062,218 16,000 14,383,824
- ---------------------------------------------------------------------------------------------------------------
Net loss for the period $ (13,305,193) $ (811,156) $ (16,000) $ (14,132,349)
===============================================================================================================
Net loss per common share, basic $ (0.52) $ - - $ (2.98)
===============================================================================================================
Weighted average common shares
outstanding, basic 25,383,924 - - 4,735,706
===============================================================================================================
See accompanying notes to pro forma consolidated financial statements.
36
COOL ENTERTAINMENT, INC.
Pro Forma Consolidated Statement of Operations and Deficit
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 2000
===============================================================================================================
Cool E-Trend
Entertainment, Networks, Pro forma Pro forma
Inc. Inc. adjustments consolidated
- ---------------------------------------------------------------------------------------------------------------
(note 3(b))
Sales $ 340 $ 259,637 $ - $ 259,977
Cost of sales 327 189,406 - 189,733
- ---------------------------------------------------------------------------------------------------------------
13 70,231 - 70,244
Interest and other income 79 47,151 - 47,230
Operating expenses:
Operating and development 27,174 155,156 - 182,330
Management fees 85,119 - - 85,119
General and administrative 42,946 149,951 - 192,897
Depreciation 3,705 5,000 3,000 11,705
Amortization of goodwill - 4,540 - 4,540
Advertising costs - 46,766 - 46,766
Sales and marketing - 16,835 - 16,835
- ---------------------------------------------------------------------------------------------------------------
158,944 378,248 3,000 540,192
- ---------------------------------------------------------------------------------------------------------------
Net loss for the period $ (158,852) $ (260,866) $ (3,000) $ (422,718)
===============================================================================================================
Net loss per common share, basic $ (0.00) $ - - $ (0.09)
===============================================================================================================
Weighted average common shares
outstanding, basic 37,672,890 - - 4,858,596
===============================================================================================================
See accompanying notes to pro forma consolidated financial statements.
37
COOL ENTERTAINMENT, INC.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================
1. BASIS OF PRESENTATION:
The accompanying pro forma consolidated financial statements have been
compiled for purposes of inclusion in the information statement for the
special meeting of shareholders of Cool Entertainment, Inc. (the "Company")
to be held on January 26, 2001. The pro forma consolidated financial
statements give effect to the proposed arrangement between the Company and
E-Trend Networks, Inc. ("E-Trend") which will result in the exchange by the
shareholders of E-Trend of all of its issued and outstanding common shares
for 4,441,867 common shares of the Company. These pro forma consolidated
financial statements are not necessarily indicative of what the financial
position or results of operations would have been if the transactions
described below had been completed at the dates indicated or purport to be
indicative of the results that may be expected in the future.
The pro forma consolidated financial statements have been prepared from:
(a) the audited financial statements of the Company for the year ended June
30, 2000;
(b) the unaudited financial statements of the Company as at and for the
three months ended September 30, 2000;
(c) the audited financial statements of E-Trend as at and for the year
ended September 30, 2000;
(d) unaudited internal financial information of E-Trend for the three
months ended September 30, 2000; and
(e) the additional information set out in notes 2 and 3.
The consolidated financial statements should be read in conjunction with
the financial statements of the Company and E-Trend included elsewhere
herein.
2. PRO FORMA TRANSACTIONS:
The pro forma consolidated financial statements give effect to the
following transactions relating to the proposed arrangement between the
Company and E-Trend:
(a) a redomiciliation of the Company to Delaware followed by a 1 for 100
reverse stock split of Cool's outstanding common stock;
(b) issuance of 4,441,867 common shares of Cool to the shareholders of
E-Trend in exchange for all of the issued and outstanding common shares
of E-Trend; and
(c) at the closing date each unexpired and unexercised outstanding stock
option of E-Trend will be assumed by the Company. Each option assumed
shall be subject to the same terms and conditions as the existing
E-Trend options. As at September 30, 2000, E-Trend had 1,438,000
options outstanding at a weighted average exercise price of $1.99 per
option of which 9,700 were exercisable at a weighted average exercise
price of $1.26 per option.
38
COOL ENTERTAINMENT, INC.
Notes to Pro Forma Consolidated Financial Statements, page 2
(Unaudited)
(Expressed in U.S. Dollars)
Period ended September 30, 2000
================================================================================
(d) the cash payment of $23,000 (Cdn $35,000) and the issuance of a
promissory note of $45,000 by E-Trend to Fictional Media Inc., a
company controlled by stockholders of Cool, is in exchange for property
and equipment, and the repayment of the note for consideration equal to
15,000 common shares of Cool upon completion of the proposed
arrangement.
(e) The repayment of the payable to related party, being Fictional Media
Inc., for consideration assumed to be equal to 25,000 common shares of
Cool upon completion of the proposed arrangement.
On completion of these transactions, the Company proposes to change its
name to E-Trend Networks, Inc.
3. PRO FORMA ASSUMPTIONS:
(a) Pro forma consolidated balance sheet:
The pro forma consolidated balance sheet gives effect to the
transactions described in note 2 as if they had occurred on September
30, 2000. As a result of the issuance of the Company's shares on the
arrangement, the former shareholders of E-Trend will gain control over
the Company. For accounting purposes, this business combination will be
accounted for by the purchase method as a reverse take-over
transactions with E-Trend identified as the acquiree and the Company
identified as the acquired business. For purposes of these pro forma
consolidated financial statements, the fair value of the net assets
acquired is equal to their book values. The excess of the value
assigned to the liabilities assumed over the assets acquired of $81,466
has been recognized as a capital transaction and charged directly to
deficit.
(b) Pro forma consolidated statements of operations:
The pro forma consolidated statements of operations give effect to the
transactions described in note 2 as if they had occurred at the
beginning of the periods presented. As the values assigned to the net
assets acquired equal their book values, no adjustments are required to
recognize impacts of the business combination. The pro forma
consolidated statements of operations include an adjustment for
depreciation of the acquired equipment described in note 2(c) as
follows:
Three months ended September 30, 2000 $ 3,000
Year ended June 30, 2000 16,000
39
COOL ENTERTAINMENT, INC.
Notes to Pro Forma Consolidated Financial Statements, page 3
(Unaudited)
(Expressed in U.S. Dollars)
Period ended September 30, 2000
================================================================================
4. SHARE CAPITAL:
==========================================================================================================
Number
of shares Amount
----------------------------------------------------------------------------------------------------------
Authorized:
100,000,000 Common shares, no par value
Issued:
Balance before transaction per Cool financial statements 37,752,401 $ 13,388,710
Reverse stock split 1 for 100 (37,374,877) -
------------------------------------------------------------------------------------------------------
377,524 13,388,710
Shares issued at fair value to purchase all issued
and outstanding shares of E-Trend 4,441,867 -
Adjustments of Cool share capital to comply with reverse take-over
accounting:
Elimination of Cool share capital - (13,388,710)
E-Trend share capital - 8,854
Issued on settlement of note payable 15,000 45,000
Issued on settlement of payable to related party 25,000 51,544
----------------------------------------------------------------------------------------------------------
Pro forma balance, September 30, 2000 4,859,391 $ 105,398
==========================================================================================================
40