As filed on June 8, 2001 Registration Statement No. 333- _____
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
E-TREND NETWORKS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 98-0348508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5919 - 3RD STREET, S.E., CALGARY, ALBERTA, CANADA T2H 1K3
(Address or principal executive offices) (Zip code)
COMPENSATION SHARES TO MARC BELCOURT
COMPENSATION SHARES TO LEN VOTH
COMPENSATION SHARES TO WILLIAM HADCOCK
COMPENSATION SHARES TO CLEMENT LAU
COMPENSATION SHARES TO GARRETT K. KRAUSE
COMPENSATION SHARES TO GREGG JOHNSON
COMPENSATION SHARES TO TREVOR HILLMAN
STOCK OPTION TO GREGG JOHNSON
STOCK OPTION TO TREVOR HILLMAN
STOCK OPTION TO LEN VOTH
(Full title of plan)
CAROLINE ARMSTRONG, PRESIDENT
E-TREND NETWORKS, INC.
5919 - 3RD STREET, S.E.
CALGARY, ALBERTA, CANADA T2H 1K3
(Name and address of agent for service)
(403) 252-7766
(Telephone number, including area code, of agent for service)
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
Shares of common stock 6,000 $1.90 (1)<F1> $11,400.00 $2.85
issued to Marc shares
Belcourt, $0.0001 par
value
Shares of common stock 34,500 $1.90 (1)<F1> $65,550.00 $16.39
issued to Len Voth, shares
$0.0001 par value
Shares of common stock 2,250 $1.90 (1)<F1> $4,275.00 $1.07
issued to William shares
Hadcock, $0.0001 par
value
Shares of common stock 2,250 $1.90 (1)<F1> $4,275.00 $1.07
issued to Clement Lau, shares
$0.0001 par value
Shares of common stock 200,000 $1.90 (1)<F1> $380,000.00 $95.00
issued to Garrett K. shares
Krause, $0.0001 par
value
Shares of common stock 60,000 $1.90 (1)<F1> $114,000.00 $28.50
issued to Gregg shares
Johnson, $0.0001 par
value
Shares of common stock 60,000 $1.90 (1)<F1> $114,000.00 $28.50
issued to Trevor shares
Hillman, $0.0001 par
value
Shares of common stock 100,000 $1.00 (3)<F3> $100,000.00 $25.00
underlying stock shares (2)<F2>
option issued to Gregg
Johnson, $0.0001 par
value
Shares of common stock 100,000 $1.00 (3) $100,000.00 $25.00
underlying stock shares (2)<F2>
option issued to
Trevor Hillman,
$0.0001 par value
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
Shares of common stock 100,000 $1.00 (3) $100,000.00 $25.00
underlying stock shares (2)<F2>
option issued to Len
Voth, $0.0001 par value
$993,500.00 $248.38
- ------------------------
<FN>
(1)<F1> Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act based upon the average
of the bid and asked prices of the Registrant's Common Stock on the
NASD OTC Bulletin Board on June 7, 2001.
(2)<F2> Pursuant to Rule 416 under the Securities Act, this Registration
Statement shall also cover any additional shares of the common stock of
the Company which become issuable by reason of any stock split, stock
dividend, recapitalization, or other similar transaction effected
without the Registrant's receipt of consideration which results in an
increase in the number of the outstanding shares of the Registrant's
common stock.
(3)<F3> Calculated pursuant to Rule 457(h)(1) under the Securities Act based on
the exercise price of the options.
</FN>
EXPLANATORY NOTE
This Registration Statement has been prepared in accordance with the
requirements of Form S-8 under the Securities Act, to register shares of our
common stock, $.0001 par value per share, issued as compensation and issuable
upon the exercise of outstanding stock options. Under cover of this Form S-8 is
our reoffer prospectus prepared in accordance with Part I of Form S-3 under the
Securities Act. Our reoffer prospectus has been prepared pursuant to Instruction
C of Form S-8, in accordance with the requirements of Part I of Form S-3, and
may be used for reofferings and resales on a continuous or delayed basis in the
future of "control securities" which have been issued or may be issued pursuant
to outstanding stock options.
PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
ITEM 1. PLAN INFORMATION
We will send or give the documents containing the information specified in Part
1 of Form S-8 to employees as specified by the Securities and Exchange
Commission Rule 428(b)(1) under the Securities Act. We do not need to file these
documents with the Commission either as part of this Registration Statement or
as prospectuses or prospectus supplements under Rule 424 of the Securities Act.
ITEM 2. REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION
E-Trend Networks, Inc., a Delaware corporation, will furnish without charge to
each person to whom the reoffer prospectus is delivered, upon the oral or
written request of such person, a copy of any and all of the documents
incorporated by reference (other than exhibits to such documents). Requests
should be directed to the attention of Timothy J. Sebastian, General Counsel, at
E-Trend Networks, Inc., 5919 - 3rd Street, S.E., Calgary, Alberta, Canada T2H
1K3, telephone number (403) 252-7766.
REOFFER PROSPECTUS
454,500 SHARES OF COMMON STOCK
E-Trend Networks, Inc.
5919 - 3rd Street, S.E.
Calgary, Alberta T2H 1K3 Canada
(403) 252-7766
This reoffer prospectus relates to 454,500 shares of the common stock
of E-Trend Networks, Inc. which may be offered and resold from time to time by
selling stockholders identified in this prospectus for their own accounts. It is
anticipated that the selling stockholders will offer shares for sale at
prevailing prices on the OTC Bulletin Board on the date of sale. We will receive
no part of the proceeds from sales made under this reoffer prospectus. The
selling stockholders will bear all sales commissions and similar expenses. Any
other expenses incurred by us in connection with the registration and offering
and not borne by the selling stockholders will be borne by us.
Each selling stockholder and any broker executing selling orders on
behalf of them may be deemed to be an "underwriter" within the meaning of the
Securities Act, in which event commissions received by such broker may be deemed
to be underwriting commissions under the Securities Act.
Our common stock is traded on the OTC Bulletin Board under the symbol
"ETDN." On June 6, 2001, the last reported price of our common stock on such
market was $2.00 per share.
This investment involves a high degree of risk. Please see "Risk
Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this reoffer prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
---------------
The date of this reoffer prospectus is June 8, 2001.
TABLE OF CONTENTS
PAGE
SUMMARY................................................................... 3
RISK FACTORS.............................................................. 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................... 12
USE OF PROCEEDS........................................................... 12
SELLING STOCKHOLDERS...................................................... 12
PLAN OF DISTRIBUTION...................................................... 13
INDEMNIFICATION OF DIRECTORS AND OFFICERS................................. 14
LEGAL MATTERS............................................................. 14
EXPERTS................................................................... 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 14
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US........................ 15
---------------
You should only rely on the information incorporated by reference or
provided in this reoffer prospectus or any supplement. We have not authorized
anyone else to provide you with different information. The common stock is not
being offered in any state where the offer is not permitted. You should not
assume that the information in this reoffer prospectus or any supplement is
accurate as of any date other than the date on the front of this reoffer
prospectus.
2
SUMMARY
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.
We have 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.
Our principal executive offices are located at 5919 - 3rd Street,
Calgary, Alberta T2H 1K3 Canada. Our telephone number is (403) 252-7766.
RISK FACTORS
Before deciding to invest in us or to maintain or increase your
investment, you should carefully consider the risk factors described below,
together with all other information in this prospectus and in our other filings
with the SEC before making an investment decision. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations. If any of the following risks actually
occurs, our business, financial conditions or operating results could be
materially adversely affected. In such case, the trading price of our common
stock could decline, and you may lose all or part of your investment.
WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED SIGNIFICANT LOSSES. WE MAY
CONTINUE TO INCUR LOSSES FOR THE FORESEEABLE FUTURE.
We were incorporated in April 1999 and we commenced operations in
November 1999. To date, our costs have greatly exceeded the revenues we have
generated. As of March 31, 2001, our accumulated deficit was $1,980,104. If we
continue our present business, we expect that our operating expenses will
continue to exceed our revenues for the foreseeable future. As a result, we will
need to generate significantly more revenues to achieve profitability. We may
not be able to do so. We will also require additional financing. We may not be
able to obtain the financing or obtain it on terms acceptable to us. If revenues
grow slower than we anticipate, or if operating expenses exceed our expectations
or cannot be reduced accordingly, or if we cannot obtain additional financing,
our business, operating results, and financial condition may be materially
harmed.
Although we recently initiated a restructuring of our business
designed, in part, to reduce costs in a number of areas, we expect to continue
to incur substantial costs and expenses related to:
o the implementation of our business model and our pricing strategies;
o brand development, marketing and promotional activities;
o the expansion of our existing product and service offerings;
o the continued development of our web site, transaction processing
systems, and network infrastructure;
o the development of strategic relationships; and
o our ability to effectively merchandise and manage our product mix.
3
Further, because we sell a substantial portion of our products at very
competitive prices, we have low gross margins on our product sales. Our ability
to become profitable depends on, among other things:
o our ability to generate and sustain net sales, consistent with the
assumptions underlying our new operating plan with improved gross
margins;
o our ability to maintain reasonable operating expense levels; and
o our ability to provide other higher margin products and services.
If we are unable to manage and reduce our operating expenses and costs,
while at the same time increasing our gross margins, and without experiencing a
significant deterioration in our sales volumes, we will be unable to achieve
positive operating cash flow. If we do not achieve positive operating cash flow
in a timely manner that is consistent with our operating plan, our business
could fail.
WE HAVE ONLY BEEN OPERATING OUR ONLINE BUSINESS SINCE NOVEMBER 1999 AND FACE
CHALLENGES RELATED TO EARLY STAGE COMPANIES IN RAPIDLY EVOLVING MARKETS.
We were founded in April 1999 and began our online operations in
November 1999. You should consider our prospects in light of the risks and
difficulties frequently encountered by early stage companies in the rapidly
evolving online commerce market. These risk include, but are not limited to, an
unpredictable business environment, the difficulty of raising working capital,
the difficulty of attracting and retaining qualified management personnel , and
the use of our business model. To address these risks, we must, among other
things:
o access sufficient capital to fund the implementation of our business
model;
o increase our sales volumes and gross margins while limited our
operating expenses;
o expand our customer base;
o enhance our brand recognition;
o expand our product and service offerings;
o access sufficient product inventory to fulfill our customers' orders;
o successfully implement our business and marketing strategy;
o provide high quality customer service and order processing;
o respond effectively to competitive and technological developments; and
o attract and retain qualified personnel.
IF WE DO NOT OBTAIN ADEQUATE FINANCING TO FUND OUR FUTURE OPERATIONS, WE MAY NOT
BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN.
Our projections of future cash needs and cash flows are subject to
substantial uncertainty, and if our current cash balances are insufficient to
meet our anticipated operating cash needs, our business will fail. Further, if
we are unable to operate our business and manage our cash resources in
accordance with the assumptions underlying our new operating plan, we may need
to raise additional working capital sooner than we would otherwise have
expected. The factors that may impair our ability to effectively operate our
business and manage our operating cash include, but are not limited to:
o our ability to retain the support of our distributor and vendor
partners;
o our ability to maintain other key corporate relationships; and
o our ability to maintain sales volumes and gross margins consistent with
our operating plan.
We may also seek to sell additional equity securities, obtain a line of
credit or seek other ways to fund our operations in the event we require
additional working capital to operate our business. We currently do not have any
firm commitments for additional financing and we cannot be certain that
additional financing will be available when and to the extent required, or that,
if available, it will be on acceptable terms. If adequate funds are not
available on acceptable terms, we may not be able to fund our operations, and
our business will fail. Further, if we raise additional funds by issuing equity
or convertible debt securities, the percentage ownership of our stockholders
will
4
be diluted. Also, any new securities could have rights, preferences and
privileges senior to those of our common stock.
WE ARE DEPENDENT UPON OUR AFFILIATE, VHQ ENTERTAINMENT INC.
VHQ Entertainment Inc. is our major stockholder, owning approximately
41% of the issued and outstanding shares. At March 31, 2001, VHQ owed us
$352,496 for an advance which bears interest at 8%, is unsecured and has no
fixed terms of repayment, and $300,547 for the purchase of products and the
purchase of our stock. During the three and six months ended March 31, 2001, we
sold $264,083 and $471,493, respectively, of our products to VHQ, representing
54% and 51% of total sales. These transactions are considered to be in the
normal course of business and are measured at the exchange amount which is the
amount of consideration established and agreed to by the related parties.
INTENSE COMPETITION FROM EXISTING AND NEW ENTITIES MAY ADVERSELY AFFECT OUR
REVENUES AND PROFITABILITY.
We face significant competition in the area of Internet retailing of
entertainment products. We expect competition to intensify given the relative
ease with which new web sites can be developed. There are a large number of web
sites that sell videos and other entertainment products through the Internet. We
also compete with traditional and nontraditional "bricks and mortar" retailers
and mass merchandisers in the United States and Canada. Due to our small size,
it can be assumed that most if not all of our competitors have significantly
greater financial, technical, and other resources.
These competitors may be able to respond more quickly to new or
emerging marketing strategies and Internet technologies than we can. Also, our
competitors and potential competitors have greater name recognition and ability
to enter into strategic partnerships to engage in marketing efforts. To compete,
we may be forced to narrow our marketing focus, thereby reducing our likelihood
for success.
Price competition in our industry is also intense, and price of one of
the principal factors on which consumers base their purchasing decisions. Price
competition may reduce our gross margins, which could materially harm our
business, operating results, and financial condition. Some of our competitors
use aggressive pricing policies to build market share. Some have also adopted
business models that include selling filmed entertainment, music, and games
products for less than their product cost and not charging customers for
shipping and handling. Software applications are also available that can
determine which online site has the lowest price for a particular title which
could direct customers to our competitors' web sites.
WE RELY ON A RELATIVELY NEW MANAGEMENT TEAM AND NEED TO RETAIN OUR EXISTING
PERSONNEL TO EFFECTIVELY OPERATE OUR BUSINESS.
In February 2001, we appointed Caroline Armstrong as our new chief
executive officer, and in April 2001, we appointed Lorne Cogswell as our new
interim chief financial officer. Our success depends, in part, upon their
ability to transition successfully their new management team and to retain
existing staff and management. Further our business is largely dependent on
Michael McKelvie, our senior vice president, marketing and communications, as
well as assistance from our directors, Gregg Johnson and Trevor Hillman. Any of
our officers or employees can terminate their employment relationship at any
time. We presently do not maintain key man life insurance on any member of our
management team. The loss of any key employee or our inability to attract or
retain other qualified employees could harm our business and results of
operations.
OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF ONLINE COMMERCE.
If online commerce does not continue to grow or be accepted or grows or
is accepted more slowly than expected, our business will be materially harmed. A
number of factors could slow the growth of online commerce, including the
following:
5
o the network infrastructure required to support a substantially larger
volume of transactions may not be developed;
o government regulation may increase;
o telecommunications capacity problems may result in slower response
times; and
o consumers may have concerns about the security of online commerce
transactions.
LEGISLATION MAY BE ENACTED WHICH COULD LIMIT THE USE OF E-MAIL MARKETING AND
AWARENESS CAMPAIGNS.
To date, Congress has not enacted any legislation regulating commercial
e-mail, but a number of bills are pending. One proposed law would prohibit
online operators from sending most unsolicited commercial e-mail where the
operators have no existing or personal relationship with the recipient and the
e-mail is not sent at the request of or with the express consent of the
recipient. Another proposed law would require operators of websites and online
services to disclose to users the personal information the operators have
collected and the personal information that it may share with other firms. It
would further require operators to provide simple processes for users to provide
or withhold consent to the operators' dissemination of the information.
In the absence of federal legislation, many states, including
California, Connecticut, Delaware, Iowa, Nevada, North Carolina, Oklahoma, Rhode
Island, Tennessee, Virginia, Washington and West Virginia, have passed laws
limiting the use of e-mail marketing. Because these laws have focused primarily
on unsolicited e-mail marketing, E-Trend's business has yet to be affected by
current legislation. Other states have begun to consider placing restrictions on
e-mail marketing. If Congress or additional states pass legislation restricting
commercial uses of e-mail, it could harm our ability to communicate with
existing customers and attract new customers. Our sales growth could be
affected, which could materially harm our business, operating results and
financial condition.
WE MUST MAINTAIN SATISFACTORY VENDOR RELATIONSHIPS TO COMPETE SUCCESSFULLY.
We rely on wholesalers to fill our customers' orders. We are dependent
upon maintaining these relationships for filling our customers' orders because
there are only a limited number of wholesalers who sell filmed entertainment,
music and games products. If we are unable to maintain suitable relationships
with vendors, we will be materially harmed.
Our wholesalers will need to satisfy our increasing product
requirements on a timely basis. They also must continue to provide adequate
selections of filmed entertainment, music and games titles at competitive
prices. If our wholesalers are unable or unwilling to do so, it would materially
harm our ability to compete, which would in turn materially harm our business,
operating results and financial condition.
WE DO NOT PUBLISH OUR OWN EDITORIAL CONTENT, WHICH MEANS WE MUST RELY ON
LICENSED THIRD-PARTY CONTENT ON OUR WEBSITES.
We license third-party content, including filmed entertainment, music
and games reviews, news reports and features, in order to attract and retain
website visitors. If we are unable to obtain desirable content from our content
licensors or from existing licensors, it could reduce visits to our websites,
which could materially harm our business. In addition, if we are unable to
obtain content at an acceptable cost, it could materially harm our ability to
compete and our operating results and financial condition.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We regard our trademarks, trade secrets and similar intellectual
property as important to our success. We have applied for the registration of
some of our trademarks and service marks in the United States and Canada.
However, our efforts to establish and protect our intellectual property rights
may be inadequate to prevent misappropriation or infringement of our
intellectual property rights. If we are unable to safeguard our intellectual
property rights, it could materially harm our business, operating results and
financial condition.
6
WE MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
We have established a network of links with numerous small online
sites. Many of the sites may not have licenses for the use of the intellectual
property that they display. The copyright holders of this intellectual property
or their licensees may assert infringement claims against us because of our
relationships with these sites.
Although we believe that our use of third-party material on our
websites is permitted under current provisions of copyright law, some aspects of
Internet content and commerce law are not clearly settled. We may therefore be
the subject of alleged infringement claims of the trademarks and other
intellectual property rights of third parties. If we become subject to these
types of claims, our business could be materially harmed even if we successfully
defend against the claims. It also is possible that future legal developments
would prohibit us from having rights to downloadable information, sound or
video.
THE PROTECTION OF OUR DOMAIN NAMES IS UNCERTAIN BECAUSE THE REGULATION OF DOMAIN
NAMES IS SUBJECT TO CHANGE.
We currently hold various web domain names relating to our brand,
including, among others EntertainMe.com, VHQMusic.com, MovieSource.com,
VHQGames.com, as well as domain names registered in foreign countries.
Governmental agencies and their designees generally regulate the acquisition and
maintenance of domain names. The regulation of domain names in the United States
and in foreign countries is expected to change in the near future. As a result,
we may be unable to acquire or maintain relevant domain names in all countries
in which we may conduct business. If our ability to acquire or maintain domain
names is limited, it could materially harm our business, operating results and
financial condition.
WE ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL LIABILITIES THAT MAY BE COSTLY
AND MAY INTERFERE WITH OUR ABILITY TO CONDUCT BUSINESS.
Laws and regulations directly applicable to online commerce or Internet
communications are becoming more prevalent. These laws and regulations could
expose us to compliance costs and substantial liability, which could materially
harm our business, operating results and financial condition. In addition, the
growth of the Internet, coupled with publicity regarding Internet fraud, may
lead to the enactment of more stringent consumer protection laws. These laws
would also be likely to impose additional burdens on our business.
The adoption of any additional laws or regulations may decrease the
popularity or impede the expansion of the Internet and could seriously harm our
business. A decline in the popularity or growth of the Internet could decrease
demand for our products and services, reduce our advertising revenues and
margins and increase our cost of doing business. Moreover, the applicability of
existing laws to the Internet is uncertain with regard to many important issues,
including property ownership, intellectual property, export of encryption
technology, libel and personal privacy. The application of laws and regulations
from jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services, could also harm our business.
WE MAY BE SUBJECT TO LIABILITY FOR SALES AND OTHER TAXES.
Except in Canada, we do not collect sales or other similar taxes in
most states. Our business could be materially harmed if additional sales and
similar taxes are imposed on us, or if penalties are assessed on us for past
nonpayment of these taxes. Recently adopted legislation provides that, prior to
October 2001, a state cannot impose sales taxes on products sold on the Internet
unless these taxes could be charged on non-Internet transactions involving the
products. During this moratorium, it is possible that taxing mechanisms may be
developed that would, following the moratorium, impose increasing sales and
similar tax burdens on us. If these burdens are placed on us, our business could
be materially harmed and there could be a material adverse effect on our
operating results and financial condition.
7
WE MUST SUCCESSFULLY EXECUTE OUR NEW OPERATING PLAN TO ACHIEVE PROFITABILITY
WITHOUT HAVING TO RAISE ADDITIONAL WORKING CAPITAL.
In early 2001, we initiated a restructuring of our business and
implemented a new operating plan designed to accelerate our ability to achieve
positive operating cash flow without the need for additional working capital. As
part of the new operating plan, we reduced the size of our workforce and made
further expense reductions for the business in the areas of marketing and
advertising, and general and administrative. To successfully execute against our
operating plan, we must adhere to our expense reductions and work to achieve the
revenue and gross margin targets incorporated as underlying assumptions to our
operating plan. If we are unable to manage our operating expenses and increase
our gross margins, without experiencing significant deterioration in our
projected sales volumes, we will be unable to achieve positive operating cash
flow. Further, we have reduced our marketing and advertising budget for 2001,
and we cannot guarantee that we will be able to maintain the visitor traffic
levels, visitor conversion rates, customer purchase activity and general brand
awareness that we have had in the past. Our ability to achieve our annual and
quarterly revenue and gross margin goals could also be negatively impacted by
the softening consumer demand for entertainment products, as well as the
weakening general economic conditions and decreasing consumer confidence.
Our new operating plan reflects management's expectations as of the
date of this prospectus, and is based on currently available information, as
well as significant assumptions made by management regarding various revenue,
gross margin and operating expense items. We cannot guarantee that the
assumptions that we have relied upon in developing our operating plan will be
accurate, or that future events or results will conform to our expectations or
assumptions. If our assumptions are inaccurate, or our expectations prove to be
erroneous in light of future events, or if we are unable to maintain the support
of our vendors, distributors, third party advertisers and other key corporate
relationships regardless of the success of our new operating plan, we will need
to raise additional working capital before we achieve positive operating cash
flow. We currently do not have any commitments for additional financing, and we
cannot be certain that additional financing will be available when and to the
extent required, or that, if available, it will be on acceptable terms. If
adequate funds are not available on acceptable terms, we may not be able to fund
our operations and our business could fail.
IN LIGHT OF CERTAIN PERCEPTIONS REGARDING OUR FINANCIAL CONDITION, OUR
CUSTOMERS, DISTRIBUTORS AND VENDOR PARTNERS MAY DECIDE NOT TO DO BUSINESS WITH
US.
Due to concerns regarding our financial condition and our perceived
ability to fulfill our financial and other obligations, our customers,
distributors, vendor partners and other corporate partners and service providers
may decide not to conduct business with us, or may conduct business with us on
terms that are less favorable than those customarily extended by them. For
example, our distributors could seek to limit our credit terms or otherwise
reduce their support of our business, forcing us to leverage our operating cash
by increasing the security required for our secured credit lines. Also, if our
customers and vendor partners choose to do less business with us, our net sales
would decrease and our gross profits would be significantly impacted by reduced
sales volumes, including a corresponding decrease in co-op advertising revenue
WE ARE DEPENDENT ON SEVERAL THIRD PARTY PROVIDERS TO FULFILL A NUMBER OF OUR
RETAIL FUNCTIONS. IF THESE PARTIES ARE UNWILLING OR UNABLE TO CONTINUE PROVIDING
SERVICES TO US, OUR BUSINESS COULD BE SERIOUSLY HARMED.
We are currently dependent on our distribution and fulfillment
providers to manage inventory, process orders and distribute products to our
customers in a timely manner. If we do not maintain our existing relationships
with these providers on acceptable commercial terms, we may not be able to
continue to offer a broad selection of merchandise at low prices, and customers
may refuse to shop at our online store. In addition, manufacturers may decide,
for reasons outside our control, not to offer particular products for sale on
the Internet. Other manufacturers have chosen not to authorize any Internet
resellers or Internet resellers without a traditional "brick and mortar" retail
store. If we are unable to supply products to our customers, or if other product
manufacturers refuse to allow their products to be sold via the Internet, our
business will suffer severely.
8
We rely on our distributors to fulfill a number of traditional retail
functions, including maintaining inventory and preparing merchandise for
shipment to individual customers. In the future, our vendors may not be willing
to provide these services at competitive rates. In addition, vendors may refuse
to develop the communications technology necessary to support our direct
shipment infrastructure. We also have no effective means to ensure that our
providers will continue to perform these services to our satisfaction. Our
customers could become dissatisfied and cancel their orders or decline to make
future purchases if our providers or we are unable to deliver products on a
timely basis. If our customers become dissatisfied with our distributors and
third party service providers, our reputation and the EntertainMe.com brand
could suffer.
Our operations are also heavily dependent upon a number of other third
parties for credit card processing, and hosting our system infrastructure and
database servers. In addition, our distributors and fulfillment providers use
the TNT Canada Inc. and. the Canada and United States Postal Services to deliver
substantially all of our products. If the services of any of these third parties
become unsatisfactory, our customers may experience lengthy delays in receiving
their orders, and we may not be able to find a suitable replacement on a timely
basis or on commercially reasonable terms.
SYSTEM FAILURES COULD PREVENT ACCESS TO OUR ONLINE STORE AND HARM OUR BUSINESS
AND RESULTS OF OPERATIONS.
Our sales would decline and we could lose existing or potential
customers if they are not able to access our online store or if our online
store, transaction processing systems or network infrastructure do not perform
to our customers' satisfaction. Any network interruptions or problems with our
web site could:
o prevent customers from accessing our online stores;
o reduce our ability to fulfill orders;
o reduce the number of products that we sell;
o cause customer dissatisfaction; or
o damage our reputation.
We have experienced brief computer system interruptions in the past,
and these interruptions may recur. If the number of customers visiting our web
site continues to increase, we will need to expand and upgrade our technology,
transaction processing systems and network infrastructure significantly. We may
not be able to make timely upgrades to our systems and infrastructure to
accommodate increases in the number of customers.
Our systems and operations are also vulnerable to damage or
interruption from a number of sources, including fire, flood, power loss,
telecommunications failure, physical and electronic break-ins, earthquakes and
other similar events. Our servers are also vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. Any substantial
disruption of this sort could completely impair our ability to generate revenues
from our web site. We do not presently have a formal disaster recovery plan in
effect and do not carry sufficient business interruption insurance to compensate
us for losses that could occur.
OUR BUSINESS MODEL IS NEW AND UNPROVEN, AND WE MAY NOT BE ABLE TO ACHIEVE
PROFITABILITY.
We are subject to risks due to the unproven and evolving nature of our
business model and aggressive pricing strategy. The success of our business
model depends on the volume of customers that visit our web site and purchase
our products. To this end, we have worked hard to build our brand name and
enhance our customer loyalty by selling our products at extremely low prices and
maintaining very low, gross margins on our product sales. We intend to implement
various strategies to improve our gross margins going forward, which may include
raising prices on products and product categories from time to time. To the
extent we raise the prices on our merchandise, our product sales may decline. We
may also have to increase our prices if distributors receive pressure from
manufacturers to discontinue sales to us as a result of our low price strategy.
9
ONLINE SECURITY RISKS COULD SERIOUSLY HARM OUR BUSINESS.
A significant barrier to e-commerce and online communications is the
secure transmission of confidential information over public networks. Anyone who
is able to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. We may be required to
expend significant capital and other resources to protect against potential
security breaches or to alleviate problems caused by any breach. We rely on
licensed encryption and authentication technology to provide the security and
authentication necessary for secure transmission of confidential information,
including credit card numbers. Advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments may
result in a compromise or breach of the algorithms that we use to protect
customer transaction data. In the event someone circumvents our security
measures, it could seriously harm our business and reputation, and we could lose
customers. Security breaches could also expose us to a risk of loss or
litigation and possible liability for failing to secure confidential customer
information.
IF WE DO NOT RESPOND TO TECHNOLOGICAL CHANGE, OUR STORES COULD BECOME OBSOLETE,
AND WE COULD LOSE CUSTOMERS.
The development of our web site entails significant technical and
business risks. To remain competitive, we must continue to enhance and improve
the responsiveness, functionality and features of our online stores. The
Internet and the e-commerce industry are characterized by:
o rapid technological change;
o changes in customer requirements and preferences;
o frequent new product and service introductions embodying new
technologies; and
o the emergence of new industry standards and practices.
However, we have significantly reduced the resources dedicated to the
enhancement of our network infrastructure and operating systems. If we are
unable to maintain our existing systems and create a positive customer
experience, our revenues may decline and our business will suffer.
The evolving nature of the Internet could also render our existing
online stores and systems obsolete. Our success will depend, in part, on our
ability to:
o license or acquire leading technologies useful in our business;
o enhance our existing online stores;
o enhance our network infrastructure and transaction processing systems;
o develop new services and technology that address the increasingly
sophisticated and varied needs of our current and prospective
customers; and
o adapt to technological advances and emerging industry and regulatory
standards and practices in a cost-effective and timely manner.
Future advances in technology may not be beneficial to, or compatible
with our business. Furthermore, we may not use new technologies effectively or
adapt our web site and transaction processing systems to customer requirements
or emerging industry standards on a timely basis, or at all, depending on our
financial condition. If we are unable to adapt to changing market conditions or
user requirements in a timely manner, our stores may become obsolete and we will
lose customers.
VHQ ENTERTAINMENT INC. AND ITS AFFILIATES CONTROL A MAJORITY OF OUR OUTSTANDING
COMMON STOCK WHICH WILL ENABLE THEM TO CONTROL MANY SIGNIFICANT CORPORATE
ACTIONS AND MAY PREVENT A CHANGE IN CONTROL THAT WOULD OTHERWISE BE BENEFICIAL
TO OUR STOCKHOLDERS.
VHQ Entertainment Inc and its affiliates own approximately 41% of our
outstanding stock as of March 31, 2001. This control by VHQ Entertainment Inc.
and its affiliates could have a substantial impact on matters requiring the vote
of the stockholders, including the election of our directors and most of our
corporate actions.
10
This control could delay, defer or prevent others from initiating a potential
merger, takeover or other change in our control, even if these actions would
benefit our stockholders and us. This control could adversely affect the voting
and other rights of our other stockholders and could depress the market price of
our common stock.
OUR FUTURE OPERATING RESULTS MAY FLUCTUATE AND CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS.
Our limited operating history and the emerging nature of the markets in
which we operate make it difficult to accurately predict our future revenues. We
expect that our revenues and operating results will fluctuate significantly from
quarter to quarter, due to a variety of factors, many of which are beyond our
control. If our quarterly revenues or operating results fall below the
expectations of investors or securities analysts, the price of our common stock
could decline significantly. The factors that could cause our operating results
to fluctuate include, but are not limited to:
o fluctuations in the amount of customer spending on the Internet;
o our ability to maintain the operation of all of our specialty stores;
o our ability to build and maintain customer loyalty;
o the introduction of new or enhanced web pages, services, products, and
strategic alliances by us and our competitors;
o price competition on the Internet or higher wholesale prices in general
o the success of our brand building and marketing campaigns;
o our ability to effectively merchandise and manage our product mix
o our ability to maintain our distributor, vendor, and other key
corporate relationships;
o increases in the cost of online or offline advertising;
o unexpected increases in shipping costs or delivery times;
o government regulations related to use of the Internet for commerce;
o our ability to maintain, upgrade and develop our web site, transaction
processing systems, and network infrastructure;
o technical difficulties, system downtime, or Internet brownouts;
o the amount and timing of operating costs and capital expenditures
relating to maintaining our business, operations, and infrastructure;
and
o general economic conditions and economic conditions specific to the
Internet and online commerce.
These and other external factors have caused and may continue to cause
the market price and demand for our common stock to fluctuate substantially,
which may limit or prevent investors from readily selling their shares of common
stock and may otherwise negatively affect the liquidity of our common stock.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. If securities class action litigation is brought against us it could
result in substantial costs and a diversion of our management's attention and
resources, which could hurt our business.
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION THAT MAY AFFECT THE
LIQUIDITY FOR OUR COMMON STOCK.
Our common stock is subject to regulations of the Securities and
Exchange Commission relating to the market for penny stocks. These regulations
generally require that a disclosure schedule explaining the penny stock market
and the risks associated therewith be delivered to purchasers of penny stocks
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors. The
regulations applicable to penny stocks may severely affect the market liquidity
for our common stock and could limit your ability to sell your securities in the
secondary market.
11
TRADING IN OUR COMMON STOCK ON THE OTC BULLETIN BOARD MAY BE LIMITED THEREBY
MAKING IT MORE DIFFICULT FOR INVESTORS TO RESELL THEIR SHARES OF OUR COMMON
STOCK.
Our common stock trades on the OTC Bulletin Board. The OTC Bulletin
Board is not an exchange and, because trading of securities on the OTC Bulletin
Board is often more sporadic than the trading of securities listed on an
exchange or NASDAQ, you may have difficulty reselling any of the shares that you
purchase from the selling shareholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This reoffer prospectus contains forward-looking statements that
involve risks and uncertainties. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "except," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue," as
well as the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially from
any forward-looking statement. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of
common stock by the selling stockholders.
SELLING STOCKHOLDERS
The selling stockholders acquired or will acquire beneficial ownership
of all shares to be registered under this reoffer prospectus through stock
issued as compensation and through the exercise of stock options. The following
table shows the names of the selling stockholders, the number of shares of
common stock beneficially owned by such stockholder and the number of shares of
common stock that they may sell from time to time under this reoffer prospectus.
We may amend or supplement this reoffer prospectus from time to time in
the future to update or change this list of selling stockholders and shares
which may be resold.
SELLING STOCKHOLDER NUMBER OF NUMBER OF PERCENTAGE OF SHARES
SHARES SHARES BENEFICIALLY OWNED (3)<F3>
BENEFICIALLY SUBJECT TO SHARES BEFORE AFTER
OWNED (1)<F1> OPTIONS (2)<F2> REGISTERED OFFERING OFFERING
Gregg Johnson (4)<F4> 412,700 100,000 160,000 7.8% 4.8%
Trevor Hillman (4)<F4> 410,000 100,000 160,000 7.8% 4.7%
Len Voth (4)<F4> 196,360 100,000 134,500 3.7% 1.2%
- ---------------
<FN>
(1)<F1> Represents shares owned beneficially by the named individual, including
shares that such individual has the right to acquire within 60 days of
the date of this reoffer prospectus. Unless otherwise noted, all
persons referred to above have sole voting and sole investment power.
12
(2)<F2> Includes shares of our common stock underlying options granted to the
selling stockholders under our stock option plan whether or not
exercisable as of, or within 60 days of, the date of this reoffer
prospectus.
(3)<F3> Based on 5,215,273 shares outstanding on the date of this reoffer
prospectus.
(4)<F4> This person is a director of our company. Includes 100,000 shares
issuable upon the exercise of stock options.
</FN>
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, elect to sell all or a
portion of the shares offered under this prospectus in the over-the-counter
market. Sales are anticipated to be made at market prices prevailing at the
times of such sales. The selling stockholders may also make private sales
directly or through a broker or brokers, who may act as agent or principal.
Further, they may choose to dispose of the shares offered under this prospectus
by gift to a third party or as a donation to a charitable or other non-profit
entity. In connection with any sales, the selling stockholders and any brokers
participating in such sales may be deemed to be underwriters within the meaning
of the Securities Act. The amount of securities to be reoffered or resold by
means of this reoffer prospectus, by each person, and any other person with whom
he or she is acting in concert for the purpose of selling our securities, may
not exceed, during any three month period, the amount specified in Rule 144(e)
under the Securities Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from the selling stockholders (and, if such broker acts as
agent for the purchaser of such shares, from such purchaser). Usual and The
selling stockholders will pay customary brokerage fees. Broker-dealers may agree
with them to sell a specified number of shares at a stipulated price per share,
and, to the extent such a broker-dealer is unable to do so acting as agent for
the selling stockholders, to purchase as principal any unsold shares at the
price required to fulfill the broker-dealer commitment to them. Broker-dealers
who acquire shares as principal may thereafter resell such shares from time to
time in transactions (which may involve crosses and block transactions and which
may involve sales to and through other broker-dealers, including transactions of
the nature described above) in the over-the-counter market, in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
commissions from the purchasers of such shares.
We have advised the selling stockholders that the anti-manipulation
rules of Regulation M under the Securities Exchange Act of 1934 may apply to
sales of shares in the market and to the activities of the selling stockholders
and their affiliates. In addition, we will make copies of this reoffer
prospectus available to the selling stockholders and have informed them of the
possible need for delivery of copies of this reoffer prospectus to purchasers on
or prior to sales of the shares offered under this reoffer prospectus. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act. Any commissions paid or
any discounts or concessions allowed to any such broker, and any profits
received on the resale of such shares, may be deemed to be underwriting
discounts and commissions under the Securities Act if any such broker-dealers
purchase shares as principal.
Any securities covered by this reoffer prospectus, which qualify for
sale pursuant to Rule 144 under the Securities Act, may be sold under those
rules rather than pursuant to this reoffer prospectus.
There can be no assurance that the selling stockholders will sell any
or all of the shares of common stock offered under this reoffer prospectus.
13
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law and Article VII of
the our certificate of incorporation permit us to indemnify our officers and
directors and certain other persons against expenses in defense of a suit to
which they are parties by reason of such office, so long as the persons
conducted themselves in good faith and the persons reasonably believed that
their conduct was in our best interests or not opposed to our best interests,
and with respect to any criminal action or proceeding, had no reasonable cause
to believe their conduct was unlawful. Indemnification is not permitted in
connection with a proceeding by or in the right of the corporation in which the
officer or director was adjudged liable to the corporation or in connection with
any other proceeding charging that the officer or director derived an improper
personal benefit, whether or not involving action in an official capacity.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in that act and is therefore unenforceable.
LEGAL MATTERS
Dill Dill Carr Stonbraker & Hutchings, P.C., Denver, Colorado will pass
upon the validity of the common stock offered hereby for us.
EXPERTS
The financial statements as of September 30, 2000 and 1999 and for the
year ended September 30, 2000 and the period from incorporation on April 29,
1999 to September 30, 1999, incorporated in this reoffer prospectus by reference
from our Current Report on Form 8-K dated February 21, 2001 and filed May 7,
2001, have been so included in reliance on the report of Ernst & Young LLP,
independent chartered accountants, which is incorporated herein by reference,
and have been so incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by us with the Securities and Exchange
Commission are incorporated herein by reference except to the extent any
statement or information therein is modified, superseded or replaced by a
statement or information contained in this document or in any other subsequently
filed document incorporated herein by reference:
o our Annual Report on Form 10-KSB for the fiscal year ended June
30, 2000;
o our Quarterly Reports on Form 10-QSB for the quarters ended
September 30, 2000, December 31, 2000, and March 31, 2001;
o our Current Reports on Form 8-K dated February 21, 2001, as
amended and filed on February 22, 2001, May 7, 2001, May 10,
2001, and May 23, 2001;
o our Definitive Information Statement for the special
shareholders meeting held January 26, 2001, filed on January 2,
2001; and
o all reports and other documents subsequently filed by us
pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange
Act prior to the filing of a post-effective amendment which
indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold, shall be
deemed to be incorporated by reference herein and to be a part
hereof from the date of the filing of such reports and
documents.
14
We will furnish without charge to each person to whom the reoffer
prospectus is delivered, upon the oral or written request of such person, a copy
of any and all of the documents incorporated by reference (other than exhibits
to such documents). Requests should be directed to the attention of Timothy J.
Sebastian, General Counsel, at E-Trend Networks, Inc., 5919 - 3rd Street, S.E.,
Calgary, Alberta T2H 1K3 Canada, telephone number (403) 252-7766.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a
registration statement on Form S-8 under the Securities Act, with respect to the
common stock offered by this reoffer prospectus. As permitted by the rules and
regulations of the Commission, this reoffer prospectus, which is a part of the
registration statement, omits certain information, exhibits, schedules and
undertakings set forth in the registration statement. For further information
pertaining to our company and the common stock offered hereby, reference is made
to such registration statement and the exhibits and schedules thereto. A copy of
the registration statement may be inspected without charge at the Public
Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the SEC's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part of the
registration statement may be obtained from such offices upon the payment of the
fees prescribed by the SEC. For further information, please call the SEC at
1-800-SEC-0330. In addition, registration statements and certain other filings
made with the Commission through its Electronic Data Gathering, Analysis and
Retrieval system, including our registration statement and all exhibits and
amendments to our registration statements, are publicly available through the
Commission's website at http://www.sec.gov.
We are subject to the information and reporting requirements of the
Exchange Act and, in accordance therewith, will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
15
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION BY REFERENCE
The following documents and reports filed by the Registrant with the Securities
and Exchange Commission (the "Commission") are incorporated herein by reference:
(a) Annual Report of the Registrant on Form 10-KSB for the fiscal
year ended June 30, 2000, Commission File No. 0-28879.
(b) Quarterly Reports of the Registrant on Form 10-QSB for the
quarters ended September 30, 2000, December 31, 2000, and
March 31, 2001, Commission File No. 0-28879.
(c) Current Reports of the Registrant on Form 8-K dated February
21, 2001, as amended and filed on February 22, 2001, May 7,
2001, May 10, 2001, and May 23, 2001, Commission File No.
0-28879.
(d) Definitive Information Statement for the Special Shareholders
Meeting held January 26, 2001, filed January 2, 2001,
Commission File No. 0-28879.
All documents filed by the Registrant pursuant to Sections 13(a), 13(c), 14, and
15(d) of the Securities Exchange Act of 1934 after the date of this registration
statement and prior to the filing of a post-effective amendment to this
registration statement which indicates that all securities offered hereunder
have been sold, or which deregisters all securities then remaining unsold under
this registration statement, shall be deemed to be incorporated by reference in
this registration statement and to be part hereof from the date of filing of
such documents.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law and Article VII of the
Company's Certificate of Incorporation permit the Company to indemnify its
officers and directors and certain other persons against expenses in defense of
a suit to which they are parties by reason of such office, so long as the
persons conducted themselves in good faith and the persons reasonably believed
that their conduct was in the Company's best interests or not opposed to the
Company's best interests, and with respect to any criminal action or proceeding,
had no reasonable cause to believe their conduct was unlawful. Indemnification
is not permitted in connection with a proceeding by or in the right of the
corporation in which the officer or director was adjudged liable to the
corporation or in connection with any other proceeding charging that the officer
or director derived an improper personal benefit, whether or not involving
action in an official capacity.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
We issued shares to be reoffered or resold pursuant to this registration
statement in reliance on the exemption from registration contained in Section
4(2) of the Securities Act of 1933. No underwriters were used. Each of the
persons to
II-1
whom the shares were issued was deemed to be sophisticated with respect to the
investment in the securities due to his financial condition and involvement in
the Company's business. Restrictive legends were placed on the stock
certificates evidencing the shares issued in the Section 4(2) transactions.
ITEM 8. EXHIBITS
Exhibit
Number Description of Document
4.1 Stock Option granted to Gregg Johnson
4.2 Stock Option granted to Trevor Hillman
4.3 Stock Option granted to Len Voth
5.1 Opinion of Dill Dill Carr Stonbraker & Hutchings, P.C.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C.
(incorporated by reference into Exhibit 5.1)
ITEM 9. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent not more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration
II-2
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Calgary, Province of Alberta, Canada, on June 7,
2001.
E-TREND NETWORKS, INC.
By: /s/CAROLINE G. ARMSTRONG
------------------------------------
Caroline G. Armstrong, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/CAROLINE ARMSTRONG President and Chief Executive Officer June 7, 2001
- ----------------------------------------------- (Principal Executive Officer) ---------------
Caroline Armstrong
Interim Chief Financial Officer
/s/LORNE COGSWELL (Principal Financial and Accounting June 7, 2001
- ----------------------------------------------- Officer) ---------------
Lorne Cogswell
/s/GREGG JOHNSON June 7, 2001
- ----------------------------------------------- Director ---------------
Gregg Johnson
/s/TREVOR HILLMAN June 7, 2001
- ----------------------------------------------- Director ---------------
Trevor Hillman
- ----------------------------------------------- Director ---------------
Len Voth