================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
Amendment No. 1 to
FORM 20-F
[ X ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES
EXCHANGE ACT OF 1934 or
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended __________,or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to________________
COMMISSION FILE NO. ______________________
INSIDE HOLDINGS INC.
--------------------
(Exact name of Registrant as specified in its charter)
Yukon Territory, Canada
-----------------------
(Jurisdiction of incorporation organization)
Suite 1260, 609 Granville Street, Vancouver, B.C. Canada, V7Y 1G5
-----------------------------------------------------------------
(Address of principal executive office)
(604) 687-0888
--------------
(Registrant's telephone number, including area code)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
_________________________
COMMON SHARES, WITHOUT PAR VALUE
(Title of Class)
_________________________
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
As at December 31, 2000 the Company had 4,637,600 issued shares of
common stock.
There is no present market for the Company's common shares. Based upon the last
price at which common shares of the Company were purchased from treasury by
arms-length subscribers the market value of common shares held by non-affiliates
is C$54,800.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark which financial statement item the Registrant has elected
to follow. Item 17 [ ] Item 18 [X]
INTRODUCTION
This filing statement, including all exhibits, consists of 101 pages. The
Exhibit Index is displayed on page 33.
Inside Holdings Inc. (the "Company") is incorporated under the laws of the Yukon
Territory, Canada. Over 50% of the Company's common shares are held by
non-United States citizens and residents, all of its officers and directors are
non-United States citizens and residents and the Company has no assets located
in the United States. As a result, the Company believes that it qualifies as a
"foreign private issuer" for registering its common shares using this Form 20-F
registration statement.
The Company is filing this Registration Statement with the Securities and
Exchange Commission voluntarily to qualify its shares for trading in the United
States secondary market. The Company believes that the registration of the
Company's common shares will make the Company a more attractive vehicle to
prospective investors. No assurances can be given that a trading market for the
Company's shares will ever develop in the United States or, if such a market
does develop, that it will continue.
FORWARD-LOOKING INFORMATION
Statements in this form, to the extent that they are not based on historical
events, constitute forward-looking statements. These statements appear in a
number of different places in this form and include statements regarding the
intent, belief or current expectations of the Company and its directors or
officers, primarily with respect to the future market size and future operating
performance of the Company. When used in this document, the words "anticipate,"
"believe," "estimate," "expect," "intend," "plan," and "project" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Forward-looking statements include,
without limitation, statements regarding the outlook for future operations,
forecasts of future costs and expenditures, evaluation of market conditions, the
outcome of legal proceedings, the adequacy of reserves, or other business plans.
Investors are cautioned that any such forward-looking statements are not
guarantees and may involve risks and uncertainties, and that actual results may
differ from those in the forward-looking statements as a result of various
factors such as general economic and business conditions, including changes in
interest rates, prices and other economic conditions; actions by competitors;
natural phenomena; actions by government authorities, including changes in
government regulation; uncertainties associated with legal proceedings;
technological development; future decisions by management in response to
changing conditions; the ability to execute prospective business plans; and
misjudgments in the course of preparing forward-looking statements. The Company
does not intend or assume any obligation to update these forward-looking
statements.
ACCOUNTING PRINCIPLES
The Company's financial statements included herein were prepared in accordance
with Canadian generally accepted accounted principles. They also comply, in all
material respects, with the accounting principles accepted in the United States
and the rules and regulations of the Securities and Exchange Commission.
-2-
CURRENCY TRANSLATION
Unless otherwise indicated, all monetary amounts referred to in this
registration statement are in Canadian dollars. At December 31, 2000 one U.S.
dollar equaled approximately Canadian $1.4995. Included in this Registration
Statement are interim comparative financial statements for the six months ended
October 31. At October 31, 2000 and 1999 one U.S. dollar equaled approximately
Canadian $1.5225 and $1.4773 respectively.
The following table sets forth a history of the exchange rates for the US dollar
vs. Canadian dollar for each month form July through December 2000.
Month Average Low/High Month End
--------- ------- ------------- ---------
July 1.4779 1.4634/1.4924 1.4870
August 1.4825 1.4713/1.4910 1.4715
September 1.4862 1.4685/1.5085 1.5035
October 1.5123 1.4922/1.5320 1.5225
November 1.5422 1.5275/1.5632 1.5360
December 1.5224 1.4946/1.5531 1.4995
The following table sets forth a history of the exchange rates for the US dollar
vs. Canadian dollar during the Company's past five fiscal years.
Year Average Low/High April 30
---- ------- ------------- --------
2000 1.4694 1.4353/1.5127 1.4772
1999 1.5080 1.4310/1.5795 1.4543
1998 1.4052 1.3663/1.4651 1.4291
1997 1.3640 1.3295/1.4005 1.3957
1996 1.3616 1.3285/1.3855 1.3609
-3-
TABLE OF CONTENTS
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS . . . 5
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE . . . . . . . . . . 5
ITEM 3. KEY INFORMATION . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 4. INFORMATION ON THE COMPANY. . . . . . . . . . . . . . . . . 10
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS. . . . . . . . 15
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES. . . . . . . . . 18
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . . 20
ITEM 8. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . 22
ITEM 9. THE OFFER AND LISTING . . . . . . . . . . . . . . . . . . . 23
ITEM 10. ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . 24
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . 30
ITEM 17. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . 31
ITEM 18. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . 31
ITEM 19. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . 47
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-4-
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. DIRECTORS AND SENIOR MANAGEMENT
NAME AND BUSINESS ADDRESS POSITION WITH COMPANY
Leonard Petersen (1) C.E.O., President and Director
1260-609 Granville Street
Vancouver, Canada
William D. McCartney (1) Director
1260-609 Granville Street
Vancouver, Canada
Murray J. Oliver (1) Director
1260-609 Granville Street
Vancouver, Canada
Paul A. Visosky Secretary
3400-666 Burrard Street
Vancouver, Canada
(1) Member of Audit Committee
B. ADVISERS
Not applicable
C. AUDITORS
Davidson & Company, chartered accountants, has been the Company's auditor for
each of the last three fiscal years. Their address is Suite 1200, 609 Granville
Street, Vancouver, Canada. They are members of the Institute of Chartered
Accountants of British Columbia and the Canadian Institute of Chartered
Accountants.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable
ITEM 3. KEY INFORMATION
-5-
A. SELECTED FINANCIAL DATA
The following represents selected financial data for the Company for the six
months ending October 31, 2000 and 1999 and for each of the past five fiscal
years ending April 30, prepared in accordance with generally accepted accounting
principles in the United States.
All amounts are expressed in Canadian dollars. Exchange rate information is
presented in the introduction to this Registration Statement.
SIX MONTHS ENDED OCTOBER 31
(UNAUDITED)
2000 1999
------------------------
Revenues $ - $ -
Net loss (57,964) (37,702)
Total assets 47,402 105,900
Total liabilities 63,100 119,323
Shareholders' equity (15,698) (13,423)
Capital stock 3,368,694 3,163,181
Common shares outstanding (1) 4,637,600 500,487
Net loss per share (0.01) (0.38)
Cash dividends - -
YEARS ENDED APRIL 30 (AUDITED)
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Revenues $ - $ - $ - $ - $ -
Net loss (187,526) (94,464) (119,625) (98,949) (74,567)
Total assets 299 108,865 153,649 75,467 118,943
Total liabilities 163,546 84,586 34,906 31,199 621,726
Shareholders' equity (163,247) 24,279 118,743 44,268 (502,783)
Capital stock 3,163,181 3,163,181 3,163,181 2,969,081 2,323,081
Common shares outstanding (1) 500,487 500,487 501,139 423,499 170,372
Net loss per share (0.38) (0.19) (0.26) (0.32) (0.44)
Cash dividends - - - - -
<FN>
(1) Adjusted for a reverse split and subsequent forward split that, on net basis, resulted
in the issue of one new share for every ten old shares in October 2000.
The financial data presented above is only a summary and should be read together
with the Company's financial statements, which accompany this registration
statement.
-6-
B. CAPITALIZATION AND INDEBTEDNESS
The following table sets for the capitalization of the Company as at December
31, 2000.
Current indebtedness $ 67,741
Long-term debt -
Shareholders' equity
Capital stock
Authorized
100,000,000 common shares without par value
Issued
4,637,600 common shares 3,368,694
Deficit accumulated during development stage (68,800)
Deficit (3,326,428)
------------
$ 41,207
============
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable
D. RISK FACTORS
The Company has identified the following risk factors as significant. The order
in which they appear is intended to reflect management's opinion of their order
of priority to the Company. Readers should, however, carefully review all of the
risk factors in assessing the Company's prospects. Some information is presented
as of the date hereof and is subject to change, completion or amendment without
notice.
LIQUIDITY AND CAPITAL RESOURCES. As at December 31, 2000, total cash was
$13,827; current liabilities exceeded current assets by $53,200; and total
assets exceeded total liabilities by $26,534. The Company's ability to satisfy
projected working capital requirements is dependent upon its ability to secure
additional funding through public or private sales of securities, including
equity securities of the Company. There is no assurance that the Company will be
able to secure the necessary capital on terms acceptable to the Company or on
any terms.
NO OPERATING HISTORY OR REVENUE AND MINIMAL ASSETS. The Company's intended
business is in its early developmental and promotional stages, and the Company
only recently acquired its Principal Asset. There have been no revenues or
earnings from operations and the Company has no significant tangible assets or
financial resources. The Company will, in all likelihood, sustain operating
expenses without corresponding revenues at least until the Company secures
significant capital and human resources and successfully implements its business
strategies, of which there are no assurances. There is also no assurance that
the Company will generate revenues and be profitable in the future, or that
profitability, if achieved, will be sustained.
-7-
SPECULATIVE NATURE OF THE COMPANY'S PROPOSED OPERATIONS. The success of the
Company's proposed plan of operation will depend to a great extent on its
ability to secure interest amongst prospective network affiliates, which are
themselves successful, of which there is no assurance. While management intends
to pursue relationships with enterprises having established operating histories,
it is likely that, at this stage of the Company's development, prospective
affiliates will be start-up enterprises with unproven management, limited
assets, limited potential for earnings or other negative characteristics. The
success of the Company's operations will therefore be dependent, at least in
part, upon the success of such start-up enterprises, which is not assured. As a
consequence, the Company's Board of Directors will closely monitor the Company's
progress and reassess its plan and strategies on a regular basis, which may
result in the Company choosing to discontinue its proposed business in the
future and combine with another business, which may also be highly speculative
in nature. The Company has not engaged in any discussions concerning potential
business combinations and has no immediate plans to identify and negotiate with
prospective businesses.
SIGNIFICANT FUTURE CAPITAL NEEDS. The Company requires significant additional
capital to finance the implementation of its business plan and strategies. The
ability of the Company to secure the necessary capital in the future will depend
in part on the prevailing capital market conditions as well as the Company's
performance in signing network affiliates to join the network. As a consequence
of these and other factors, there is no assurance that further funding will be
available to the Company on acceptable terms, or at all, to meet future capital
requirements.
NO AGREEMENTS WITH PROSPECTIVE NETWORK AFFILIATES. The Company has no current
arrangement, agreement or understanding with any prospective network affiliate
and there is no assurance that agreements with prospective network affiliates
will be made on terms acceptable to the Company or on any terms. In addition,
the Company has not established a specific length of operating history or a
specified level of earnings, assets, net worth or other criteria, which it will
require a prospective affiliate to have achieved, or without which, the Company
would not consider making an agreement with such prospective affiliate.
Accordingly, the Company may enter into agreements with business entities having
no significant operating history, losses, limited or no potential for earnings,
limited assets, negative net worth or other negative characteristics.
ESTABLISHING AND MAINTAINING BRAND AWARENESS. The Company must establish and
maintain brand awareness for its Principal Asset in order to attract prospective
network affiliates. Name recognition will also be important in the future
because of the growing number of Internet companies that will compete directly
with network affiliates. Promotion and enhancement of the Company's brand names
will depend largely upon the Company's ability to secure relationships with
network affiliates that provide consistently high-quality products, services and
content and the successful implementation of effective marketing strategies in
concert with such affiliates, which are not assured.
COMPETITION. The marketplace for e-commerce solutions and the providers of
online navigational services has numerous competitors. In a particular, the
Company faces significant competition from dominant Internet portal companies
such as Yahoo and Excite and network companies such as America Online and CMGI.
These competitors, among others, have significantly greater financial,
technological, marketing and personnel resources than the Company. There can be
no assurance that the Company's proposed business will be able to compete
successfully or that competition will not have a material adverse effect on the
Company's business plan, financial condition and results of operations.
-8-
CONFLICTS OF INTEREST. The directors and officers of the Company will not devote
all their time to the affairs of the Company. They are presently and will
continue to be engaged in other business ventures. As a result, situations may
arise where one or more directors and officers will be in direct or indirect
competition with the Company. Notwithstanding the combined limited experience
and time commitment of management, loss of the services of any of these
individuals would adversely affect development of the Company's business and its
likelihood of continuing operations.
DEPENDENCE ON USE OF INTERNET. The success of the Company depends on increased
use of the Internet for advertising, marketing, providing services and
conducting business. Commercial use of the Internet is currently at an early
stage of development and the future of the Internet, as a means for conducting
commerce, is not clear.
EXCHANGE RATE FLUCTUATIONS. The Company's business is operated from its head
office in Vancouver, Canada. Accordingly, most of its costs and assets are in
Canadian dollars. Any significant increase or decrease in the value of the
Canadian dollar compared to the U.S. dollar would have a significant impact on
the financial position of the Company. Similar exchange rate risks will arise
should the Company's business expand into other markets and its business
involves other currencies. The Company does not engage in any foreign currency
hedging activities.
GOVERNMENTAL REGULATION. The Company is not currently subject to direct
regulation by any government agency, other than applicable securities laws and
regulations applicable to business generally. However, it is possible that a
number of laws and regulations may be adopted with respect to regulating user
privacy, pricing and consumer protection, which may impose additional burdens on
companies in this industry conducting business and thus increase the Company's
cost of doing business. There can be no assurance that any such new legislation
or regulation will not be enacted, nor that the application of laws or
regulations from jurisdictions whose laws do not currently apply to the
Company's business will subsequently become applicable.
REGULATION UNDER INVESTMENT COMPANY ACT. Although the Company will be subject to
regulation under the Securities and Exchange Act of 1934, the Company believes
it will not be subject to regulation under the Investment Company Act of 1940,
insofar as the Company will not be engaged primarily in the business of
investing or trading in securities. The Company may, however, hold minority
interests in a number of affiliates and as a consequence the Company could be
subject to regulation under the Investment Company Act of 1940. In such event,
the Company would be required to register as an investment company and could be
expected to incur significant registration and compliance costs. The Company
has obtained no formal determination from the Securities and Exchange Commission
as to the status of the Company under the Investment Company Act of 1940 and,
consequently, any violation of such Act could subject the Company to material
adverse consequences.
MARKET RISK. The Company's common shares do not presently trade on any
recognized stock exchange or other organized securities market. The Company may
make application to the National Association of Securities Dealers to have its
common shares listed for trading on the NASD OTC Bulletin Board after this
Registration Statement becomes effective; however, there is no assurance that
such application will be accepted or that a market for the common shares of the
Company will ever develop in the United States or, if such a market does
develop, that it will continue or that the trading price of the shares will not
be subject to significant price fluctuations. Accordingly, an investment in
common shares of the Company should only be considered by those investors who do
not require liquidity and can afford to suffer a total loss of their investment.
An investor should consult with professional advisers before making such an
investment.
-9-
NO DIVIDENDS TO BE PAID. The Company has not paid dividends on its common stock
and does not anticipate paying dividends on its common stock in the foreseeable
future. The Board of Directors has sole authority to declare dividends payable
to the Company's stockholders. The fact that it has not and does not plan to
pay dividends indicates that the Company must use all of its funds generated by
operations for reinvestment in operating activities and also emphasizes that the
Company may not continue as a going concern. Prospective shareholders also must
evaluate an investment in the Company solely on the basis of anticipated capital
gains.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
The Company was formed as Coast Falcon Resources Ltd. under the Company Act of
British Columbia, Canada, on July 7, 1992, pursuant to a statutory merger of
McConnell-Peel Resources Ltd. and Sheba Copper Mines Limited (together, the
"Predecessor Companies").
On September 11, 2000, the Company changed its name to Inside Holdings Inc., and
on October 6, 2000 it was continued under the Business Corporations Act of the
Yukon Territory, Canada.
The Company's registered records office is located at Suite 308, 204 Black
Street, Whitehorse, Yukon, Canada, Y1A 2M9, and its head office is located at
Suite 1260, 609 Granville Street, Vancouver, B.C., Canada, V7Y 1G5. Telephone:
(604) 687-0888.
The Predecessor Companies were engaged in the exploration, development and
exploitation of mineral resource properties in Canada, without commercial
success. Each Predecessor Company ceased all such activities and abandoned their
respective resource property interests prior to the formation of the Company by
way of merger of the Predecessor Companies. The balance sheets of the
Predecessor Companies were carried over at historical cost.
Since its formation, the Company raised additional private equity capital to
settle certain indebtedness and explore new lines of business. Except as
described below, the Company did not carry on or acquire any business or
property. All costs associated with identifying, researching and negotiating
with prospective businesses were expensed in the year they were incurred.
In 1996, the Company entered into a conditional agreement to acquire, from
arms-length parties, all of the issued capital stock of Kryton Products Inc., a
Canadian private company ("Kryton"), by way of merger. In contemplation of the
proposed merger the Company loaned Kryton the aggregate sum of $104,873. The
proposed merger was never consummated. Prior management of the Company
determined that the loan balance was not collectible and expensed it during the
Company's most recent fiscal year ended April 30, 2000.
The Company entered into an agreement, dated May 1, 2000, to purchase its
Principal Asset and thereupon commenced a new developmental stage. The Company's
proposed business has no prior history of operations. (Attached hereto as
Exhibit 4.3.)
-10-
The Company recently completed a reorganization, which was approved by
shareholders of the Company at a general meeting of shareholders held in
Vancouver, Canada on September 6, 2000, to better position the Company to carry
on its new business. The reorganization included the following steps:
(1) a new Board of Directors of the Company was appointed by
shareholders and new management by the Board of Directors;
(2) the Company changed its name to Inside Holdings Inc. to more
properly describe the new business direction of the Company;
(3) the Company changed its governing jurisdiction from the Province of
British Columbia to the Yukon Territory where there is no
requirement that a majority of directors reside in Canada;
(4) the Company reverse-split and then forward-split its common shares
and issued, on a net basis, one new share for every ten old
shares and eliminated fractional shareholders to reduce otherwise
significant shareholder reporting costs;
(5) the Company issued 3,500,000 post split common shares at
approximately $0.04 per share to settle debts owing to related
parties in the aggregate amount of $140,513; and
(6) the Company completed a private placement and issued 650,000 post
split common shares at $0.10 per share to five investors in Canada,
including directors and officers of the Company, for aggregate
proceeds of $65,000. The proceeds from the private placement
were used primarily to pay certain debts, complete the
reorganization and to provide the Company with initial working
capital.
The Company is a "reporting issuer" in the Province of British Columbia, Canada,
as that term is defined under the British Columbia Securities Act. The Company
is presently required to file annual and quarterly financial statements together
with certain other non-financial information with the British Columbia
Securities Commission.
The Company is filing this Registration Statement with the Securities and
Exchange Commission voluntarily to qualify its shares for trading in the United
States secondary market. The Company believes that the registration of the
Company's common shares will make the Company a more attractive vehicle to
prospective investors. No assurances can be given that a trading market for the
Company's shares will ever develop in the United States or, if such a market
does develop, that it will continue.
-11-
B. BUSINESS OVERVIEW
GENERAL
The Company is in its early developmental stage and has not commenced commercial
operations. Since its formation, the Company's only activities have been
organizational in nature directed at acquiring its principal asset, which is
described below, raising capital and developing its business plan. It has no
full time employees and owns no real property or other tangible assets other
than cash.
Should the Company determine that the plan is feasible, and sufficient capital
is made available, it intends to create, brand, market and manage a network of
web-based affiliated businesses and content providers to whom the Company will
offer a range of business consulting and marketing services.
There is no assurance that the Company will secure the necessary capital to
effectively implement its business strategies or be able to attract and secure a
sufficient number of appropriate network affiliates to meet its objective.
BUSINESS STRATEGIES
To facilitate the creation of a network brand, the Company recently acquired and
is the beneficial owner of 400 Internet domain names all ending with the suffix
"inside.com" (the "Principal Asset"). For example, the Company has the right to
use, sell, lease or license the names "finditinside.com", "investinside.com" and
"newyorkinside.com", among others. The names include many geographical and
subject matter references, which allows for simple navigation of the Internet by
using such generic references as opposed to conventional search means. (See
Schedule "A" attached to Exhibit 4.3 for a complete listing of Internet domain
names acquired.) The Company's business strategies include the sale, lease or
license of these domain names to selected network affiliates and then deploying,
together with such affiliates, conventional marketing techniques in traditional
channels to promote and enhance the network brand.
The value of any particular domain name, not presently in use, is generally a
function of its perceived market appeal. Generally, short, generic, intuitive,
easy to spell names are more marketable and hence more valuable than names that
do not share these characteristics. The Company believes the "inside"
designation, is intuitive and easy to bear in mind, making it a superior
branding opportunity.
A network affiliate may be a start-up or an already existing operation that is
directed at a particular niche constituency. In the case of an existing
operation, a domain name having descriptive relevance to such operations, can be
used as a forwarding or directional link and in the case of a start-up as a
destination web address. Each affiliate would be responsible for developing and
managing site content, increasing site 'stickiness' and promoting the network
'brand'.
The Company's intends to promote opportunities for strategic business
relationships among network affiliates within and across industry segments. A
typical website of an affiliate would promote direct links to other affiliates,
with which a strategic relationship has been established, and to the Company,
which would serve as a portal to the entire network. As the network expands, the
Company will attempt to leverage the combined Internet traffic of the network
affiliates and the prospective purchasing power represented by such traffic to
obtain benefits for its network affiliates such as discounts for goods and
services.
-12-
In addition, the Company would seek opportunities to generate capital through
the selective sale, from time to time, of its investments in network affiliates
to increase shareholder value and to generate capital for reinvestment.
The Company's main sources of revenues in the future are expected to come from:
1. the sale, license or lease of the Company's domain names;
2. the provision of business consulting and marketing services; and
3. the selective sale of investments in network affiliates.
PLAN OF OPERATION
In order to pursue the Company's principal business objectives, and because the
Company has limited financial and human resources, the Company proposes to take
an incremental approach towards implementing its business strategies and has
developed the following limited plan of operation.
For the balance of the Company's fiscal year and during the following fiscal
year management's focus will be to secure necessary human and capital resources
and to research, identify and secure conditional agreements with prospective
network affiliates. These affiliates may be start-up enterprises, in which case
the Company expects to negotiate a minority or majority equity interest, or
existing web-based enterprises. The substantive terms of each agreement with
prospective affiliates will likely vary significantly, particularly at this
early stage of the Company's development.
Management believes the Company must secure agreements with a minimum of ten
prospective network affiliates, with fully operational websites, before a
network launch is feasible and a fully integrated business plan can be
developed, financed and implemented. Should the Company fail to secure such
agreements in a reasonable time period, which shall be determined by the Board
of Directors, the Company may have to discontinue its current business plan and
consider an alternate business plan, which may also be highly speculative.
Management of the Company anticipates seeking out prospective network affiliates
that are established web-based businesses through solicitation. Such
solicitation may include newspaper or magazine advertisements, mailings and
other distributions to existing businesses, law firms, accounting firms,
investment bankers, marketers and similar persons, the use of one or more World
Wide Web sites and similar methods. No estimate can be made as to the number of
persons who will be contacted or solicited.
Management may also assist with the organization, development and management of
prospective network affiliates, which are start-up businesses.
The Company has no current arrangement, agreement or understanding with any
prospective network affiliate and there is no assurance that agreements with
prospective network affiliates will be made on terms acceptable to the Company
or on any terms.
-13-
The Company has no full time employees to implement its plan. Management has
agreed to allocate a portion of their time to the activities of the Company,
however, it is expected that conflicts of interest will arise with respect to
the limited time commitment by management. As a consequence, the Company intends
to pursue new sources of capital over the six months following the effective
date of this Registration Statement and, if successful in securing such capital,
anticipates hiring one or more full time persons or engaging the services of
outside professionals to work with management to further develop the Company's
plan of operation and pursue agreements with prospective network affiliates. The
amount of new capital, its intended use, and the terms under which it may be
made available are subject to future negotiations and therefore are not
presently determinable.
The Company is filing this Registration Statement with the Securities and
Exchange Commission voluntarily to qualify its shares for trading in the United
States secondary market. The Company believes that the registration of the
Company's common shares will make the Company a more attractive vehicle to
prospective investors.
COMPETITION
The electronic commerce industry is new, rapidly evolving and intensely
competitive, and the Company expects competition to intensify in the future. The
Company will likely remain an insignificant participant among the many
enterprises, which are attempting to establish or have established a network
presence on the World Wide Web.
The most significant potential for competition facing the Company comes from
dominant Internet portal companies such as Yahoo and Excite and network
companies such as America Online and CMGI, which have already been successfully
branded and are positioned to offer substantially greater benefits to
prospective affiliates. These and many other established companies have
significantly greater financial and personnel resources and technical expertise
than the Company.
The Company believes that its Principal Asset provides it with a unique
competitive position in establishing brand awareness and that the market is
large enough to accommodate many new entrants such as the Company. However, in
view of the Company's combined extremely limited financial resources and limited
management availability, the Company will continue to be at a significant
competitive disadvantage compared to the Company's competitors.
C. ORGANIZATIONAL STRUCTURE
The Company is majority owned by Pemcorp Management Inc., a Canadian private
company. (See "Item 7. Major Shareholders and Related Party Transactions")
The Company has no operating subsidiaries.
-14-
D. PROPERTY, PLANTS AND EQUIPMENT
The Company owns no property, plant or equipment and there are no current plans
to purchase any in the near future. The Company currently utilizes office space
in a commercial building located in Vancouver, British Columbia, Canada. The
space is shared with several other companies, which share common management.
The Company currently pays no rent. The present facilities are believed to be
adequate for meeting the Company's needs for the immediate future. If required
in the future, the Company does not anticipate that it will have any difficulty
in obtaining additional space at reasonable lease rates.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of the financial condition and operating
results of the Company for the six months ended October 31, 2000 and 1999 and
the three fiscal years ended April 30, 2000, 1999 and 1998 should be read in
conjunction with the financial statements and related notes included in this
Registration Statement. (See Item 18 - Financial Statements.)
The Company's financial statements included herein were prepared in accordance
with Canadian generally accepted accounted principles. They also comply, in all
material respects, with the accounting principles accepted in the United States
and the rules and regulations of the Securities and Exchange Commission.
The Company has received no revenues and has had no active business operations
in any of its last three fiscal years. In the past, the Company has acquired
necessary capital through the limited issuance of its common shares, increasing
indebtedness and through advances from related parties. There is no assurance
that these sources will continue to be available in the future.
Commencing May 1, 2000, the Company entered into a new development stage with
the acquisition of its Principal Asset. In order to carry out its proposed
business plan the Company will need to secure additional capital from the
issuance of securities, including equity securities, of the Company. There is no
assurance that the Company will secure the necessary capital on terms acceptable
to the Company or at all. As a consequence of this uncertainty, the Company may
have to discontinue its present business plan and consider an alternative
business plan, which may also be highly speculative. The Company has not engaged
in any discussions concerning other potential businesses and has no immediate
plans to identify and negotiate with prospective businesses.
A. OPERATING RESULTS
Six Months ended October 31, 2000 Compared to Six Months ended October 31, 1999
The Company's net loss for 2000 was $57,964 compared to a net loss of $37,702
for 1999. Substantially all of the Company's expenses during these periods were
administrative in nature and are expected to remain the Company's largest
expenditure unless and until the Company secures the requisite capital to
implement its proposed business plan.
-15-
The increase in the Company's net loss from 1999 to 2000 was primarily as a
result of an amortization charge in the current year of $10,000 and increased
professional fees incurred in connection with the Company's reorganization.
Year ended April 30, 2000 Compared to Year ended April 30, 1999
The Company's net loss for 2000 was $187,526 compared to a net loss of $94,464
for 1999. The primary reason for the increase in the Company's net loss from
1999 to 2000 was a one-time write-off of a loan receivable in the amount of
$104,873. The loan was made in contemplation of a merger with a private Canadian
company. The proposed merger was never consummated and prior management of the
Company determined that the loan balance was not collectible.
Administrative expenses, also included in the determination of the Company's net
loss in each year, decreased from $94,464 in 1999 to $82,653 in 2000, primarily
because of reduced professional and transfer agent fees. Management and
consulting fees of $60,000 in the aggregate made up the majority of these
administrative expenses in each year.
Year ended April 30, 1999 Compared to Year ended April 30, 1998
The Company's net loss for 1999 was $94,464 compared to a net loss of $119,625
for 1998. The net loss of each year was entirely as a result of administrative
expenses and decreased from 1998 to 1999 primarily as a consequence of reduced
professional fees. Management and consulting fees of $60,000 in the aggregate
made up the majority of these administrative expenses in each year.
B. LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2000, total cash was $13,827; current liabilities exceeded
current assets by $53,200; and total liabilities exceeded total assets by
$26,534. Included in current and total liabilities is $53,375 due to related
parties. The Company recently carried out a capital reorganization and derived
its current operating capital from the issuance of common shares and from
increasing indebtedness. (See "Item 4. Information on the Company-History and
development of the company")
The Company has no planned capital expenditures at this time.
The Company is contractually committed to pay $2,500 per month for management
services. (See "Item 7. Major Shareholders and Related Party Transactions").
This contract may be cancelled by the Company at any time on 30 days written
notice. The contracted party has agreed that fees payable under the contract may
be accrued and not paid until such time when the Company has adequate working
capital, as determined by the Board of Directors at its sole discretion. The
balance owing, included in current liabilities, was $13,375 at December 31,
2000.
The Company is obligated to pay the cost of renewing the registration of each
domain name as it comes due. Current registration fees vary between US$15 and
US$35 per name. The registration of 119 of the names expires between April 25
and May 2, 2001. The registration of the remaining 281 names expires between
February and April of 2002. The Board of Directors will decide at the
appropriate time whether or not to renew the registration.
-16-
During each of the last three fiscal years, the Company derived most of its
operating capital from increasing indebtedness. As at April 30, 2000, current
assets were $299, compared to $3,292 and $49,076 at April 30, 1999 and 1998
respectively. Current liabilities were $163,546 at April 30, 2000 compared to
$84,586 and $34,906 at April 30, 1999 and 1998 respectively. The increase in the
Company's working capital deficit over the period was primarily the result of
continuing operating losses. Subsequent to April 30, 2000, the Company issued
3,500,000 common shares in full settlement and satisfaction of a majority of its
current liabilities.
The Company's current working capital is insufficient to meet its business
objectives. The Company's ability to satisfy projected working capital
requirements is dependent upon its ability to secure additional funding through
public or private sales of securities, including equity securities of the
Company. There is no assurance that the Company will be able to secure the
necessary capital on terms acceptable to the Company or on any terms. The Board
of Directors and senior management have agreed that they will advance to the
Company any additional funds, which the Company requires to pay costs associated
with this Registration Statement and subsequent regulatory filings over the next
twelve months while it attempts to secure the necessary capital to carry out its
business plan. Such advances will be made with an expectation of repayment.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
Not applicable
D. TREND INFORMATION
The success of the Company depends on increased use of the Internet for
advertising, marketing, providing services and conducting business. Commercial
use of the Internet is currently at an early stage of development and the future
of the Internet, as a means for conducting commerce, is not clear.
Recently, companies that are dependent upon the use of the Internet have
experienced great difficulty in securing the necessary capital to carry out
their business plans. Many such companies have ceased operations and been forced
into liquidation. The market value of Internet domain names has, as a result,
been significantly reduced over the last twelve months and interest in financing
start-up Internet businesses has diminished. This trend represents a significant
challenge to the Company proposed operations. As a consequence, the Company's
Board of Directors will closely monitor the Company's progress and reassess its
plans and strategies on a regular basis, which may result in the Company
choosing to discontinue its proposed business in the future and combine with
another business, which may also be highly speculative in nature. The Company
has not engaged in any discussions concerning potential business combinations
and has no immediate plans to identify and negotiate with prospective
businesses.
-17-
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The following are the names, ages and place of residence of the directors and
executive officers of the Company and their respective positions with the
Company and their principal occupations during the past five years.
Leonard Petersen - Mr. Petersen, age 46, is C.E.O, president and a director
of the Company and has held these positions since September 6, 2000. He is also
secretary and a director of Pemcorp Management Inc. ("Pemcorp"), a Canadian
private management consulting services company, and has held these positions
since 1990. Mr. Petersen is a chartered accountant in the Province of British
Columbia, Canada and a citizen and resident of Canada.
William D. McCartney - Mr. McCartney, age 45, is a director of the Company
and has held this position since September 6, 2000. He is the president and a
director of Pemcorp, and has held these positions since 1990. Mr. McCartney is a
chartered accountant in the Province of British Columbia, Canada and a citizen
and resident of Canada.
Murray J. Oliver - Mr. Oliver, age 34, is a director of the Company and has
held this position since September 6, 2000. He is also the sole proprietor of
North Star Consulting, an unincorporated consulting services business and has
carried on this business since 1993. Mr. Oliver is a citizen and resident of
Canada.
Paul A. Visosky - Mr. Visosky, age 45, is secretary of the Company and has
held this position since September 6, 2000. He has been a practicing attorney
since 1983 and is a principal in the law firm of Nexus Venture Capital Lawyers,
which is licensed to carry on business in the Province of British Columbia,
Canada. Mr. Visosky is a citizen and resident of Canada.
None of the directors or officers of the Company are related and there were no
arrangements or understandings between any director or officer of the Company
and any other person pursuant to which he was selected as a director or officer.
B. COMPENSATION
In each of the last three fiscal years, the Company paid or accrued management
fees of $30,000 to its former chief executive officer, Vernon G. Meyer. Mr.
Meyer resigned as chief executive officer on September 6, 2000 and the Company's
agreement to pay management fees to Mr. Meyer was terminated by mutual consent
effective July 31, 2000.
No cash or non-cash compensation was paid or distributed to any officer or
director of the Company during the last three fiscal years under any pension,
stock option or other plans nor is there any plan for such payments or
distributions during the next fiscal year.
No monies were set aside or accrued by the Company during the last three fiscal
years and no plan presently exists to provide pension, retirement or similar
benefits for directors or officers of the Company.
-18-
Presently, there are no standard or other arrangements under which directors or
officers of the Company will be compensated directly for their services in their
capacity as directors or officers, except that they are each entitled to be
reimbursed for their out-of-pocket expenses. The Company is party to a
management agreement with Pemcorp (attached hereto as Exhibit 4.4), which is
controlled by two directors of the Company.
The Company has no compensatory plan or arrangement to compensate directors or
officers of the Company in the event of their termination or following a change
in control of the Company.
C. BOARD PRACTICES
The Company's directors are elected by the shareholders at each annual general
meeting and typically hold office until the next annual general meeting at which
time they may be re-elected or replaced. The current Board of Directors was
elected at the Company's last annual general meeting held on September 6, 2000.
The By-laws of the Company permit the directors to appoint directors to fill any
casual vacancies that may occur due to resignation of directors. Individuals
appointed as directors to fill casual vacancies hold office like any other
director until the next annual general meeting at which time they may be
re-elected or replaced.
The chief executive officer and the secretary of the Company were appointed on
September 6, 2000 and hold their respective offices at the discretion of the
Board of Directors.
The Company's audit committee presently includes three directors, two of which
are not officers of the Company, as follows:
Leonard Petersen C.E.O., President and Director
William D. McCartney Director
Murray J. Oliver Director
The audit committee reviews the Company's annual and interim financial
statements, meets with the Company's auditors, when applicable, and makes
recommendations to the Board of Directors.
The Company does not presently have a compensation committee.
There are no director service contracts that provide for benefits upon
termination of service.
D. EMPLOYEES
The Company has no full or part time employees, except for senior management and
the Board of Directors.
-19-
E. SHARE OWNERSHIP
As at December 31, 2000, the present directors and senior management of the
Company, as a group own, directly or indirectly a total of 4,089,200 shares
representing 88% of the issued and outstanding common shares, as follows:
PERCENT
TITLE OWNED
OF CLASS IDENTITY OF PERSON AMOUNT OF CLASS
Common Leonard Petersen 3,239,200 (1) 69.8%
Common William D. McCartney 3,239,200 (1) 69.8%
Common Murray J. Oliver 150,000 3.2%
Common Paul Visosky 100,000 2.1%
(1) Includes 2,639,200 owned by Pemcorp, a private Canadian company,
indirectly controlled 50% by William D. McCartney and 50% by Leonard
Petersen, and 600,000 shares owned indirectly by each of McCartney and
Petersen.
There are no outstanding options or warrants to purchase securities from the
Company and no present arrangements to grant options to any director, officer or
employee of the Company.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
To the best of the Company's knowledge, it is not indirectly owned or controlled
by any other corporation, except as disclosed below, or foreign government.
As of the date of this Registration Statement, there are no persons or groups
known to the Company to be the owners of more than 5% of the Company's issued
and outstanding shares except as disclosed below.
PERCENT
TITLE OWNED
OF CLASS IDENTITY OF SHAREHOLDER AMOUNT OF CLASS
Common Pemcorp Management Inc. 2,639,200 (1) 56.9%
Common Petersen Management Inc. 600,000 (2) 12.9%
Common WMC Equities Inc. 600,000 (3) 12.9%
Common William D. McCartney 3,239,200 (4) 69.8%
Common Leonard Petersen 3,239,200 (5) 69.8%
(1) Pemcorp, a private Canadian company, is indirectly controlled 50% by
William D. McCartney and 50% by Leonard Petersen, both of whom are
directors of the Company.
(2) Petersen Management Inc., a Canadian private company, is 100% controlled
by Leonard Petersen, a director of the Company.
(3) WMC Equities Inc., a Canadian private company, is 100% controlled by
William D. McCartney, a director of the Company.
(4) The number of shares includes all of the shares held by WMC Equities
Inc. and Pemcorp.
(5) The number of shares includes all of the shares held by Petersen
Management Inc. and Pemcorp.
-20-
At the end of the Company's last fiscal year, Pemcorp owned 139,200 common
shares of the Company, adjusted for a reverse split and a forward split that
resulted, on a net basis, in the issue of one new share for each ten old shares.
The balance of the shares held by major shareholders were issued in October 2000
in connection with the Company' reorganization previously described. (See "Item
4. Information on the Company-History and development of the company")
As of December 31, 2000, there were a total of 113 holders of record of the
Company's common shares and a total of 4,637,600 common shares were outstanding.
Approximately 97,500 common shares, or 2% of the Company's total common shares
issued, were held by 23 persons residing in the United States. These numbers do
not include shareholders who hold the shares in street name.
None of the above persons have different voting rights from other shareholders
of the Company.
There are no arrangements, known to the Company, the operation of which could
result in a change in control of the Company.
B. RELATED PARTY TRANSACTIONS
The Company paid or accrued consulting fees of $20,000 to Pemcorp from the
beginning of the current fiscal year to December 31, 2000 and $30,000 to Pemcorp
in each of the last three fiscal years in connection with researching,
identifying and negotiating with prospective business acquisitions on behalf of
the Company. Pemcorp is a private Canadian company controlled by William D.
McCartney and Leonard Petersen both of whom became directors of the Company on
September 6, 2000. The Company formalized its relationship with Pemcorp by way
of written agreement made effective August 1, 2000, which provides for the
payment of $2,500 per month for general management services to be provided by
Messrs McCartney and Petersen. The agreement may be cancelled by the Company on
30 days written notice. Pemcorp has agreed that fees payable under the agreement
may be accrued and not paid until such time when the Company has adequate
working capital, as determined by the Board of Directors at its sole discretion.
(Attached hereto as Exhibit 4.4.)
The Company entered into an agreement, dated May 1, 2000, to purchase its
Principal Asset from a private company (the "Vendor") controlled by William D.
McCartney, Leonard Petersen, Murray J. Oliver, all of whom became directors of
the Company on September 6, 2000, and/or their respective spouses. The purchase
agreement was approved by shareholders of the Company. The purchase
consideration consisted of a note in the amount of $40,000 payable without
interest on the earlier of:
(1) the date on which the Company is in receipt of proceeds totaling
$40,000 from the sale, lease or license of any of the assets
purchased;
(2) the date on which the Company is in receipt of proceeds totaling
$200,000 from the sale and issuance of common shares; and
(3) June 30, 2001.
In addition, the Company agreed to pay the Vendor a royalty over five years
equal to 15% of the gross proceeds received from the sale, lease or license of
any of the domain names purchased under the agreement to a maximum of $1 million
and to pay the cost of renewing the registration of each domain name as it comes
due. Current registration fees vary between US$15 and US$35 per name. The
registration of 119 of the names expires between April 25 and May 2, 2001. The
registration of the remaining 281 names expires between February and April of
2002. (Attached hereto as Exhibit 4.3.)
-21-
At July 31, 2000, the Company owed Pemcorp and the Company's former chief
executive officer $80,250 and $81,663 respectively. These amounts were
unsecured, non-interest bearing and without fixed terms of repayment. The
Company entered into agreements, made effective July 31, 2000, with each
creditor to settle and satisfy their respective claims in full in exchange for a
total of 3,500,000 common shares of the Company and the payment of $21,400.
These shares were issued on October 26, 2000. (Attached hereto as Exhibit 4.1
and 4.2.)
The Company has paid or accrued legal fees of $6,878 to Nexus Venture Capital
Lawyers for legal services rendered to December 31, 2000. Nexus is a law firm
controlled by Paul Visosky, who became secretary of the Company on September 6,
2000.
On October 26, 2000 the Company also issued 450,000 common shares to four
directors and senior officers of the Company in connection with a private
placement of 650,000 common shares to five Canadian resident investors.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable
ITEM 8. FINANCIAL INFORMATION
A. FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The Company's interim unaudited financial statements for the six months ended
October 31, 2000 and 1999 and audited financial statements for the three fiscal
years ended April 30, 2000, 1999 and 1998 together with the auditors' report are
included as exhibits to this Registration Statement. These financial statements
were prepared in accordance with Canadian generally accepted accounted
principles. They also comply, in all material respects, with the accounting
principles accepted in the United States and the rules and regulations of the
Securities and Exchange Commission.
LEGAL PROCEEDINGS
The Company is not presently involved in, nor is it aware of any pending legal
proceedings, which could have a material adverse effect upon its business or
financial position. To the best of the Company's knowledge, there are no legal
proceedings contemplated by any governmental or regulatory authority.
DIVIDEND POLICY
The Company has not paid dividends in any of its last five fiscal years and the
Company has no plans to pay dividends in the foreseeable future.
-22-
B. SIGNIFICANT CHANGES
Since April 30, 2000, the end of the Company's most recent fiscal year, the
Company completed a reorganization, changed its business and commenced a new
development stage. (See "Item 4. Information on the Company-History and
development of the company")
ITEM 9. THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
The Company is not presently offering securities to the public. There is no
assurance that an organized market for the common stock of the Company will ever
develop and therefore a holder of the common stock of the Company may not be
able to readily liquidate his or her investment.
B. PLAN OF DISTRIBUTION
Not applicable
C. MARKETS
The Company's common shares do not presently trade on any recognized stock
exchange in any other organized securities market.
The Company may make application to the National Association of Securities
Dealers ("NASD") to have its common shares listed for trading on the NASD OTC
Bulletin Board ("OTC") after this Registration Statement becomes effective,
however, there is no assurance that a market for the common shares of the
Company will ever develop in the United States or, if such a market does
develop, that it will continue. The Company believes that having its common
shares eligible to trade on the OTC would enhance its ability to secure the
requisite capital to carry out its business plan and strategies.
The OTC market differs from national and regional stock exchanges in that it (1)
is not situated in a single location but operates through communication of bids,
offers and confirmations between broker-dealers and (2) securities admitted to
quotation are offered by one or more broker-dealers rather than the "specialist"
common to stock exchanges. To qualify for listing on the OTC, an equity security
must have one registered broker-dealer, known as the market maker, willing to
list bid or sale quotations and to sponsor the company for listing on the OTC.
There is no assurance that the Company will successfully engage the services of
a registered broker-dealer to sponsor the Company's application to list its
common shares on the OTC.
D. SELLING SHAREHOLDERS
Not applicable
E. DILUTION
Not applicable
-23-
F. EXPENSES OF ISSUE
Not applicable
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
The Company has an authorized capital of 100,000,000 common shares without par
value, of which 500,486 shares were outstanding as of April 30, 2000, the
Company's last fiscal year, and 4,637,600 shares were outstanding as of October
31 and December 31, 2000.
The common shares are not subject to any future call or assessment and they all
have equal voting rights of one vote per share. There are no special rights or
restrictions of any nature attached to any of the shares and they all rank
equally, as to all benefits that might accrue to the holder thereof.
There are no outstanding options or warrants to purchase commons shares of the
Company or other securities convertible into common shares of the Company, and
the Company is not presently party to any agreement to issue securities of the
Company in the future.
There were no material changes to the Company's share capital during the last
three fiscal years ending April 30, 2000. (See Item 18 - Financial Statements)
Since April 30, 2000, the Company completed a reorganization, which included a
reverse split and forward split of its issued common shares resulting in the
issue, on a net basis, of one new share for ten old shares. In addition, the
Company settled certain indebtedness in exchange for common shares of the
Company and completed a private placement of common shares for cash as follows:
a. the Company issued 3,500,000 post split common shares (representing
approximately 75% of the current issued shares) at approximately $0.04
per share to settle debts owing to related parties in the aggregate
amount of $140,513; and
b. the Company completed a private placement and issued 650,000 post
split common shares (representing approximately 14% of the current
issued shares) at $0.10 per share to five investors in Canada,
including directors and officers of the Company, for aggregate
proceeds of $65,000 which proceeds were used primarily to pay certain
debts, complete the reorganization and to provide the Company with
initial working capital.
The prices at which the debts were settled and the private placement completed
were arbitrarily chosen. (See "Item 4. Information on the Company-History and
development of the Company" and the Company's interim financial statements
attached to this Registration Statement as an exhibit for a more complete
description of changes to share capital during this period.)
-24-
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
ORGANIZATION AND REGISTOR
The Company is a corporation organized in the Yukon Territory, Canada, under the
Yukon Business Corporations Act as of October 6, 2000 under No. 28380 by way of
Articles of Continuance.
OBJECTS AND PURPOSES
The Company does not have any objects or purposes stated in its Articles or
By-laws. Under Yukon law, the Company can carry on any business except, as set
out in Section 5 of the Company's Articles, the Company is restricted from
carrying on the business of a railway, steamship, air transport, canal,
telegraph, telephone, or irrigation company.
DIRECTORS
Every director and officer of a Yukon corporation in exercising his powers and
discharging his duties must:
(a) act honestly and in good faith with a view to the best interests of
the corporation, and
(b) exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
No provision in a contract, the Articles, the By-laws or a resolution relieves a
director or officer from the duty to act in accordance with the Act or relieves
him from liability for a breach of that duty.
The Company's By-laws do not require a director to abstain from voting on a
proposal, arrangement or contract in which the director is materially
interested. Pursuant to Yukon law, a director or officer of a corporation who:
(a) is a party to a material contract or proposed material contract with
the corporation, or
(b) is a director or an officer of or has a material interest in any
person who is a party to a material contract or proposed material
contract with the corporation,
shall disclose in writing to the corporation or request to have entered in the
minutes of meetings of directors the nature and extent of his interest.
The By-laws permit the directors to vote on compensation to themselves or any
member of their body without independent quorum. Yukon law states that, subject
to the Articles, the By-laws or any unanimous shareholder agreement, the
directors of a corporation may fix the remuneration of the directors, officers
and employees of the corporation.
-25-
The By-laws provide that the directors may, from time to time, authorize the
Company to make any bonds, debentures or other debt obligations issued by the
Company. The borrowing powers may be varied by resolution of the directors and
ratified by shareholders of the Company. Yukon law states that, unless the
Articles or By-laws of, or a unanimous shareholder agreement relating to, a
corporation otherwise provide, the directors of a corporation may, without
authorization of the shareholders,
(a) borrow money on the credit of the corporation,
(b) issue, reissue, sell or pledge debt obligations of the corporation,
(c) mortgage, hypothecate, pledge or otherwise create a security interest
in all or any property of the corporation, owned or subsequently
acquired, to secure any obligation of the corporation.
Unless the articles or bylaws of or a unanimous shareholder agreement relating
to a corporation otherwise provide, the directors may, by resolution, delegate
the powers referred to above to a director, a committee of directors or an
officer.
The By-laws do not contain an age limit for retirement of directors and do not
contain a requirement that directors own shares of the Company. There is no
reference in Yukon law to the agent limit for retirement of directors but the
law does state, unless the articles otherwise provide, that a director of a
corporation is not required to hold shares issued by the corporation.
The By-Laws state that Directors do not stand for re-election at staggered
intervals and there is no cumulative voting permitted. Yukon law states that it
is not necessary that all directors elected at a meeting of shareholders hold
office for the same term and that a director not elected for an expressly stated
term ceases to hold office at the close of the first annual meeting of
shareholders following his election.
COMMON SHARES
The Company's authorized share capital consists of 100,000,000 common shares
without par value.
The Company's shares register is administered by Pacific Corporate Trust Company
of Vancouver, British Columbia, as registrar and transfer agent.
The holders of the common shares are entitled to vote at any meeting of the
shareholders of the Company and have one vote in respect of each common share
held by them.
In the event of a liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary, holders of common shares shall be entitled to receive
any remaining property of the Company. Yukon law states that if, in the course
of liquidation of a corporation, the shareholders resolve or the liquidator
proposes to:
(a) exchange all or substantially all the property of the corporation for
securities of another body corporate that are to be distributed to the
shareholders, or
(b) distribute all or part of the property of the corporation to the
shareholders in kind,
-26-
a shareholder may apply to the Supreme Court for an order requiring the
distribution of the property of the corporation to be in money.
The common shares do not have any redemption or sinking-fund provisions and are
not subject to any further capital calls by the Company. There are no
provisions discriminating against any existing or perspective holder of common
shares as a result of such shareholder owning a substantial number of shares.
A meeting of all holders of common shares is required to change the rights of
holders of the common shares.
DIVIDENDS
Holders of common shares are entitled to receive, out of profits and surplus
available for dividend, any dividends declared by the directors on the common
shares. Any dividend unclaimed after a period of six years from the date on
which the dividend has been declared to be payable shall be forfeited and shall
revert to the Company.
VOTING RIGHTS
Each common share represents one vote. The By-laws of the Company state that
cumulative voting is not permitted.
The Company's By-laws and Yukon law provide that resolutions are passed at
shareholder meetings by a simple majority of votes cast, unless a higher vote is
required by law.
SHAREHOLDER MEETINGS
The By-laws of the Company provide that the annual meeting of shareholders shall
be held at any location in North America specified by the directors in a notice
of meeting. The directors determine the timing of the meeting.
The only persons entitled to be present at a meeting of the shareholders shall
be those persons entitled to vote thereat. A quorum of shareholders consists of
the holders of 5% of the shares entitled to vote at the meeting present in
person or represented by proxy.
There are no limitations on the right to own securities, including the rights of
non-resident or foreign shareholders, to hold or exercise voting rights on the
securities imposed by foreign law or by the charter or other constituent
documents of the Company.
CHANGE IN CONTROL
There are no provisions in the Company's Articles of Continuance or By-laws that
would have the effect of delaying, deferring or preventing a change of control
of the Company.
-27-
DISCLOSURE OF SHARE HOLDINGS
There are no provisions in the By-laws governing the ownership threshold above
which shareholder ownership must be disclosed.
C. MATERIAL CONTRACTS
The Company paid or accrued consulting fees to Pemcorp from the beginning of the
current fiscal year to December 31, 2000 and in each of the last three fiscal
years in connection with researching, identifying and negotiating with
prospective business acquisitions on behalf of the Company. Pemcorp is a private
Canadian company controlled by William D. McCartney and Leonard Petersen both of
who became directors of the Company on September 6, 2000. The Company formalized
its relationship with Pemcorp by way of written agreement made effective August
1, 2000, which provides for the payment of $2,500 per month for general
management services to be provided by Messrs McCartney and Petersen. The
agreement may be cancelled by the Company with one month written notice. Pemcorp
has agreed that fees payable under the agreement may be accrued and not paid
until such time when the Company has adequate working capital, as determined by
the Board of Directors at its sole discretion. (Attached hereto as Exhibit
4.4.)
The Company entered into an agreement, dated May 1, 2000, to purchase its
Principal Asset. The purchase consideration consisted of a note in the amount of
$40,000 payable without interest on the earlier of:
a. the date on which the Company is in receipt of proceeds totaling
$40,000 from the sale, lease or license of any of the assets
purchased;
b. the date on which the Company is in receipt of proceeds totaling
$200,000 from the sale and issue of common shares; and
c. June 30, 2001.
In addition, the Company agreed to pay the Vendor a royalty over five years
equal to 15% of the gross proceeds received from the sale, lease or license of
any of the domain names purchased under the agreement to a maximum of $1 million
and to pay the cost of renewing the registration of each domain name as it comes
due. Current registration fees vary between US$15 and US$35 per name. The
registration of 119 of the names expires between April 25 and May 2, 2001. The
registration of the remaining 281 names expires between February and April of
2002. (Attached hereto as Exhibit 4.3.)
D. EXCHANGE CONTROLS
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export of capital affecting the remittance of interest,
dividends or other payments to nonresident holders of the Company's shares. Any
such remittances, however, are subject to withholding tax.
-28-
There are no limitations under the laws of Canada, the Yukon Territory or in the
charter or any other constituent documents of the Company on the right of
foreigners to hold or vote the shares of the Company. However, under the
provisions of the Investment Canada Act, when control of a Canadian business is
acquired by a non-Canadian, the transaction may be reviewable in certain
circumstances by Investment Canada, an agency of the federal government of
Canada. Reviewable transactions are those in which a non-Canadian acquires the
assets of a Canadian business or the voting shares of a Canadian corporation the
value of which assets or shares exceeds $5 million (Canadian). Also, certain
transactions are specifically exempted from review.
E. TAXATION
TAXATION ON DIVIDENDS
Generally, cash dividends paid by Canadian corporations to nonresident
shareholders are subject to a withholding tax of 25 percent. However, pursuant
to Article X[2] of the Canada-United States tax treaty, dividends paid to a
resident of the United States are only subject to a 15 percent withholding tax.
Further, if the United States resident owns 10 percent or more of the voting
shares of the Canadian company paying the dividends, the withholding tax is
reduced to 10 percent. In addition to dividend withholding, interest paid to
United States residents is subject to a 15 percent withholding tax pursuant to
Article XI[2] of the Canada-United States tax treaty.
TAXATION ON CAPITAL GAINS
A nonresident purchaser who holds shares of the Company as capital property will
not be subject to Canadian tax on capital gains realized on the disposition of
such shares unless such shares are "taxable Canadian property" within the
meaning of the Income Tax Act (Canada) and no relief is afforded under any
applicable tax treaty. The shares of the Company would be taxable Canadian
property of a nonresident purchaser if the nonresident purchaser used the shares
in carrying on a business in Canada or if at any time during the five-year
period immediately preceding the disposition not less than 25 percent of the
issued shares of any class of the Company belonged to the particular purchaser,
persons with whom the purchaser did not deal at arm's length or any combination
thereof.
Holders of common shares of the Company should seek independent advice from
their own professional tax advisors with respect to the Canadian Income Tax
consequences arising from the holding of Common Shares of the Company.
F. DIVIDENDS AND PAYING AGENTS
The Company has not paid dividends in any of its last five fiscal years and the
Company has no plans to pay dividends in the foreseeable future.
G. STATEMENT BY EXPERTS
Not applicable
H. DOCUMENTS ON DISPLAY
All documents concerning the Company, which are referred to in this Registration
Statement are available for inspection at the offices of Nexus Venture Capital
Lawyers: Suite 3400, 666 Burrard Street, Vancouver, Canada.
-29-
I. SUBSIDIARY INFORMATION
Not applicable
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a small business issuer as defined in Rule 405 of the Securities
Act of 1933, as amended, and Rule 12b-2 of the Securities Exchange Act of 1934,
as amended, and therefore need not provide the information requested by this
item.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133.
"Accounting For Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities.
SFAS No. 133 will be effective for the Company's fiscal year beginning May 1,
2000. Because the Company is not involved in any activities covered by SFAS No.
133, the adoption of SFAS No. 133 is not expected to have a material effect on
the Company's financial position or results of operations.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable
PART II
Not applicable
-30-
PART III
ITEM 17. FINANCIAL STATEMENTS
Reference is made to Item 18. "Financial Statements".
ITEM 18. FINANCIAL STATEMENTS
The Company's Financial Statements, Auditor's Reports, if applicable, and Notes
to the Financial Statements, which are required to be filed hereunder, are
contained on pages 32 through 46 as follows:
Page
----
Auditors' Report dated June 20, 2000. . . . . . . . . . . . . . . . 32
Balance Sheets as at April 30, 2000 and 1999 (Audited) and
October 31, 2000 (Unaudited). . . . . . . . . . . . . . . . . . . . . . 33, 40
Statements of Operations and Deficit for the six months ended
the years ended April 30, 2000, 1999 and 1998 (Audited)
and October 31, 2000 (Unaudited) . . . . . . . . . . . . . . . . . . . . 34, 41
Statements of Cash Flows the years ended April 30, 2000,
1999 and 1998 (Audited) and for the six months ended
October 31, 2000 (Unaudited). . . . . . . . . . . . . . . . . . . . . 35, 42
Statements of Shareholders Equity since inception to
April 30, 2000 (audited) and the six months ended
October 31, 2000 (Unaudited). . . . . . . . . . . . . . . . . . . . . 36, 43
Notes to the Financial Statements for the for the
year ended April 30, 2000 (Audited) and six months
ended October 31, 2000 (Unaudited) . . . . . . . . . . . . . . . . . 37, 44
-31-
DAVIDSON & COMPANY Chartered Accountants A Partnership of
==== ==================
Incorporated Professionals
==========================
AUDITORS' REPORT
To the Shareholders of
Coast Falcon Resources Ltd.
(A Development Stage Company)
We have audited the balance sheets of Coast Falcon Resources Ltd. as at April
30, 2000 and 1999 and the statements of operations and deficit, cash flows and
shareholders' equity for the years ended April 30, 2000, 1999 and 1998 and the
period from the date of formation on July 7, 1992 to April 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at April 30, 2000 and 1999
and the results of its operations, cash flows and shareholders' equity for the
years ended April 30, 2000, 1999 and 1998 and the period from the date of
formation on July 7, 1992 to April 30, 2000 in accordance with generally
accepted accounting principles in Canada. As required by the Company Act of
British Columbia, we report that, in our opinion, these principles have been
applied on a consistent basis.
"DAVIDSON & COMPANY"
Vancouver, Canada Chartered Accountants
June 20, 2000
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA -
U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the expression of
a qualified opinion when the financial statements are affected by significant
uncertainties such as those referred to in Note 1 to these financial statements.
As discussed in Note 1 to the financial statements, the Company has incurred a
net loss since inception and has had no revenue and has a working capital
deficit at April 30, 2000. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The above opinion in our
report to shareholders dated June 20, 2000 for the year ended April 30, 2000 is
not qualified with respect to, and provides no reference to, these uncertainties
since such an opinion would not be in accordance with Canadian reporting
standards for auditors when the uncertainties are adequately disclosed in the
financial statements.
"DAVIDSON & COMPANY"
Vancouver, Canada Chartered Accountants
June 20, 2000
A Member of SC INTERNATIONAL
============================
Suite 1200, Stock Exchange Tower, 609 Granville Street, P.O. Box 10372, Pacific
Centre, Vancouver, BC, Canada, V7Y 1G6
TELEPHONE (604) 687-0947 FAX (604) 687-6172
-32-
COAST FALCON RESOURCES LTD.
BALANCE SHEETS
(Expressed in Canadian Dollars)
(A Development Stage Company)
AS AT APRIL 30
===================================================================================
2000 1999
- -----------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 299 $ 3,292
LOAN RECEIVABLE - 105,573
------------ ------------
$ 299 $ 108,865
===================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 18,933 $ 5,273
Due to related parties 144,613 79,313
------------ ------------
163,546 84,586
------------ ------------
SHAREHOLDERS' EQUITY
Capital stock
Authorized
50,000,000 shares without par value
Issued
April 30, 1999 and 2000 - 5,004, 867 common shares 3,163,181 3,163,181
Deficit accumulated during development stage (3,326,428) (3,138,902)
------------ ------------
(163,247) 24,279
------------ ------------
$ 299 $ 108,865
===================================================================================
ON BEHALF OF THE BOARD:
/s/ Vernon G. Meyer Director /s/ Kenneth I. Potter Director
- ------------------------- --------------------------------
The accompanying notes are an integral part of these financial statements.
-33-
COAST FALCON RESOURCES LTD.
STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in Canadian Dollars)
(A Development Stage Company)
========================================================================================
Cumulative
Amounts
From
Formation
on July 7,
1992 to Year Ended April 30
April 30, ----------------------------------------
2000 2000 1999 1998
------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------
EXPENSES
Consulting $ 122,100 $ 30,000 $ 30,000 $ 30,000
Listing and transfer agent fees 64,329 4,923 8,105 8,632
Management fees 216,000 30,000 30,000 30,000
Office and general 67,090 6,441 10,062 7,050
Professional fees 139,330 11,289 16,297 43,943
------------ ------------ ------------ ------------
LOSS BEFORE OTHER ITEM (608,849) (82,653) (94,464) (119,625)
OTHER ITEM
Write-off of loan receivable (104,873) (104,873) - -
------------ ------------ ------------ ------------
LOSS FOR THE PERIOD (713,722) (187,526) (94,464) (119,625)
DEFICIT, BEGINNING OF PERIOD (2,612,706) (3,138,902) (3,044,438) (2,924,813)
------------ ------------ ------------ ------------
DEFICIT, END OF PERIOD $(3,326,428) $(3,326,428) $(3,138,902) $(3,044,438)
========================================================================================
LOSS PER SHARE $ (0.038) $ (0.019) $ (0.026)
========================================================================================
The accompanying notes are an integral part of these financial statements.
-34-
COAST FALCON RESOURCES LTD.
STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
(A Development Stage Company)
================================================================================================
Cumulative
Amounts
From
Formation
on July 7,
1992 to Year Ended April 30
April 30, ---------------------------------
2000 2000 1999 1998
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year $ (713,722) $(187,526) $(94,464) $(119,625)
Item not involving cash:
Write-off of loan receivable 104,873 104,873 - -
Change in non-cash working capital items:
Decrease in prepaids - - - 3,460
Increase (decrease) in accounts payable (174,461) 13,660 5,080 (1,968)
Increase in due to related parties 48,382 65,300 44,600 5,675
----------- ---------- --------- ----------
Cash used in operating activities (734,928) (3,693) (44,784) (112,458)
----------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock 840,100 - - 194,100
----------- ---------- --------- ----------
Cash provided by financing activities 840,100 - - 194,100
----------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan receivable (104,873) 700 (1,000) (40,340)
----------- ---------- --------- ----------
Cash provided by (used in) investing activities (104,873) 700 (1,000) (40,340)
----------- ---------- --------- ----------
INCREASE (DECREASE) IN CASH FOR THE PERIOD 299 (2,993) (45,784) 41,302
CASH, BEGINNING OF PERIOD - 3,292 49,076 7,774
----------- ---------- --------- ----------
CASH, END OF PERIOD $ 299 $ 299 $ 3,292 $ 49,076
================================================================================================
CASH PAID FOR INCOME TAXES $ - $ - $ - $ -
================================================================================================
CASH PAID FOR INTEREST $ - $ - $ - $ -
================================================================================================
There were no non-cash financing and investing transactions during the years ended
April 30, 2000, 1999 and 1998.
The accompanying notes are an integral part of these financial statements.
-35-
COAST FALCON RESOURCES LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in Canadian Dollars)
(A Development Stage Company)
==========================================================================================
Common Common Deficit
Shares Shares Accumulated
Issued and Issued and During
Fully Paid Fully Paid Development
(Number) (Amount) Stage Total
- ------------------------------------------------------------------------------------------
Issued upon formation (July 7, 1992) 1,703,719 $ 2,323,081 $ (2,612,706) $(289,625)
Loss for the period - - (22,569) (22,569)
----------- ------------ ------------- ----------
Balance, April 30, 1993 1,703,719 2,323,081 (2,635,275) (312,194)
Loss for the year - - (62,142) (62,142)
----------- ------------ ------------- ----------
Balance, April 30, 1994 1,703,719 2,323,081 (2,697,417) (374,336)
Loss for the year - - (53,880) (53,880)
----------- ------------ ------------- ----------
Balance, April 30, 1995 1,703,719 2,323,081 (2,751,297) (428,216)
Loss for the year - - (74,567) (74,567)
----------- ------------ ------------- ----------
Balance, April 30, 1996 1,703,719 2,323,081 (2,825,864) (502,783)
Shares issued for cash 2,584,000 646,000 - 646,000
Cancellation of shares (52,726) - - -
Loss for the year - - (98,949) (98,949)
----------- ------------ ------------- ----------
Balance, April 30, 1997 4,234,993 2,969,081 (2,924,813) 44,268
Shares issued for cash 776,400 194,100 - 194,100
Loss for the year - - (119,625) (119,625)
----------- ------------ ------------- ----------
Balance, April 30, 1998 5,011,393 3,163,181 (3,044,438) 118,743
Cancellation of shares (6,526) - - -
Loss for the year - - (94,464) (94,464)
----------- ------------ ------------- ----------
Balance, April 30, 1999 5,004,867 3,163,181 (3,138,902) 24,279
Loss for the year - - (187,526) (187,526)
----------- ------------ ------------- ----------
Balance, April 30, 2000 5,004,867 $ 3,163,181 $ (3,326,428) $(163,247)
==========================================================================================
The accompanying notes are an integral part of these financial statements.
-36-
COAST FALCON RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
(A Development Stage Company)
APRIL 30, 2000
================================================================================
1. FORMATION AND SUBSEQUENT EVENT
NATURE OF OPERATIONS
The Company was formed under the laws of the province of British Columbia,
Canada, on July 7, 1992 pursuant to a statutory amalgamation of two
predecessor companies previously engaged in the exploration and development
of mineral resource properties in Canada. The balance sheets of the
predecessor companies were carried over at historical cost.
Since the date of formation the Company raised additional private equity
capital to settle certain indebtedness and for the further purpose of
exploring new lines of business. The Company has yet to conclude a business
acquisition or combination. All costs associated with identifying,
researching and negotiating with prospective businesses have been charged
to earnings in the year they were incurred. The Company will remain dormant
until additional financing is secured and new business operations are
determined.
MANAGEMENT PLANS ON CONTINUED EXISTENCE AND SUBSEQUENT EVENT
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada, which contemplates the
continuation of the Company as a going concern. However, the Company
sustained substantial operating losses and used substantial amounts of
working capital in its prior operations. As of April 30, 2000, current
liabilities exceeded current assets by $163,247.
The Company's ability to continue as a going concern is dependant upon,
among other things, its ability to reorganize its current capital, raise
additional capital and successfully develop a new line of business, which
is not assured. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The Company entered into an agreement, made effective May 1, 2000, to
purchase 400 registered internet domain names each ending with the suffix
"inside.com" from a privately held company (the "Vendor"). Total purchase
consideration consists of a note in the amount of $40,000 payable without
interest on the earlier of; (1) the date on which the Company is in receipt
of proceeds totalling $40,000 from the sale or lease of any of its domain
names; (2) the date on which the Company is in receipt of proceeds
exceeding $200,000 from the sale and issue of common shares; and (3) June
30, 2001. In addition, the Company agrees to pay to the Vendor a royalty
over five years equal to 15% of the gross proceeds received from the sale
or lease of any of its domain names to a maximum of $1 million. The Company
intends, subject to shareholder approval, to reorganize the capital of the
Company, change its name to Inside Holdings Inc., or such other name that
is acceptable to the relevant governing authorities and the board of
directors of the Company, and to carry on the business of developing a
network of affiliated destination web sites for transacting e-commerce
within several industry segments under a singular brand.
The Vendor is a related party by virtue of common share ownership.
CANADIAN ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with generally
accepted accounting principles in Canada. All dollar amounts are in
Canadian dollars unless otherwise indicated.
-37-
COAST FALCON RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
(A Development Stage Company)
APRIL 30, 2000
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, loan receivable,
accounts payable, accrued liabilities and due to related parties. Unless
otherwise noted, it is management's opinion that the fair value of these
financial instruments approximate their carrying values and the Company is
not exposed to significant interest currency or credit risks arising from
these financial instruments. The fair value of amounts due to related
parties is not determinable, as there are no stated terms of repayment.
LOSS PER SHARE
Basic loss per share is calculated based upon the weighted average number
of common shares outstanding during the period.
3. INCOME TAXES
At April 30, 2000, the Company has income tax benefits which have not been
recognized in the Company's accounts relating to the following:
Non-capital losses for Canadian income tax purposes of $586,280 may be
utilized to reduce taxes on future income from business or property. Unless
utilized, the tax benefit of these losses will expire in the following
years:
2001 $ 82,653
2002 94,464
2003 119,625
2004 98,949
2005 74,567
2006 53,880
2007 62,142
---------
$ 586,280
=========
Capital losses of $104,873 may be utilized to reduce taxes on future
capital gains.
Any income tax benefits relating to these losses have been fully reserved
and will be recorded as recovery of income taxes in the period of
realization.
The benefit of these losses may also expire upon a change in control of the
Company, which is contemplated in its capital reorganization plans and
change of business as previously described in Note 1.
-38-
COAST FALCON RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
(A Development Stage Company)
APRIL 30, 2000
================================================================================
4. RECONCILIATION OF U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) TO
CANADIAN GAAP
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada. These financial statements also
comply, in all material respects, with accounting principles generally
accepted in the United States and the rules and regulations of the
Securities and Exchange Commission.
5. RELATED PARTY TRANSACTIONS
The Company paid or accrued $30,000 (1999 - $30,000; 1998 - $30,000) in
management fees to a director of the Company and $30,000 (1999 - $30,000;
1998 - $30,000) in consulting fees to a significant shareholder of the
Company.
-39-
INSIDE HOLDINGS INC.
(formerly Coast Falcon Resources Ltd.)
BALANCE SHEET
(Expressed in Canadian Dollars)
(A Development Stage Company)
(Unaudited - Prepared by Management)
AS AT OCTOBER 31
====================================================================================================
2000 1999
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 14,144 $ 1,027
Receivable 3,258 -
------------ ------------
17,402 1,027
LOAN RECEIVABLE - 104,873
INTELLECTUAL PROPERTY (Note 3) 30,000 -
------------ ------------
$ 47,402 $ 105,900
====================================================================================================
====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 15,075 $ 7,759
Due to related parties 48,025 111,564
------------ ------------
63,100 119,323
------------ ------------
SHAREHOLDERS' EQUITY
Capital stock
Authorized
100,000,000 shares without par value
Issued
October 31, 1999 and 2000 - 5,004, 867 and 4,637,600 common shares 3,368,694 3,163,181
Deficit accumulated during development stage (57,964) -
Deficit (3,326,428) (3,176,604)
------------ ------------
(15,698) (13,423)
------------ ------------
$ 47,402 $ 105,900
====================================================================================================
The accompanying notes are an integral part of these financial statements.
-40-
INSIDE HOLDINGS INC.
(formerly Coast Falcon Resources Ltd.)
STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
(A Development Stage Company)
===========================================================================
Cumulative
Amounts Six Month Period Ended
During October 31
Development --------------------------
Stage 2000 1999
------------- ------------ ------------
EXPENSES
Amortization $ 10,000 $ 10,000 $ -
Consulting 7,500 7,500 15,000
Listing and transfer agent fees 7,724 7,724 2,141
Management fees 15,000 15,000 15,000
Office and general 6,447 6,447 3,051
Professional fees 11,293 11,293 2,510
------------- ------------ ------------
LOSS FOR THE PERIOD (57,964) (57,964) (37,702)
DEFICIT, BEGINNING OF PERIOD (3,326,428) (3,326,428) (3,138,902)
------------- ------------ ------------
DEFICIT, END OF PERIOD $ (3,384,392) $(3,384,392) $(3,176,604)
===========================================================================
LOSS PER SHARE $ (0.01) $ (0.01)
===========================================================================
The accompanying notes are an integral part of these financial statements.
-41-
INSIDE HOLDINGS INC.
(formerly Coast Falcon Resources Ltd.)
STATEMENT OF CASH FLOWS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
(A Development Stage Company)
======================================================================================
Cumulative
Amounts Six Month Period Ended
During October 31
Development ---------------------
Stage 2000 1999
- --------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year $ (57,964) $ (57,964) $(37,702)
Item not affecting cash
Amortization 10,000 10,000 -
Change in non-cash working capital items:
Increase in receivables (3,258) (3,258) -
Increase (decrease) in accounts payable (3,858) (3,858) 2,486
Increase (decrease) in due to related parties (96,588) (96,588) 32,251
------------- ---------- ---------
Cash used in operating activities (151,668) (151,668) (2,965)
------------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock 205,513 205,513 -
------------- ---------- ---------
Cash provided by financing activities 205,513 205,513 -
------------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of intellectual property (40,000) (40,000) -
Loan receivable - - 700
------------- ---------- ---------
Cash used in investing activities (40,000) (40,000) 700
------------- ---------- ---------
INCREASE (DECREASE) IN CASH FOR THE PERIOD 13,845 13,845 (2,265)
CASH, BEGINNING OF PERIOD 299 299 3,292
------------- ---------- ---------
CASH, END OF PERIOD $ 14,144 $ 14,144 $ 1,027
======================================================================================
CASH PAID FOR INCOME TAXES $ - $ - $ -
======================================================================================
CASH PAID FOR INTEREST $ - $ - $ -
======================================================================================
There were no non-cash financing and investing transactions during the six month
period ended October 31, 2000 and 1999.
The accompanying notes are an integral part of these financial statements.
-42-
INSIDE HOLDINGS INC.
(formerly Coast Falcon Resources Ltd.)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
(A Development Stage Company)
=======================================================================================================
Common Common Deficit
Shares Shares Accumulated
Issued and Issued and During
Fully Paid Fully Paid Development
(Number) (Amount) Stage Deficit Total
- -------------------------------------------------------------------------------------------------------
Issued upon formation
(July 7, 1992) 1,703,719 $ 2,323,081 $ - $(2,612,706) $(289,625)
Loss for the period - - - (22,569) (22,569)
----------- ------------ ------------- ------------ ----------
Balance, April 30, 1993 1,703,719 2,323,081 - (2,635,275) (312,194)
Loss for the year - - - (62,142) (62,142)
----------- ------------ ------------- ------------ ----------
Balance, April 30, 1994 1,703,719 2,323,081 - (2,697,417) (374,336)
Loss for the year - - - (53,880) (53,880)
----------- ------------ ------------- ------------ ----------
Balance, April 30, 1995 1,703,719 2,323,081 - (2,751,297) (428,216)
Loss for the year - - - (74,567) (74,567)
----------- ------------ ------------- ------------ ----------
Balance, April 30, 1996 1,703,719 2,323,081 - (2,825,864) (502,783)
Shares issued for cash 2,584,000 646,000 - - 646,000
Cancellation of shares (52,726) - - - -
Loss for the year - - - (98,949) (98,949)
----------- ------------ ------------- ------------ ----------
Balance, April 30, 1997 4,234,993 2,969,081 - (2,924,813) 44,268
Shares issued for cash 776,400 194,100 - - 194,100
Loss for the year - - - (119,625) (119,625)
----------- ------------ ------------- ------------ ----------
Balance, April 30, 1998 5,011,393 3,163,181 - (3,044,438) 118,743
Cancellation of shares (6,526) - - - -
Loss for the year - - - (94,464) (94,464)
----------- ------------ ------------- ------------ ----------
Balance, April 30, 1999 5,004,867 3,163,181 - (3,138,902) 24,279
Loss for the year - - - (187,526) (187,526)
----------- ------------ ------------- ------------ ----------
Balance, April 30, 2000 5,004,867 3,163,181 - (3,326,428) (163,247)
Consolidation (10:1) (4,517,267) - - - -
Shares issued for cash 650,000 65,000 - - 65,000
Shares issued for debt settlement 3,500,000 140,513 - - 140,513
Loss for the period - - (57,964) - (57,964)
----------- ------------ ------------- ------------ ----------
Balance, October 31, 2000 4,637,600 $ 3,368,694 $ (57,964) $(3,326,428) $ (15,698)
=======================================================================================================
The accompanying notes are an integral part of these financial statements.
-43-
INSIDE HOLDINGS INC.
(formerly Coast Falcon Resources Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
(A Development Stage Company)
OCTOBER 31, 2000
================================================================================
1. FORMATION AND SUBSEQUENT EVENT
NATURE OF OPERATIONS
The Company was formed under the laws of the province of British Columbia,
Canada, on July 7, 1992 pursuant to a statutory amalgamation of two
predecessor companies previously engaged in the exploration and development
of mineral resource properties in Canada and was continued into Yukon on
October 6, 2000. The balance sheets of the predecessor companies were
carried over at historical cost.
Since the date of formation the Company raised additional private equity
capital to settle certain indebtedness and for the further purpose of
exploring new lines of business. All costs associated with identifying,
researching and negotiating with prospective businesses have been charged
to earnings in the year they were incurred.
MANAGEMENT PLANS ON CONTINUED EXISTENCE AND SUBSEQUENT EVENT
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada, which contemplates the
continuation of the Company as a going concern. However, the Company
sustained substantial operating losses and used substantial amounts of
working capital in its prior operations. As of October 31, 2000, current
liabilities exceeded current assets by $45,698.
The Company's ability to continue as a going concern is dependant upon,
among other things, its ability to reorganize its current capital, raise
additional capital and successfully develop the new line of business, which
is not assured. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
On May 1, 2000, the Company purchased 400 registered internet domain names
each ending with the suffix "inside.com" from a privately held company (the
"Vendor"). Total purchase consideration consists of a note in the amount of
$40,000 payable without interest on the earlier of; (1) the date on which
the Company is in receipt of proceeds totalling $40,000 from the sale or
lease of any of its domain names; (2) the date on which the Company is in
receipt of proceeds exceeding $200,000 from the sale and issue of common
shares; and (3) June 30, 2001. In addition, the Company agrees to pay to
the Vendor a royalty over five years equal to 15% of the gross proceeds
received from the sale or lease of any of its domain names to a maximum of
$1 million. The Company intends to carry on the business of developing a
network of affiliated destination web sites for transacting e-commerce
within several industry segments under a singular brand.
As a consequence of the agreement and the Company's plans, these financial
statements have been prepared to reflect a new development stage commencing
on May 1, 2000.
The Vendor is a related party by virtue of common share ownership.
CANADIAN ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with generally
accepted accounting principles in Canada. All dollar amounts are in
Canadian dollars unless otherwise indicated.
-44-
INSIDE HOLDINGS INC.
(FORMERLY COAST FALCON RESOURCES LTD.)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
(A Development Stage Company)
OCTOBER 31, 2000
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, loan receivable,
accounts payable, accrued liabilities and due to related parties. Unless
otherwise noted, it is management's opinion that the fair value of these
financial instruments approximate their carrying values and the Company is
not exposed to significant interest currency or credit risks arising from
these financial instruments. The fair value of amounts due to related
parties is not determinable, as there are no stated terms of repayment.
INTELLECTUAL PROPERTY
Intellectual property is recorded at cost and is amortized over two years.
LOSS PER SHARE
Basic loss per share is calculated based upon the weighted average number
of common shares outstanding during the period.
3. INTELLECTUAL PROPERTY
==========================================================================
Net Book Value
Accumulated --------------
Cost Amortization 2000 1999
--------------------------------------------------------------------------
Domain names $ 40,000 $ 10,000 $ 30,000 $ -
==========================================================================
4. INCOME TAXES
The benefit of any losses previously recognized expired upon a change in
control of the Company.
-45-
INSIDE HOLDINGS INC.
(formerly Coast Falcon Resources Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
(A Development Stage Company)
OCTOBER 31, 2000
================================================================================
5. RECONCILIATION OF U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) TO
CANADIAN GAAP
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada. These financial statements also
comply, in all material respects, with accounting principles generally
accepted in the United States and the rules and regulations of the
Securities and Exchange Commission.
6. RELATED PARTY TRANSACTIONS
The Company paid or accrued $15,000 (1999 - $7,500) in management fees to a
former director of the Company and to a company controlled by directors of
the Company and $7,500 (1999 - $7,500) in consulting fees to a significant
shareholder of the Company.
-46-
ITEM 19. EXHIBITS
Page
----
1.1 Amalgamation Agreement dated February 26, 1992 between
McConnell-Peel Resources Ltd. and Sheba Copper Mines Limited . . . . 50
1.2 Amendment to the Memorandum dated September 11, 2000
changing the Company's name, consolidating, subdividing and
increasing its authorized capital. . . . . . . . . . . . . . . . . . 58
1.3 Certificate of Change of Name dated September 11, 2000 . . . 61
1.4 The Articles of Continuance of the Company dated October 6, 2000 . . 62
1.5 Bylaws of the Company . . . . . . . . . . . . . . . . . . . . . .65
1.6 Certificate of Continuance dated October 6, 2000 . . . . . . .77
2.1 Specimen Share Certificate . . . . . . . . . . . . . . . . . . . .78
4.1 Assignment and Settlement Agreement dated July 31, 2000
between the Company, Vernon Meyer, WMC Equities Inc., Petersen
Management Inc. and Pemcorp Management Inc . . . . . . . . . . . . .80
4.2 Settlement Agreement dated July 31, 2000 between the Company
and Pemcorp Management Inc. . . . . . .. . . . . . . . . . . . . . 84
4.3 Asset Purchase Agreement dated May 1, 2000 between 596319
B.C. Ltd. and the Company . . . . . . . . . . . . . . . . . . . . . .87
4.4 Management Agreement dated August 1, 2000 between the
Company and Pemcorp Management Inc . . . . . . . .. . .. . . . . . 98
-47-
SIGNATURES
The Company hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this registration statement on its behalf.
INSIDE HOLDINGS INC.
/s/ Leonard Petersen
- -------------------------------
By: Leonard Petersen
Its: President
Dated: March 23, 2001
-48-
EXHIBIT INDEX
Page
----
1.1 Amalgamation Agreement dated February 26, 1992 between
McConnell-Peel Resources Ltd. and Sheba Copper Mines Limited . . . . 50
1.2 Amendment to the Memorandum dated September 11, 2000
changing the Company's name, consolidating, subdividing and
increasing its authorized capital. . . . . . . . . . . . . . . . . . 58
1.3 Certificate of Change of Name dated September 11, 2000 . . . 61
1.4 The Articles of Continuance of the Company dated October 6, 2000 . . 62
1.5 Bylaws of the Company . . . . . . . . . . . . . . . . . . . . . .65
1.6 Certificate of Continuance dated October 6, 2000 . . . . . . .77
2.1 Specimen Share Certificate . . . . . . . . . . . . . . . . . . . .78
4.1 Assignment and Settlement Agreement dated July 31, 2000
between the Company, Vernon Meyer, WMC Equities Inc., Petersen
Management Inc. and Pemcorp Management Inc . . . . . . . . . . . . .80
4.2 Settlement Agreement dated July 31, 2000 between the Company
and Pemcorp Management Inc. . . . . . .. . . . . . . . . . . . . . 84
4.3 Asset Purchase Agreement dated May 1, 2000 between 596319
B.C. Ltd. and the Company . . . . . . . . . . . . . . . . . . . . . .87
4.4 Management Agreement dated August 1, 2000 between the
Company and Pemcorp Management Inc . . . . . . . .. . .. . . . . . 98
-49-