SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, for the fiscal year ended: December 31, 2000
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: 333-8958
EQUITY FINANCE HOLDING CORPORATION
(Exact name of registrant as specific in its charter)
Belize, Central America
(Jurisdiction of incorporation or organization)
SUITE 408
CALLE CLEOFAS RUIZ #853-B
ZONA CENTRO - C.P. 22710
PLAYAS DE ROSARITO, B.C., MEXICO
(Address of principal executive offices.)
Registrant's area code and telephone number: 888-450-3342
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered: NASD OTCBB, United States
Securities to be registered pursuant to Section 12(g) of the Act:
Title of each class: None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Title of each class:
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 - 5,149,000 Shares of Common Stock
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.
[ X ] YES [ ] NO
20-F Page 1 of 40
Indicate by check mark which financial statement item the registrant has elected
to follow:
[ ] ITEM 17 [ ] ITEM 18
(APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] YES [ ] NO
INDEX BEGINS ON PAGE 3.
INTRODUCTION
Equity Finance Holding Corporation (the "Company") was incorporated under
the laws of Belize, Central America on March 6, 1998. Its principal executive
offices are located at Suite 408, Calle Cleofas Ruiz #853-B, Zona Centro - C.P.
22710, Playas De Rosarito, B.C., Mexico. Its telephone number in the United
States is (888) 450-3342. Equity Finance Holding Corporation trades on the
United States NASD OTCBB stock exchange with the trading symbol of EFHLF.
As used herein, except as the context otherwise requires, the term
"Company" refers to Equity Finance Holding Corporation, a corporation organized
under the laws of Belize.
The Company publishes its financial statements expressed in United States
dollars. In this document, references to "US dollars" or "US$" are to the
currency of the United States of America.
The Company's fiscal year ends on December 31 of each year. References in
this document to a particular year are to the fiscal year unless otherwise
indicated.
In the future, the Company will continue to produce annual reports
containing audited financial statements and an opinion thereon by the Company's
independent public accountants. The financial statements contained in this
registration statement have been audited in accordance with United States
Generally Accepted Accounting Principles ("US GAAP").
SAFE HARBOR STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
FORWARD LOOKING STATEMENTS
The statements included in this annual report on Form 20-F ("Form 20-F")
regarding future financial performance and results and the other statements that
are not historical facts are forward-looking statements. The words "believes,"
"intends," "expects," "anticipates," "projects," "estimates," "predicts" and
similar expressions are also intended to identify forward-looking statements.
Such statements reflect various assumptions by the Company concerning
anticipated results and are subject to significant business, economic and
competitive risks, uncertainties and contingencies. Accordingly, there can be no
assurance that such statements will be realized. Such risks, uncertainties and
contingencies could cause the Company's actual results for 2001 and beyond to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company. The Company makes no representation or
warranty as to the accuracy or completeness of such statements contained in this
Form 20-F.
20-F Page 2 of 40
In addition, this annual report includes forward-looking statements
relating to our potential exposure to various types of market risks, such as
foreign exchange rate risk, interest rate and other risks related to financial
assets and liabilities and equity price risk. You should not rely on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors which are, in many cases, beyond our control and
may cause our actual results, performance or achievements to differ materially
from anticipated future results, performance or achievements expressed or
implied by the forward-looking statements and from past results, performance or
achievements.
For further discussion of these factors, see "Item 3-Key
Information-Selected Financial Information," "Item 4-Information on the
Company", "Item 5-Operating and Financial Review ", and "Item 11-Quantitative
and Qualitative Disclosures about Market Risk".
You are cautioned not to place undue reliance on these forward-looking
statements. These forward-looking statements are made as of the date of this
annual report on Form 20-F and are not intended to give any assurance as to
future results.
INDEX
PART I
Item 1. Identity of Directors, Senior Management and Advisers._________4
Item 2. Offer Statistics and Expected Timetable._________________________4
Item 3. Key Information.____________________________________________________4
Item 4. Information on the Company._______________________________________8
Item 5. Operating and Financial Review___________________________________12
Item 6. Directors, Senior Management and Employees._____________________15
Item 7. Major Shareholders and Related Party Transactions._____________19
Item 8. Financial Information._____________________________________________22
Item 9. The Offering and Listing.________________________________________35
Item 10. Additional Information.____________________________________________35
Item 11. Quantitative and Qualitative Disclosures about Market Risk._________38
Item 12. Description of Securities Other than Equity Securities._______39
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.________________39
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds._____________________________________________39
Item 15. [Reserved]._________________________________________________________39
Item 16. [Reserved]._________________________________________________________39
PART III
Item 17. Financial Statements.______________________________________________39
Item 18. Financial Statements.______________________________________________39
Item 19. Exhibits.___________________________________________________________39
20-F Page 3 of 40
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL INFORMATION
The Company is a management consulting corporation and marketer of
management and financial consulting services offered principally to small
businesses with annual sales of $2,000,000 to $20,000,000. The Company provides
resources to a variety of business clients, assisting them in developing their
capitalization to achieve corporate growth. Additionally, the Company provides
counsel and expertise to this market segment, which will allow the closely-held
client corporations to be held more broadly.
The Company has operated only since 1998, therefore, only the period from
then until 31 December 2000 is included in this annual report, not 5 years as
required.
FOR THE PERIOD ENDED DECEMBER 31,
- --------------------------- ---------- -------------- ----------
OPERATIONS FOR THE PERIOD: 2000 1999 1998
- --------------------------- ---------- -------------- ----------
Consulting fees $ - $ 1,429 $ 4,922
Loss from operations $(297,287) $ (236,109) $(341,578)
Loss from operations per
share of common stock
diluted $ (0.06) $ (0.05) $ (0.07)
Cash dividends declared per
share of stock $ - $ - $ -
DECEMBER 31,
- --------------------------- ---------- -------------- ----------
BALANCE AT THE END OF THE 2000 1999 1998
PERIOD:
- --------------------------- ---------- -------------- ----------
Total Assets $ 49,689 $ 582 $ 2,898
Long-term obligations $ 102,345 $ 69,805 $ 27,069
DIVIDENDS
As of December 30, 2000, the Company has distributed to the shareholders of
its common stock 514,920 common shares of International Technology Enterprises
Ltd., a Belize International Business Corporation, and 514,920 common shares of
QVP International Ltd., a Belize International Business Corporation, as non-cash
dividends. No dividends, either cash or non-cash, were distributed or paid in
previous years.
B. CAPITALIZATION AND INDEBTEDNESS.
Not Applicable
20-F Page 4 of 40
C. REASONS FOR THE OFFER AND USE OF PROCEEDS.
Not Applicable
D. RISK FACTORS
COMPETITION
As described in more detail in the section titled "Information on the
Company," below, the Company is primarily engaged in the management consulting
business. There are competitors in the management consulting industry that
provide similar products and services to those, which are provided by the
Company. In many cases these competitors are larger companies with greater
capital resources on which to draw. The Company's future success will depend to
an extent upon its ability to remain competitive in the areas of service,
quality, price, marketing, product development, service delivery, distribution
and client processing. There can be no assurance that the Company will be able
to compete successfully. Prices for the Company's services are typically
determined by market conditions. To remain competitive, the Company reviews and
adjusts its pricing structure from time to time in response to such
industry-wide price changes. To the extent that the Company may be obligated to
adjust its pricing policies to meet competition, the Company's financial
performance may be adversely affected by its inability to reduce its costs in
response to industry-wide price reductions or by its inability to increase its
prices in response to increases in its costs and expenses.
POSSIBILITY OF SETTING ASIDE LOCKUP/POOLING AGREEMENT
Beowulf Investments is a party to the Lockup/Pooling Agreement (the
Agreement) along with the Company and certain companies beneficially owned by
principal shareholders of the Company. The Agreement restricts the trading of
unregistered shares of the Company. There cannot be unqualified assurance that
this pooling agreement will not be broken. The parties to the agreement would
not be obligated to consider the public shareholders in a decision to break the
pooling agreement because the public shareholders are not a party to the
Agreement. If the pooling agreement were broken, the insiders could sell some
or all of their shares to the public. Should this occur, the sales could depress
the share price. Such EFHC insider sales would be subject to SEC regulation as
are the sales of all insider stock.
LIMITED SALES REPRESENTATIVES
The Company intends to market its services through a global network of
business consultants. At present, it has six representatives, located in
Berkeley California, Woodland, California, Phoenix, Arizona, Los Angles,
California, Singapore, Singapore and Hong Kong, China. EFHC has no assurances
that it can attract additional representatives or more clients.
LIMITED CUSTOMERS
The Company currently only has three clients. The loss of any of these
three clients could have a material adverse impact on the Company.
INDEPENDENT ACCOUNTANT'S REPORT REFERRING TO GOING CONCERN UNCERTAINTIES
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has an accumulated deficit of $880,124, and, during the
20-F Page 5 of 40
year ended December 31, 2000, the Company incurred a loss of $297,287. In
addition, the Company's current liabilities exceed its current assets by
$167,818 at December 31, 2000. These factors, among others, raise a substantial
doubt about the Company's ability to continue as a going concern for a
reasonable period of time, generally defined as a period not to exceed one year
beyond the balance sheet date. The financial statements do not include any
adjustments relating to the classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Management has established a plan that it believes will generate sufficient cash
flows, through operations and additional debt financing, to remove the threat to
the continuation of the Company. However, there can be no assurances that the
Company will be successful in generating sufficient cash flows from operations
or obtaining additional debt financing.
PENNY STOCK DISCLOSURE RULES
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure in connection with trades in any stock defined as a "penny
stock." The Commission's regulations generally define a penny stock to be an
equity security that has a price of less than $5.00 per share, subject to
certain exceptions (such exceptions include an equity security listed on NASDAQ
or issued by an issuer that has (1) net tangible assets of at least $2 million,
if such issuer has been in continuous operation for three years, (2) net
tangible assets of at least $5 million, if such issuer has been in continuous
operation for less than three years, or (3) average annual revenues of at least
$6 million, if such issuer has been in continuous operation for less than three
years). No such exceptions are applicable to the Company. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
In addition, unless and until the securities of the Company are listed for
trading on NASDAQ or the Company has $2 million in net tangible assets, trading
in the Company's securities will be subject to Rule 15c2-6 promulgated under the
Securities Exchange Act of 1934 for non-NASDAQ and nonexchange listed
securities. Under the penny stock rules, broker-dealers who recommend such
securities to persons other than institutional accredited investors (generally
institutions with assets in excess of $5,000,000) must make a special written
suitability determination for the purchaser, receive the purchaser's written
agreement to the transaction prior to sale and provide the purchaser with risk
disclosure documents which identifies certain risks associated with investing in
penny stock and which describe the market as well as the purchaser's legal
remedies. Further, the broker-dealer must also obtain a signed and dated
acknowledgment from the purchaser demonstrating that the purchaser has actually
received the required risk disclosure document before a transaction in a penny
stock can be consummated. These requirements may have the effect of reducing the
level of trading activity in the secondary market for securities that become
subject to the penny stock rules. With the Company's securities becoming subject
to the penny stock rules, investors may find it more difficult to sell such
securities, which could have an adverse effect on the market price thereof.
Because the Common Stock would be characterized as penny stock, the market
liquidity for the Company's securities could be adversely affected. In such an
event, the regulations on penny stocks could limit the ability of broker-dealers
to sell the Company's securities and the ability of stockholders to sell their
securities in the secondary market.
DEPENDENCE ON KEY PERSONNEL
20-F Page 6 of 40
The Company's ability to compete is largely dependent on the personal
efforts and abilities of its senior management, particularly James A. Bishop,
Director and Chief Operating Officer, Jack L. Mahan, Jr., President and
Secretary of the Board of Directors, and William Cate, Chairman of the Board of
Directors. The Company believes that the loss of the services of any of these
executives could have a material adverse effect on the Company. In addition, the
Company believes that its success is dependent on its ability to attract and
retain additional qualified employees, and the failure to recruit additional
skilled personnel could have a materially adverse effect on the Company's
financial condition and results of operations. The Company currently does not
maintain key employee insurance on any of its employees.
ABSENCE OF CASH DIVIDENDS
The Company anticipates that all of its earnings in the foreseeable future
will be retained for the development and expansion of its business and,
therefore, has no current plans to pay cash dividends. The Company's future
dividend policy will depend on the Company's earnings, capital requirements,
financial condition, bank facilities and other factors considered relevant by
the Board of Directors. However, at present, the Company does not have any plans
to pay cash dividends in the future.
NO WARRANTIES REGARDING PERFORMANCE
At no time has the Company, or any of its officers, directors, agents or
employees, or any other person, expressly or by implication, guaranteed or
warranted the future successful operation of the Company.
NO WARRANTIES REGARDING BENEFITS TO INVESTORS
The information and statements contained in this document are not intended
to contain any representations or warranties with respect to the economic
returns or benefits, which may accrue to investors in the future. No assurance
can be given that existing tax, securities or other laws, which are discussed
herein, will not be changed in the future or interpreted adversely. Prospective
investors are not to construe the contents of this document, or any
communications with the Company or any of its representatives, as constituting
legal, tax or investment advice. Each investor should consult with his or her
own counsel or advisors as to the advisability of an investment in the shares
considering the legal, tax and other effects of such an investment. Each
investor should consult with his or her own counsel, accountant and other
advisors as to the legal, tax and related matters concerning a purchase by such
investor of shares.
CHANGES IN INCOME TAX LAWS
Prospective investors should not rely on the prospect that tax effects
provided by existing law will continue. There can be no assurance that
individual countries nor the U.S. Congress or the U.S. Internal Revenue Service
("IRS") will not modify the tax consequences of owning Shares, or that changes
or modifications in existing judicial decisions or in the current positions of
the U.S. IRS or in applicable country, state or local tax laws will not
substantially (and unfavorably) modify such tax treatment or the consequences
which may arise therefrom.
EFFECT OF BELIZE LAWS
Because the Company is incorporated in Belize, Central America, it is
subject to potential changes in Belize law. The effects of any change in Belize
laws on the Company are unknown at this time, but such effects may be adverse to
the Company's shareholders' best interests. These potential changes include
changes in tax law, corporate law, political instability, economic collapse, and
currency fluctuations.
20-F Page 7 of 40
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
The Company was formed in Belize, Central America, under the Belize
International Business Corporation Act, pursuant to Section 14(3), on March 6,
1998 as IBC #6826. The Company operates under the laws of Belize, Central
America. The registered office of the Company is at 1st Floor East Wing, 65
Front St., Punta Gorda, Belize, Central America. The International Corporate
address is Suite 408, Calle Cleofas Ruiz #853-B, Zona Centro - C.P. 22710,
Playas De Rosarito, B.C., Mexico. EFHC business operations are located outside
the United States. EFHC's affiliate in the United States is located at 1296 E.
Gibson Road, #149, Woodland, CA, 95776, USA. The U.S. telephone number is
888-450-3342.
B. BUSINESS OVERVIEW.
Equity Finance Holding Corporation ("the Company") is a
management-consulting corporation that assists clients in obtaining equity
investments in their company. The U.S. SIC Code is 8742, Management Consulting
Services. The Company's global target market is small to medium-size
enterprises with gross sales between US$1,000,000 and US$20,000,000. EFHC
commenced operations in March 1998. The Company shares office space in Punta
Gorda, Belize with its resident agent. It also shares office space in Playas de
Rosarito, B.C., Mexico with Equity Finance International Corporation. It is
being provided office space without charge.
The Company identifies foreign and United States companies that can carry
out an expansion program designed to groom them for sale or merger with an
industry giant. EFHC will assist the client in becoming a reporting company and
listing with the NASD OTCBB for trading. Shares of the client company will be
sold to public and private investors to arrange a funding of up to $10 million.
EFHC will then work with the client company for the period. EFHC will assist
with developing sound growth, shareholder value, and investor relations. Shares
in the name of principals of the client company will be pooled and vaulted for
five years. The pooling and vaulting agreement will be designed to protect new
shareholders; however, this agreement may be modified at any time by unanimous
vote of all parties to the pooling and vaulting agreement. Because the parties
pooling and vaulting their shares may modify the pooling and vaulting agreement,
shareholders not party to the agreement may suffer significant adverse effects,
specifically a material decline in their share value. EFHC has represented this
program to some potential clients under the name "Advantage 2000 Program." EFHC
representatives and affiliates may use other names for the program.
The Company intends to market its services through a global network of
business representatives and affiliates. Representatives are freelance
consultants who provide client referrals to EFHC on a commission basis. The
representative refers clients to EFHC. The representative can: (1) simply refer
clients to EFHC, or (2) refer the client, help the client provide underwriting
documentation and assist with the client investor relations program after equity
investments are obtained.
An affiliate is a strategic partner to EFHC, usually located outside of the
United States, who is generally in the business of assisting companies with
venture financing. EFHC and the affiliate jointly venture to assist companies.
EFHC pays referral fees to affiliates identifying client companies and
affiliates participate in the fees for services provided on a shared basis. The
fees for services will be mutually agreed upon. EFHC and the affiliate will
agree on a fee, scope of work, tasks and roles in advance of commencing services
for the client. Affiliates are being sought in various parts of the world
including Australia, China, Cypress, England, Germany, India, Pakistan,
Singapore, and the United States. EFHC is also seeking to develop affiliate
relationships with Venture Capital companies throughout the world. EFHC has no
assurances that it can attract affiliates, representatives or additional
clients.
20-F Page 8 of 40
As of December 31, 2000, the Company has three clients: QVP International
Ltd., International Technology Enterprises Ltd. and Global Recreation Inc. To
date no companies have become reporting companies and no companies have received
equity investments through the efforts of the Company.
If EFHC is able to increase its capital resources, either through a debt or
equity financing, the Company may seek to grow through the acquisition of
Management Consulting Firms whose clients need EFHC's help. However, management
can provide no assurances that such financing will be available to the Company
or that suitable acquisition candidates will be identified.
The Company plans to reinvest profits and does not envision the payment of
cash dividends to stockholders. The Company does plan to pay non-cash dividends
in client companies to EFHC shareholders. However, since inception, two
non-cash dividends in client companies have been paid to EFHC shareholders and
no assurances can be provided that such dividends will be paid in the future.
START-UP OF BUSINESS OPERATIONS
The Company continues to interview prospective clients. EFHC anticipates
losing money for several years. Without paid employees or paid office space,
the Company's operating costs are minimal.
COMPETITION AND PRICING
Many firms offer financial solutions to businesses. Many of these firms
are larger and better financed than EFHC. EFHC must price its services
competitively.
CONFLICT OF INTEREST
EFHC has a policy of appointing a member to the Board of Directors of each of
its client companies. At present, EFHC would select Mr. J. Mahan, Mr. J.
Bishop, or Mr. W. Cate as their representative to the client's Board of
Directors. This policy has a potential to create a conflict of interest between
EFHC and the client company's Board of Directors. The Company does maintain a
policy on Conflict of Interest. This policy requires a fiduciary duty on the
part of each director and officer of the Company. Should such a conflict
develop, the appointed client board member would withdraw from the discussion
and vote on the issue before the EFHC Board. In any potential conflict issue,
it is the responsibility of the individual director to state that they see a
conflict and withdraw from the discussion and voting on that topic. Further,
the Board of Directors will also determine if a conflict of interest exists
pursuant to the policy of the Company.
C. ORGANIZATIONAL STRUCTURE.
The Company is not part of a group, nor does the Company own subsidiaries
at this time. The body of accounting principles used in preparing the financial
statements is primarily U.S. GAAP.
D. PROPERTY, PLANT AND EQUIPMENT.
There is no property, tangible or intangible, recorded in the Financial
Statements of the Company. All office space is shared and the Company does not
pay any part of the rent for its use.
20-F Page 9 of 40
ITEM 5. OPERATING AND FINANCIAL REVIEW
A. Operating results.
GENERAL
All statements contained herein that are not historical facts, such as
statements regarding the Company's current business strategy and plans for
future operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties. Such
risks and uncertainties include, but are not limited to, those described herein
including, among other things: (1) significant increases in competitive pressure
in the management and financial consulting industry; (2) general global economic
conditions; (3) changes in the regulatory environment; and (4) changes in the
securities markets. Therefore, the information set forth in such
forward-looking statements should be carefully considered when evaluating the
business prospects of the Company.
FINANCIAL RESULTS
The Company had a net loss of $297,287 for the year ended December 31, 2000
compared to a net loss of $236,109 for the year ended December 31, 1999 and a
net loss of $341,578 for the period from inception (March 6, 1998) to December
31, 1998. The increase in the current year loss of $61,178, or 25.9%, relates
primarily to an increase in professional fees and foreign license fees. The
reduction in the 1999 loss compared to 1998 of $105,469, or 30.9%, relates
primarily to a reduction in professional fees and referral fees. These
reductions in 1999 were offset by an increase in salary expense, which covered a
full year in 1999.
To date the Company has not been successful in meeting the milestones that
would allow for revenue recognition. Accordingly, revenue includes other
consulting fees related to services provided on an ad hoc basis to clients not
enrolled in the Advantage 2000 Program.
The Company incurred $50,283, $2,171 and $128,737 in professional fees
during the years ended December 31, 2000 and 1999 and for the period from
inception (March 6, 1998) to December 31, 1998, respectively. Changes in the
level of professional fees relate to the timing of external reporting
requirements and to changes in the level of Company operations. In addition,
1998 fees reflect costs associated with starting the business and SEC
registration. Referral fees were zero in 2000 and decreased in 1999 compared to
1998 as no clients were accepted in 2000 or 1999 under arrangements requiring
the payment of a referral fee to a third party. These expense reductions in
1999 were offset by an increase in salary expense related to the fact that 2000
and 1999 included twelve months and the initial operating period in 1998
included approximately 10 months.
The Company's financial position reflects nominal assets and negative
working capital. At December 31, 2000 and 1999, obligations in accounts payable
included a $42,750 refund due to a former EFHC recipient of services terminating
receipt of services from EFHC and thereby increasing the amount of trade
payables by $34,757 and $22,753, respectively. The increase in 2000 trade
payables is also due to the increase in operating expenses during 2000 compared
to 1999. Deferred revenue increased by $95,000 as of December 31, 2000 compared
to December 31, 1999. This increase relates to retainer amounts received from a
client during 2000. The $45,000 in work in process as of December 31, 2000
relates to a commission paid in connection with obtaining the retainer.
20-F Page 10 of 40
The total shareholders' deficit is $270,163 at December 31, 2000 compared
to $179,726 at December 31, 1999. The shareholders' deficit has been reduced by
the value of services provided to the Company by its principals without
compensation. Such amounts are reflected in additional paid-in capital. Basic
and diluted loss per share was $0.06, $0.05 and $0.07 for the years ended
December 31, 2000 and 1999 and the period from inception (March 6, 1998) to
December 31, 1998, respectively. The reduction in the loss per share in 1999
compared to 1998 is attributable primarily to lower professional fees and larger
number of outstanding shares brought about by the sale of 514,900 shares of
common stock to A&A International Industries. The weighted average common shares
outstanding during each period was 5,149,000, 5,065,770 and 4,587,910,
respectively.
INFORMATION REGARDING SIGNIFICANT FINANCIAL FACTORS
Inflation generally affects companies by the cost of labor, equipment, and
raw materials. The Company does not believe that inflation has had, or will
have, any material effect on the Company's business during the periods discussed
herein. Most of the Company's business is transacted in United States dollars.
Although transactions could occur utilizing other world currencies, the Company
anticipates these transactions to be translated directly into values equivalent
to United States dollars.
FUTURE CASH FLOWS
The terminating client referenced previously has requested the return of
unearned advances totaling $42,750. Accordingly, unearned advances equal to this
amount have been reclassified and reflected in accounts payable in the financial
statements for the years ended December 31, 2000 and 1999. The repayment of
unearned advances will have a negative impact on future cash flows. Due to the
limited operations reflected in the financial statements (from inception to
December 31, 2000), the cash flows for these periods might not be indicative of
cash flows in future period. The repayment of unearned advances related to the
client termination, other client termination and/or other events might
negatively impact the Company's cash flows in future periods. Management has
considered the required cash outflows and loss of future revenues related to the
terminated client in assessing the Company's ability to sustain operations, as
outlined below.
B. LIQUIDITY AND CAPITAL RESOURCES.
As noted in the financial statements for the years ended December 31, 2000
and 1999 and the period from inception (March 6, 1998) to December 31, 1998, the
Company has incurred significant operating losses and has limited cash
resources. Management continues to operate under a plan designed to generate
cash for operations from the (1) acquisition of additional clients, and (2)
additional debt or equity financing and (3) exercise of the warrants.
In years 2000 and 1999, the Company revised the fee collection methods
related to the Advantage 2000 Program. Previously, the Company required a
$45,000 fee deposit prior to providing services to the client. Management found
the initial capital outlay presented a significant obstacle to obtaining Program
participants. Under the revised fee collection method operational during 2000,
total cash compensation for the Program was $250,000. After an initial payment
of $15,000, the client remits payments of $10,000 to EFHC on the first of each
month to a maximum cumulative total of $100,000. No further payments beyond the
cumulative total of $100,000 are due until the company trades its stock on the
NASD OTCBB. At that time, $150,000 dollars is due and payable by the client to
EFHC.
20-F Page 11 of 40
Currently, four (4) clients are enrolled in the EFHC Advantage 2000 Program
and nine (9) prospective clients are reviewing the Company's product.
While Management believes that the plan of operations in place is viable,
the Company's ability to obtain additional clients or financing cannot be
assumed or assured. Accordingly, substantial doubt about the Company's ability
to continue as a going concern exists.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Not Applicable
D. TREND INFORMATION.
The most significant recent trend for the Company is the refocusing on
marketing to both United States and international clients by breaking EFHC
consulting services into individually priced items as opposed to selling only
the Advantage 2000 program. As a result, more services may be marketed and
additional revenue could be anticipated. Other significant recent trends in
production involve acquisition of additional legal professional services for
assistance with client Securities and Exchange Commission filings, focus of
sales through expansion of the representative and affiliate networks, and the
attraction of more clients in year 2001. Service delivery costs have increased
as a function of additional professional services, but management is working to
keep increases to a minimum.
Other than those discussed herein, the Company, for at least the current
financial year, is unaware of any further trends, uncertainties, demands,
commitments or events that are reasonably likely to have a material effect on
the Company's net sales or revenues, income from continuing operations,
profitability, liquidity or capital resources, or that would cause reported
financial information not necessarily to be indicative of future operating
results or financial condition.
PLAN FOR OPERATIONS
As noted, EFHC has incurred significant operating losses and has limited
cash resources. Management is operating under a plan of action that considers
generating cash for operations through (1) acquisition of additional clients,
(2) additional debt or equity financing or (3) exercise of currently outstanding
warrants. The Company's ability to obtain additional debt or equity financing
and the exercise of currently outstanding options cannot be assumed or assured.
Accordingly, management's plans focus primarily on continuing operations using
proceeds generated from the acquisition of new client companies and from the
provision of consulting services.
The Company continues to market itself to potential client companies, both
directly and through its sales representative and affiliate networks. The
Company is currently reviewing the qualifications of twelve companies (pipeline
companies). Management will only provide services to qualified companies. A
qualified company is one that management believes will be successful in
obtaining equity capital. Accordingly, management estimates that only six to
eight of the pipeline companies will ultimately prove to be qualified companies.
Management is unable to provide an estimate of the number of qualified
companies, if any that will ultimately become client companies.
20-F Page 12 of 40
EFHC has never received a referral from a venture capital company nor have
any venture capital companies agreed to refer clients to EFHC. Only three (3)
EFHC sales representatives have referred potential clients to EFHC.
Management estimates that receipt of initial deposits from two (2)
additional client companies in 2001 will provide sufficient cash flows to
service client companies and sustain operations for a reasonable period. While
management believes it will be able to achieve these sales, no assurances can be
provided that this will occur.
Present results of operations lead to the conclusion that the Company may
not be financially feasible in the long term. Moreover, (1) it appears that
the Company will be dependent upon EFIC exercising its warrants for the
substantial portion of proceeds necessary to implement the Company's business
plan; and (2) the exercise of those warrants is not assured. However,
management believes that the Company's operations can continue without the
immediate exercise of such warrants and that the plan currently in place is
viable and has a reasonable capability of allowing the Company to sustain
operations and meet its financial objectives. The plan includes increasing
revenues and closely monitoring costs.
The plan to increase revenues includes expanding the search for clients by
developing relationships for client referrals from more business consultants,
venture capital companies and equity search networks throughout the United
States and abroad. Venture capital company selection standards exclude many
companies EFHC could assist. There are an estimated 1,500 venture capital firms
in the United States. The average venture capital company receives equity
capital requests from 1,400 companies each year. Of the 1,400 companies, 100
are chosen to review. Of the 100, 10 companies are selected for serious
consideration and 1 company is provided equity capital by that venture capital
company.
PLAN FOR LIQUIDITY AND CAPITAL RESOURCES
The principal sources of cash to operate the company are anticipated to be
generated from the company's operations. The Company believes that based upon
current levels of operations and anticipated growth, it will be able to satisfy
its ongoing cash requirements through the end of fiscal 2001 primarily with cash
flow from operations.
Bank loans or borrowing may be necessary to supplement cash flow generated
from operations. Borrowings to date have been from the parent company. No
assurances can be provided that necessary loans will be available to the
Company, and if such loans are available, no assurances can be provided as to
what the costs would be for these funds.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT.
20-F Page 13 of 40
The Company's Board of Directors consists of five (5) directors. Each
director is elected by the shareholders of the Company and will serve until the
next annual meeting or until a successor is elected or appointed. Executive
officers are appointed annually and serve at the discretion of the board of
directors. There are currently no arrangements or understandings between or
among any of the above persons pursuant to which they were selected as director
or executive officer. The Membership of the Board of Directors for 1 January to
31 December 2000 was as follows:
Name Position Country Off-Board Activity
- --------------------------------------------------------------------------------
Jack L. Mahan, Jr. President/Chairman US Management Consultant
James A. Bishop CFO/Secretary US Management Consultant
William Cate Director BZ/US Management Consultant
Malcolm Granger Director UK Health Consultant
Ian N. Collins Director UK Management Consultant
The principal managers of the Company have experience with business
start-up, management financing, consulting, credit underwriting, and public
corporation growth and development. J. Mahan is president, with three years
experience in the Company, and J. Bishop is CFO, with three years experience in
the Company. They have managed the Company from its inception. None of the
managers or the board members has any familial relationship. There are no
arrangements of understandings with major shareholders, customers, suppliers or
others, pursuant to which any person referred to above was selected as a
director or member of senior management.
B. COMPENSATION.
As per the recommendation of the EFHC Board of Directors Compensation
Committee meeting held in December 2000 in London, United Kingdom, the Company
disclosed the information below to its shareholders through the proxy
solicitation and at the annual shareholders meeting held in December 2000.
COMPENSATION OF DIRECTORS
For the year ended December 31, 2000 and the two (2) preceding years of the
Company's existence, there was no compensation paid by the Company to its
directors as a group. In the year 2001, the directors may receive compensation
in the amount of $100.00 per month and $500.00 for each board of directors
meeting that they attend. This applies to directors who are not paid a salary
by the Company. Board members will be reimbursed for all travel expenses for
the general annual meeting. There are no stock options, retirement plans, nor
agreements for compensation upon separation from the Board of Directors.
COMPENSATION OF OFFICERS
For the year ended December 31, 2000 and the two (2) preceding years of the
Company's existence, there was no compensation paid by the Company to its
officers. The estimated value of services contributed by the Company's Officers
has been recorded in additional paid in capital. The Company has developed a
formal strategic policy regarding the compensation of its executives and
officers that will be implemented when profitable operating results are achieved
and appear sustainable. This policy is intended to ensure executives a total
compensation package that is commensurate with their skill and experience. In
addition to salary, each officer will receive a benefits package including
medical, dental, vision, liability and life insurance. J. Mahan, Jr. and J. A.
Bishop, as President/Director and CFO/Director, respectively, will each receive
an annual salary of $100,000. W. Cate, in his capacity as Treasurer, will
receive an annual salary of $12,000.00. The eventual aggregate salary paid to
the officers, excluding the management benefits package described above, will be
$212,000. There are no stock options, retirement plans, nor agreements for
compensation upon separation from the Company.
20-F Page 14 of 40
C. BOARD PRACTICES.
The experience and committee assignments of the Company Board of
Directors are described below. The Company has been in existence for
approximately 3 years.
Years Experience and Committee Position:
- ----------------------------------------
Name Position Years Committee
- -----------------------------------------------------------------------------
Jack L. Mahan, Jr. President/Secretary 3 Executive
James A. Bishop CFO/Director 3 Executive
William Cate Chairman 3 Executive
Malcolm Granger Director 3 Audit/Compensation
Ian N. Collins Director 3 Audit/Compensation
The Board of Directors meets on a quarterly basis, or more often at the
discretion of the Chairman. An executive committee of three directors is
authorized to meet at its discretion. A quorum is necessary for voting. Each
Board Member is provided one vote. Votes may be cast in person, by
teleconference/videoconference, fax, or email. Year 2000 Board Meetings were
held in Belize, United States and United Kingdom. The Board Audit and
Compensation Committees met in December of 2000, in the United Kingdom, prior to
the Annual Shareholder Meeting. The Annual Shareholders meeting is generally
scheduled for December of each year.
Article 4.5 of the Memorandum of Association provides that the remuneration
of the directors shall from time to time be determined by the Company by
-----------
ordinary resolution. Article 4.11 of the Memorandum of Association provides
that directors may exercise all the powers of the Company to borrow money, and
to mortgage or charge its undertaking, property and uncalled capital or any part
thereof, and to issue securities whether outright or as security for any debt,
liability or obligation of the Company for any third party. Such borrowing
powers can only be altered through an amendment to the Memorandum of
Association. Directors of the Company are not required to own shares of the
Company in order to serve as directors.
For the convenience of the US stockholders, the 2000 annual shareholders
meeting was conducted December 17, 2000 in Pleasanton, California, USA. At this
meeting, Mr. Cate was elected to the office of Chairman of the Board of
Directors and Mr. Mahan to the office of Secretary of the Board. Additionally
Mr. King Kwok Yu, of Hong Kong, China, was elected to the Board to replace the
retiring Malcolm Granger. Mr. Yu was appointed to the audit committee and the
compensation committee. The election was to be effective January 1, 2001. The
other directors were elected to continue in their present positions. The
officers were directed to continue in place. The annual meeting of the Audit
Committee and the Compensation Committee was held in London on December 4, 2000,
results of which were reported at the annual shareholders meeting.
As a new Board Member, Mr. King Kwok Yu's background is as follows: KING
KWOK YU received a Bachelor of Arts in Economics from York University (Canada)
in 1976, a Master of Arts in Economics from University of California, Santa
Barbara in 1977 and a Masters in Business Administration in Accounting from
Golden Gate University in San Francisco, California in 1979. Mr. Yu registered
as a Certified Public Accountant with the Board of Accountancy of the State of
California in 1982 and now holds an inactive Certified Public Accountant status.
In 1984, Mr. Yu became an Associate Member of the Hong Kong Society of
Accountants. From 1979 to 1984, Mr. Yu was Staff Auditor/Audit Supervisor to
Oppenheim, Appel, Dixon & Co. (which included the practice of Robinson, Sain,
20-F Page 15 of 40
Snyder & Reiss) in San Francisco and Los Angeles, California. From 1984 to 1987,
Mr. Yu was Audit Supervisor/Assistant Audit Manager to the Hong Kong offices of
Ernst & Whitney and Spicer & Oppenheim. From 1987 to 1988, Mr. Yu served as
Group Financial Controller to Glynhill International Limited in Hong Kong. From
1988 to 1990, Mr. Yu was Group Chief Accountant to Polly Peck International
(Hong Kong) Limited. In 1991, Mr. Yu was Director to PHINA Corporate Finance
Services (Asia) Limited in Hong Kong. From 1992 to 1994, Mr. Yu was Group
Finance Director to Cathay International Group based in Hong Kong. From 1992 to
1994, Mr. Yu also provided professional advisory services to Cathay
International Group through D.M. Forant Inc., a company incorporated in the
State of Delaware and to which Mr. Yu was the sole stockholder, director and
officer. D.M. Forant Inc. did not render professional advisory services to any
other entities, and has not carried out any activities since 1995. From 1994 to
1997, Mr. Yu served as Director and Chief Financial Officer to Pharmaceutical
China Inc., British Virgin Islands, Faulding China Limited, Hong Kong, and
Foshan Faulding Pharmaceutical Co. Ltd., P.R.C. From 1997 to 1998, Mr. Yu served
as Executive Director to Richard King & Company Limited, of which he had been a
Director since 1991. From February 1999 to April 1999, Mr. Yu has served as a
Consultant and Associate Director to Hantec Asia Alliance Capital (China)
Limited. In May 1999, Mr. Yu formed Paddington Inc. with two business
associates. Paddington Inc. was a Blank Check Company with common stock
registered under the Securities Act or the Exchange Act. As defined in Section
7(b)(3) of the Securities Act, a "blank check" company is a development stage
company that has no specific business plan or purpose or has indicated that its
business plan is to engage in a merger or acquisition with an unidentified
company or companies and is issuing "penny stock" securities as defined in Rule
3a51-1 of the Exchange Act. From May 1999 to September 2000, Mr. Yu served as a
Director to Paddington Inc. Mr. Yu resigned as a Director to Paddington Inc. in
September 2000 after Paddington Inc. effected a merger with Supply Chain
Services, Limited in August 2000. From May 2000 to present, Mr. Yu is an Officer
of Paddington Inc. Mr. Yu also serves as a Director to several other Hong Kong
and US companies, all of which have not carried out any business activities in
the last five years, and all of which remain inactive as of the date of filing
of this annual report.
D. EMPLOYEES.
The Company has no employees. There are no stock options, retirement plans,
nor agreements for compensation upon separation from the Company.
E. SHARE OWNERSHIP.
Members of the Board own the following EFHC shares*:
DATE WHO SHARES STOCK TRANSACTION
16-Aug-00 JAMES BISHOP Less EFHLF (0RD)
than 1%
29-Dec-00 CATE, WILLIAM * 2,000 EFHLF (ORD) Purchased at $1.50/Share.
Director Cost of $3,000.
26-Dec-00 CATE, WILLIAM * 1,000 EFHLF (ORD) Purchased at $1.75/Share.
Director Cost of $1,750.
23-Oct-00 CATE, WILLIAM * 3,500 EFHLF (ORD) Purchased at $0.75/Share.
Director Cost of $2,625.
*Insider & restricted shareholder transactions reported over the last year
(http://finance.yahoo.com/q?s=EFHLF.OB&d=t). EFHLF is the NASD OTCBB trading
-------------------------------------
symbol for EFHC shares.
20-F Page 16 of 40
Mr. Cate's shares, as reflected in insider trading filings with the
Securities and Exchange Commission on EDGAR and on the Internet at
http://finance.yahoo.com/q?s=EFHLF.OB&d=t, are owned in the name of Beowulf
- -----------------------------------------
Investments. There are no stock options, retirement plans, nor agreements for
employees; or share compensation upon separation from the Company.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS.
The following is provided regarding the Company's major shareholders; that
is, the beneficial owners of 5% or more of the Company's common share voting
securities. Provided are the names of the major shareholders, and the number of
shares and the percentage of outstanding shares of the common shares owned by
each of them as of December 2000.
EFHC REGISTRANT NAME COMMON PERCENTAGE
SHARES
Equity Finance International Corporation, Belize, C.A. 1,588,416 30.84%
Equity Finance Information Systems, Belize, C.A. 1,163,525 22.59%
Augen Opticien GMBH of Honk Kong Ltd., Belize, C.A. 1,133,525 22.01%
International Money School, Belize, C.A. 1,133,525 22.014%
The Company's major shareholders do not have different voting rights.
B. RELATED PARTY TRANSACTIONS.
The Company has four shareholders that own more than 5% of the total shares
outstanding. These shareholders are resident in Belize. Their stock has not been
registered with the United States Securities and Exchange Commission and,
therefore, cannot be sold in the United States. Any sale of such shares outside
the United States would not be afforded any protection under American Securities
Laws, since the unregistered shares are not subject to the United States
Securities and Exchange regulation.
William Cate, director, has filed disclosures of interest with the
Securities and Exchange Commission. These are exhibited on the EDGAR Internet
service and http://finance.yahoo.com/q?s=EFHLF.OB&d=t. The filings are as
-----------------------------------------
follows:
29-Dec-00 CATE, WILLIAM * 2,000 EFHLF (ORD) Purchased at
Director $1.50/Share.
Cost of $3,000.
26-Dec-00 CATE, WILLIAM * 1,000 EFHLF (ORD) Purchased at
Director $1.75/Share.
Cost of $1,750.
23-Oct-00 CATE, WILLIAM * 3,500 EFHLF (ORD) Purchased at
Director $0.75/Share.
Cost of $2,625.
Mr. James A. Bishop, Director and Officer, has disclosed the purchase of
the Company shares as of 16 August 2000 totaling less than 1% of the Company
shares. His son, Christopher Bishop, is also the beneficial holder of less than
1% of the Company shares.
20-F Page 17 of 40
Certain Directors of the Company are the principal owners of EFIC, QVPI and
ITEL. QVPI and ITEL are non-operating companies with nominal assets. These
companies were formed by EFHC on behalf of Program clients. At December 31,
2000, these Directors are the beneficial owners of approximately 97.50% of the
Company's shares and approximately 10% of the shares of QVPI and ITEL.
During 1998, the Company distributed 4,634,097 shares valued at US$.001 per
share to EFIC to partially repay principal and interest outstanding on a related
party note payable. Equity Finance International Corporation has provided
capital to the Company and in return has received an unsecured note, plus
accrued interest, totaling $51,224 at 31 December 2000. A note has been provided
to International Technology Enterprises Ltd., a Belize, Central America,
International Business Corporation, in the amount of US$2,575, for purchase of
514,920 shares of common stock.
On April 1, 1998, Beowulf Investments (Beowulf), whose managing director is
a director of the Company, purchased 3,000,000 warrants from the Company for
$2,000. The warrant exercise prices were as follows: 1,000,000 warrants at
US$1.95, 1,000,000 at US$3.25 per share and 1,000,000 warrants at US$5.20 per
share. The unchanged documenting agreement, the Warrant Funding Agreement, has
been reported previously in a registration statement on Form F-1 Amendment 6,
effective 23 March 1999 under the Securities Act, of Equity Finance Holding
Corporation, IBC No. 6825, incorporated, Belize, Central America, 6 March 1998,
and is hereby incorporated by specific reference in this annual report to the
previous registration statement which was determined effective by the U.S.
Securities and Exchange Commission on March 23, 1999. The warrants expired on
September 30,1999.
On April 1, 1998, the Company, EFIC, and Beowulf Investments entered into a
Stock Pooling Agreement. The unchanged documenting agreement, the Stock Pooling
Agreement, has been reported previously in a registration statement on Form F-1
Amendment 6, filed under the Securities Act of Equity Finance Holding
Corporation, IBC No. 6825, incorporated, Belize, Central America, 6 March 1998,
and is hereby incorporated by specific reference in this annual report to the
previous registration statement which was determined effective by the U.S.
Securities and Exchange Commission on March 23, 1999. The warrants expired on
September 30 1999. Shares purchased by EFIC are subject to a Lockup/Pooling
agreement between EFHC, EFIC and Beowulf Investments which restricts the sale of
the shares for a period of five years from the March 1, 1999 sale date. The
parties can amend the Lockup/Pooling agreement.
During April 1998, the Company entered into an agreement to provide a loan
up to $500,000 to a client, QVP Family Products, Inc., a private United States
company for the purposes of sustaining their operations and financing their
acquisition of a target company should the Company be unable to arrange equity
funding of up to $10,400,000 for the client company prior to October 1998. Such
financing has not been arranged; however, the Company was only obligated to
provide this loan from the proceeds received from the exercise of outstanding
warrants.
On October 22, 1998, the Company distributed 4,634,097 shares valued at
US$.001 per share to EFIC to partially repay principal and interest outstanding
on the related party note payable discussed above. These shares will be subject
to the Lockup/Pooling agreement between EFHC, EFIC and Beowulf Investments
outlined below. Management believes that the agreed upon per share value was
materially consistent with fair value.
During 1998, the Company sold 514,900 shares of its common stock to A&A
International Industries, Inc. a Canadian corporation publicly traded in the
United States (A&A), for Canadian $.01 (approximately US$00.65). A&A
distributed the shares to its shareholders as a non-cash dividend. Certain A&A
shareholders entered into separate agreements and immediately sold 346,455 of
the distributed EFHC shares at a price of Canadian $.02 (approximately US$.013)
to EFIC, the sole shareholder of the Company prior to the A&A sale. Shares
purchased by EFIC are subject to a Lockup/Pooling agreement between EFHC, EFIC
and Beowulf Investments which restricts the sale of the shares for a period of
five years from the March 1, 1999 sale date. The parties can amend the
Lockup/Pooling agreement.
20-F Page 18 of 40
On October 22, 1999, warrants for 3,000,000 shares of the Company's common
stock were distributed to EFIC. The related party note to EFIC (discussed above)
was reduced by US$1,000. The warrants have an exercise price of US$3.34 per
share and expire on October 22, 2002, with an option to extend. Management
believes the agreed-upon warrant purchase price is materially consistent with
the fair value of the warrants.
On December 28, 2000, the Company purchased 514,920 shares, representing
10% of the outstanding shares, of stock of QVP International Ltd. (QVPI), a
related party, for US$0.005 per share. The stock was purchased with the
issuance of a $2,574.60 note payable to QVPI. The Company distributed one share
of QVPI stock for every 10 shares of EFHC stock held to EFHC shareholders as a
non-cash dividend declared December 28, 2000 to shareholders of record December
29, 2000. Management believes the agreed-upon purchase price is materially
consistent with the fair value of the shares purchased.
On December 28, 2000, the Company purchased 514,920 shares, representing
10% of the outstanding shares, of stock from International Technology
Enterprises Ltd. (ITEL), a related party, for US$0.005 per share. The stock was
purchased with the issuance of a $2,574.60 note payable to ITEL. The Company
distributed one share of ITEL stock for every 10 shares of EFHC stock held to
EFHC shareholders as a non-cash dividend declared December 28, 2000 to
shareholders of record December 29, 2000. Management believes the agreed-upon
purchase price is materially consistent with the fair value of the shares
purchased.
C. INTERESTS OF EXPERTS AND COUNSEL.
Not applicable.
20-F Page 19 of 40
ITEM 8. FINANCIAL INFORMATION.
A. STATEMENTS AND OTHER FINANCIAL INFORMATION.
Relevant audited financial information appears below.
EQUITY FINANCE HOLDING CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
AND THE PERIOD FROM INCEPTION
(MARCH 6, 1998) TO DECEMBER 31, 1998
AND
INDEPENDENT AUDITOR'S REPORT
20-F Page 20 of 40
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Board of Directors
Equity Finance Holding Corporation
We have audited the accompanying balance sheet of Equity Finance Holding
Corporation (the "Company") as of December 31, 2000 and 1999, and the related
statements of operations, shareholders' deficit and cash flows for the years
ended December 31, 2000 and 1999 and the period from inception (March 6, 1998)
to December 31, 1998. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Equity Finance Holding
Corporation at December 31, 2000 and 1999, and the results of its operations and
its cash flows for the years ended December 31, 2000 and 1999 and the period
from inception (March 6, 1998) to December 31, 1998 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9, the Company
has an accumulated deficit of $880,124 and has not achieved profitable
operations. Additionally, current liabilities exceed current assets by
$167,818. This raises substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Perry-Smith LLPG
- ----------------------
Signed
Sacramento, California
March 2, 2001
20-F Page 21 of 40
EQUITY FINANCE HOLDING CORPORATION
BALANCE SHEET (IN U.S. DOLLARS)
DECEMBER 31, 2000 AND 1999
2000 1999
---------- ----------
ASSETS
Current assets:
Cash $ 1,189 $ 582
Work in process 45,000
Other assets 3,500
---------- ----------
Total current assets $ 49,689 $ 582
========== ==========
LIABILITIES AND
SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and other liabilities (Note 2) $ 77,507 $ 65,503
Deferred revenue 140,000 45,000
---------- ----------
Total current liabilities 217,507 110,503
Note payable (Note 3) 45,971 43,450
Related party notes payable (Note 4) 56,374 26,355
---------- ----------
Total liabilities 319,852 180,308
---------- ----------
Commitments (Note 5)
Shareholders' deficit (Note 6):
Common stock, par value $0.001; 100,000,000
shares authorized, 5,149,000 shares outstanding 5,149 5,149
Additional paid-in capital 604,812 392,812
Accumulated deficit (880,124) (577,687)
---------- ----------
Total shareholders' deficit (270,163) (179,726)
---------- ----------
$ 49,689 $ 582
========== ==========
The accompanying notes are an integral
part of these financial statements.
20-F Page 22 of 40
EQUITY FINANCE HOLDING CORPORATION
STATEMENT OF OPERATIONS (IN U.S. DOLLARS)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE
PERIOD FROM INCEPTION (MARCH 6, 1998) TO DECEMBER 31, 1998
2000 1999 1998
----------- ----------- -----------
Revenues:
Consulting fees $ 1,429 $ 4,922
----------- ----------- -----------
Operating expenses:
Salaries $ 212,000 212,000 174,977
Professional fees 51,663 2,171 129,737
Transfer agent fees 5,365 6,492
Referral fees 1,635 1,591 25,300
Other 20,809 11,329 15,205
----------- ----------- -----------
Total operating expenses 291,472 233,583 345,219
----------- ----------- -----------
Loss from operations (291,472) (232,154) (340,297)
Other income (expense):
Interest income 400
Interest expense (6,215) (3,955) (1,281)
----------- ----------- -----------
Total other income (expense) (5,815) (3,955) (1,281)
----------- ----------- -----------
Loss before income taxes (297,287) (236,109) (341,578)
Income taxes (Note 8) - - -
----------- ----------- -----------
Net loss $ (297,287) $ (236,109) $ (341,578)
=========== =========== ===========
Basic and diluted loss per share $ (0.06) $ (0.05) $ (0.07)
=========== =========== ===========
Weighted average outstanding shares 5,149,000 5,065,770 4,587,910
=========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
20-F Page 23 of 40
EQUITY FINANCE HOLDING CORPORATION
STATEMENT OF SHAREHOLDERS' DEFICIT (IN U.S. DOLLARS)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE
PERIOD FROM INCEPTION (MARCH 6, 1998) TO DECEMBER 31, 1998
COMMON STOCK
---------------------------
ADDITIONAL TOTAL
PAID-IN ACCUMULATED
SHAREHOLDERS-
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------------ ------------- -------- ---------- ----------
Issuance of common stock for $1.00
per share 3 $ 3 $ 3
Issuance of common stock for $0.001
per share (Note 6) 4,634,097 4,634 4,634
Issuance of stock purchase warrants
(Note 6) 2,000 2,000
Services contributed by principals
without compensation 174,977 174,977
Net loss $(341,578) (341,578)
------------ ------------- -------- ---------- ----------
Balance, December 31, 1998 4,634,100 4,634 176,980 (341,578) (159,964)
Issuance of common stock for $0.0065
per share (Note 6) 514,900 515 2,832 3,347
Issuance of stock purchase warrants
(Note 6) 1,000 1,000
Services contributed by principals
without compensation 212,000 212,000
Net loss (236,109) (236,109)
------------ ------------- -------- ---------- ----------
Balance, December 31, 1999 5,149,000 5,149 392,812 (577,687) (179,726)
Issuance of non-cash dividends
(Note 6) (5,150) (5,150)
Services contributed by principals
without compensation 212,000 212,000
Net loss (297,287) (297,287)
------------ ------------- -------- ---------- ----------
Balance, December 31, 2000 5,149,000 $ 5,149 $604,812 $(880,124) $(270,163)
============ ============= ======== ========== ==========
The accompanying notes are an integral
part of these financial statements.
20-F Page 24 of 40
EQUITY FINANCE HOLDING CORPORATION
STATEMENT OF CASH FLOWS (IN U.S. DOLLARS)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE
PERIOD FROM INCEPTION (MARCH 6, 1998) TO DECEMBER 31, 1998
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net loss $(297,287) $(236,109) $(341,578)
Adjustments to reconcile net loss
to net cash used in operating activities:
Increase in work in process (45,000)
Increase in other assets (3,500)
Increase in accounts payable and
other liabilities 12,004 16,710 90,793
Increase in deferred revenue 95,000 45,000
Increase in accrued interest included
in notes payable 5,510 3,433 1,203
Services contributed by principals 212,000 212,000 174,977
---------- ---------- ----------
Net cash used in operating
activities (21,273) (3,966) (29,605)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from related party notes
payable 21,880 1,650 32,500
Issuance of common stock 3
---------- ---------- ----------
Net cash provided by financing
activities 21,880 1,650 32,503
---------- ---------- ----------
Increase (decrease) in cash 607 (2,316) 2,898
Cash at beginning of year 582 2,898
---------- ---------- ----------
Cash at end of year $ 1,189 $ 582 $ 2,898
========== ========== ==========
(Continued)
20-F Page 25 of 40
EQUITY FINANCE HOLDING CORPORATION
STATEMENT OF CASH FLOWS (IN U.S. DOLLARS)
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE
PERIOD FROM INCEPTION (MARCH 6, 1998) TO DECEMBER 31, 1998
2000 1999 1998
------ ------- ------
Supplemental schedule of non-cash
financing activities:
Issuance of related party note payable
in purchase of QVP International
stock (Note 4) $2,575 $ - $ -
====== ======= ======
Issuance of related party note payable
in purchase of International
Technology Enterprises Limited
stock (Note 4) $2,575 $ - $ -
====== ======= ======
Reduction of related party note payable
through sale of warrants (Notes 4
and 6) $ - $ 1,000 $2,000
====== ======= ======
Reduction of related party note payable
through issuance of common stock
(Notes 4 and 6) $ - $ 3,347 $4,634
====== ======= ======
Conversion of account payable to an
unsecured note payable (Note 3) $ - $42,000 $ -
====== ======= ======
Increase of accumulated deficit
through issuance of non-cash
dividends (Note 6) $5,150 $ - $ -
====== ======= ======
The accompanying notes are an integral
part of these financial statements.
20-F Page 26 of 40
EQUITY FINANCE HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-------------------------
Equity Finance Holding Corporation (the Company) was incorporated on March
6, 1998 in Belize, Central America with offices in Punta Gorda, Belize and
Playas De Rosarito, B.C., Mexico. The Company is a management consulting
corporation and marketer of management and financial consulting services
offered principally to small businesses with annual sales of $1,000,000 to
$20,000,000. The Company will provide resources to a variety of business
clients, allowing them to develop their capitalization to achieve corporate
growth. Additionally, the Company will provide counsel and expertise to
this market segment, which will allow the closely-held client corporations
to be held more broadly and develop equity through capital infusion.
The Company will provide its management consulting services through a
five-year program of coordinated management decisions and acquisition of
resources under the name "The Advantage 2000 Program." The Company markets
and sells its services principally through representatives in California.
The Company maintains its books and records in United States dollars using
accounting principles generally accepted in the United States of America.
Revenue Recognition
--------------------
The Company recognizes revenue for Advantage 2000 Program (the "Program")
services using the specific performance method with revenue recognition
tied to the completion of identifiable milestones. Substantially all
services to be provided by the Company in connection with the Program will
have been completed prior to the recognition of revenue. Revenue for other
consulting services provided to Program clients will be recognized upon
completion of the contracted task. Company clients are not required to
purchase supplemental services from the Company and client entitlements
related to refunds vary by contract, but generally allow for the return of
unearned advances, less a 5% processing fee.
Deferred Revenue
-----------------
Deferred revenue consists of retainers collected from clients in advance of
reaching contractual milestones for recognizing the revenue.
Work in Process
-----------------
Work in process represents costs incurred related to providing Program
services which have not yet been earned. These costs will be recognized in
operating expenses upon meeting the milestones for recognizing revenue as
outlined above.
20-F Page 27 of 40
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Salaries
--------
The Company currently has no employees. Management and oversight functions
have been provided, without charge, by principals of the Company. The
Company has recorded salary expense in an amount that it believes would be
commensurate with compensation that would be paid to employees. A
corresponding charge has been recorded in additional paid-in-capital.
Income Taxes
-------------
The Company's primary tax reporting country is Belize. Under Belize laws,
foreign earned income is taxable only on income transferred to Company bank
accounts in Belize. Income from operations in the United States is taxable
by the United States and applicable state governments.
Deferred tax assets and liabilities are recognized for the tax consequences
of temporary differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Earnings (Loss) Per Share
----------------------------
Basic earnings (loss) per share (EPS), which excludes dilution, is computed
by dividing income available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock, such as warrants, result in the issuance of common
stock, which shares in the earnings of the Company.
Warrants to purchase 3,000,000 shares of the Company's common stock were
outstanding at December 31, 2000 and 1999 (see Note 6). These warrants were
not considered in the calculation of earnings per share as the conversion
of potential common stock equivalents is antidilutive when a net loss from
operations occurs.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. ACCOUNTS PAYABLE
At December 31, 2000 and 1999, accounts payable includes a $42,750 refund
due to a former Program participant.
20-F Page 28 of 40
3. NOTE PAYABLE
In June 1999, the Company negotiated the settlement of an outstanding
account payable through the issuance of an unsecured note payable to the
service provider totaling $42,000. The note bears interest at 5% and is due
June 2004. No payment of either principal or interest is required prior to
the maturity date. The service provider has the ability to exchange the
note for 100,000 shares of the Company's stock owned by Equity Finance
International Corporation (EFIC). Accrued interest included in the balance
of the note payable totaled $3,971 and $1,450 at December 31, 2000 and
1999, respectively.
4. RELATED PARTY NOTES PAYABLE
Related party notes payable consist of the following:
2000 1999
------- -------
Equity Finance International Corporation (EFIC),
6% annual interest, principal and interest due
March 2003. $51,224 $26,355
QVP International (QVPI), 5% annual interest,
principal and interest due December 2005
(Note 6) 2,575
International Technology Enterprises Limited
(ITEL), 5% annual interest, principal and
interest due December 2005 (Note 6) 2,575
------- -------
$56,374 $26,355
======= =======
Accrued interest included in the balance of the note payable to EFIC
totaled $6,175 and $3,186 at December 31, 2000 and 1999, respectively.
Certain directors of the Company are the principal owners of EFIC and a
Company director serves on the Board of QVPI and ITEL. QVPI and ITEL are
non-operating companies with nominal assets that have been established by
Program clients. At December 31, 2000, these directors are the beneficial
owners of approximately 97.5% of the Company's shares and approximately 10%
of the outstanding shares of QVPI and ITEL. All related party notes payable
are unsecured.
5. COMMITMENTS
In April 1998, the Company entered into an agreement to provide a loan up
to $500,000 to a client company for the purposes of sustaining their
operations and financing their acquisition of a target company should the
Company be unable to arrange equity funding of $10,400,000 for the client
company prior to October 1998. Such financing has not been arranged;
however, the Company was only obligated to provide this loan from the
proceeds received from the exercise of outstanding warrants (see Note 6).
20-F Page 29 of 40
6. SHAREHOLDERS' DEFICIT
During 1998, the Company distributed 4,634,097 shares valued at $.001 per
share to EFIC to partially repay principal and interest outstanding on the
related party note payable discussed in Note 4. These shares will be
subject to the Lockup/Pooling agreement between EFHC, EFIC and Beowulf
outlined below. Management believes that the agreed-upon per share value
was materially consistent with fair value.
On April 1, 1998, Beowulf Investments (Beowulf), whose managing director is
a director of the Company, purchased warrants for 3,000,000 shares of the
Company's common stock for $2,000. The warrant exercise prices were as
follows: 1,000,000 warrants at $1.95; 1,000,000 warrants at $3.25; and
1,000,000 warrants at $5.20. The warrants expired on September 30, 1999.
On October 22, 1999, warrants for 3,000,000 shares of the Company's common
stock were distributed to EFIC and the related party note payable discussed
in Note 4 was reduced by $1,000. The warrants have an exercise price of
$3.34 per share and expire on October 22, 2002, with an option to extend.
Management believes the agreed-upon warrant purchase price is materially
consistent with the fair value of the warrants.
The Company sold 514,900 shares of its common stock to A&A International
Industries, Inc., a Canadian corporation publicly traded in the United
States (A&A), for Canadian $.01 (approximately US $.0065). A&A distributed
the shares to its shareholders as a non-cash dividend. Certain A&A
shareholders entered into separate agreements and immediately sold 346,455
of the distributed EFHC shares at a price of Canadian $.02 (approximately
US $.013) to EFIC, the sole shareholder of the Company prior to the A&A
sale. Shares purchased by EFIC are subject to a Lockup/Pooling agreement
between EFHC, EFIC and Beowulf, which restricts the sale of the shares for
a period of five years from the March 1, 1999 sale date. The Lockup/Pooling
agreement can be amended by the parties.
On December 28, 2000, the Company purchased 514,900 shares, representing
10% of the outstanding shares of stock from QVP International (QVPI), a
related party, for $0.005 per share. The stock was purchased with the
issuance of a $2,575 note payable to QVPI (Note 4). The Company distributed
one share of QVPI stock for every 10 shares of EFHC stock held to EFHC
shareholders as a non-cash dividend declared December 28, 2000 to
shareholders of record December 29, 2000 and paid on December 29, 2000.
Management believes the agreed-upon purchase price is materially consistent
with the fair value of the shares purchased.
On December 28, 2000, the Company purchased 514,900 shares, representing
10% of the outstanding shares, of stock from International Technology
Enterprises Limited (ITEL), a related party, for $0.005 per share. The
stock was purchased with the issuance of a $2,575 note payable to ITEL
(Note 4). The Company distributed one share of ITEL stock for every 10
shares of EFHC stock held to EFHC shareholders as a non-cash dividend
declared December 28, 2000 to shareholders of record December 29, 2000 and
paid on December 29, 2000. Management believes the agreed-upon purchase
price is materially consistent with the fair value of the shares purchased.
20-F Page 30 of 40
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value for cash and accounts payable is estimated to equal the
carrying amount. The fair value of notes payable based upon borrowing rates
currently available for bank loans with similar terms and maturity are as
follows:
December 31,
--------------------------------------
2000 1999
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ------- --------- -------
Note payable $ 45,971 $27,800 $ 43,450 $20,500
Related party notes
payable 56,374 35,300 26,355 19,000
--------- ------- --------- -------
$ 102,345 $ 63,100 $69,805 $39,500
========= ======= ========= =======
8. INCOME TAXES
Since inception, substantially all activities of the Company have been
undertaken in the United States. Accordingly, the results of the activities
represent a taxable event in the United States. The Company sustained net
operating losses for financial statement and tax reporting purposes for the
years ended December 31, 2000 and 1999 and the period from inception (March
6, 1998) to December 31, 1998. Because it is uncertain as to the ultimate
realization of the future benefit associated with these losses, the Company
has not recognized an income tax benefit.
The provision for income taxes for the years ended December 31, 2000 and
1999 and the period from inception (March 6, 1998) to December 31, 1998
consisted of the following:
Federal State Total
--------- --------- ---------
2000
----
Deferred benefit $(24,600) $ (6,100) $(30,700)
Increase in valuation allowance 24,600 6,100 30,700
--------- --------- ---------
$ - $ - $ -
========= ========= =========
1999
----
Deferred benefit $ (5,600) $ (1,400) $ (7,000)
Increase in valuation allowance 5,600 1,400 7,000
--------- --------- ---------
$ - $ - $ -
========= ========= =========
1998
----
Deferred benefit $(58,100) $(14,500) $(72,600)
Increase in valuation allowance 58,100 14,500 72,600
--------- --------- ---------
$ - $ - $ -
========= ========= =========
20-F Page 31 of 40
8. INCOME TAXES (Continued)
Deferred tax assets are comprised of the following:
2000 1999
---------- ---------
Organizational costs $ 4,300 $ 6,400
Net operating loss carryforward 106,000 73,200
---------- ---------
Deferred tax assets before valuation
allowance 110,300 79,600
Valuation allowance (110,300) (79,600)
---------- ---------
Net deferred tax assets $ - $ -
========== =========
The benefit for income taxes for the years ended December 31, 2000 and 1999
and the period from inception (March 6, 1998) to December 31, 1998 differs
from amounts computed by applying the statutory United States Federal
income tax rate to the loss before income taxes. The items comprising these
differences consisted of the following:
2000 1999 1998
------------------ ----------------- ------------------
Amount Rate % Amount Rate % Amount Rate %
---------- ------ --------- ------ ---------- ------
United States Federal
income tax benefit, at
statutory rate $(101,100) 34 $(80,300) 34 $(116,100) 34
California state franchise
tax benefit, net of
Federal tax effect (17,300) 6 (16,400) 7 (23,900) 7
Contributed services 84,400 (28) 89,700 (38) 67,400 (20)
Other 3,300 (1)
Valuation allowance 30,700 (11) 7,000 (3) 72,600 (21)
---------- ------ --------- ------ ---------- ------
$ - - $ - - $ - -
========== ====== ========= ====== ========== ======
9. GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has an accumulated deficit of $880,124 and, during
the year ended December 31, 2000, the Company incurred a loss of $297,287.
In addition, the Company's current liabilities exceed its current assets by
$167,818 at December 31, 2000. These factors, among others, raise a
substantial doubt about the Company's ability to continue as a going
concern for a reasonable period of time, generally defined as a period not
to exceed one year beyond the balance sheet date.
20-F Page 32 of 40
9. GOING CONCERN (Continued)
The financial statements do not include any adjustments relating to the
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. Management has established a plan
that it believes will generate sufficient cash flows, through operations
and additional debt financing, to remove the threat to the continuation of
the Company. However, there can be no assurances that the Company will be
successful in generating sufficient cash flows from operations or obtaining
additional debt financing.
B. Significant changes.
Significant changes are discussed in Item 8 and Item 5 herein.
ITEM 9. THE OFFER AND LISTING.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION.
A. SHARE CAPITAL.
Not Applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION.
The information called for by Item 10.B has been reported previously in a
registration statement on Form F-1 Amendment 6, a registration statement filed
under the Securities Act, and has not changed. This information, contained in
the by-laws of Equity Finance Holding Corporation and The Memorandum of
Association and Articles of Association of Equity Finance Holding Corporation,
IBC No. 6825, incorporated, Belize, Central America, 6 March 1998, is hereby
incorporated by specific reference in this annual report to the previous
registration statement which was determined effective by the U.S. Securities and
Exchange Commission on March 23, 1999.
C. MATERIAL CONTRACTS.
The following represents a summary of each material contract (not discussed
in item 7B. above), other than contracts entered into in the ordinary course of
business, to which the Company or any member of the group is a party, for the
two years immediately preceding publication of this document, including dates,
parties, general nature of the contracts, terms and conditions, and amount of
any consideration passing to or from the company or any other member of the
group:
On October 29, 2000 the Company entered into a Transfer Agent and Registrar
Agreement with Transfer Online Inc., Portland, Oregon, U.S.A. This agreement
substitutes Transfer Online Inc. for the previous stock transfer agent, Stock
Transfer.com LLC. The new agreement with Transfer Online Inc. provides for
stock transfer and registrar services for Equity Finance Holding Corporation
including maintaining of shareholder account records viewable to Equity Finance
Holding Corporation shareholders by Internet access to the
http://www.transferonline.com website. Instructions to the Company shareholders
- -----------------------------
for opening the Transfer Online shareholder account, as well as other
shareholder information, is available at http://www.EFHLF-Shareholder.com, the
--------------------------------
Company's Shareholder Information Center on the Internet. EFHLF is the NASD
OTCBB trading symbol for the Company.
20-F Page 33 of 40
EXCHANGE CONTROLS.
Because the Company is incorporated in Belize, Central America, it is
subject to potential changes in Belize law. The effects of any change in Belize
laws on the Company are unknown at this time, but such effects may be adverse to
the Company's shareholders best interests. At this time, there are no
governmental laws, decrees, regulations or other legislation in Belize, the
Company's home country, which are known to the Company, that may negatively
affect the import or export of capital, including the availability of cash and
cash equivalents for use by the Company, or the remittance of dividends,
interest or other payments to nonresident holders of the Company's securities.
Most of the Company's business is transacted in United States. Although
transactions could occur utilizing other world currencies, the Company
anticipates these transactions to be translated directly into values equivalent
to United States. While the Company is incorporated in Belize and has its
primary office in Mexico, the Company does business in the United States. This
policy may exclude some potential clients from using EFHC's services. EFHC's
U.S. Dollar policy appears to limit foreign exchange risk.
D. TAXATION.
The discussion does not deal with all possible tax consequences relating to
an investment in the Common Stock and does not purport to deal with the tax
consequences applicable to all categories of investors, some of which (such as
dealers in securities, insurance companies and tax-exempt entities) may be
subject to special rules. In particular, the discussion does not address the
tax consequences under state, provincial, local and other national tax laws.
Accordingly, each prospective investor should consult its own tax advisor
regarding the particular tax consequences to it of an investment in the Common
Stock. The following discussion is based upon laws, regulations and relevant
interpretations thereof in effect as of the date of this Prospectus, all of
which are subject to change, possibly retroactively.
Belize Tax Law
Since the Company operates under Belize IBC laws, the Company's primary tax
reporting country is Belize. These tax laws are summarized as follows. The
Company is responsible for income tax under Belize law. Unless exempt under an
investment incentive, resident companies are liable for corporate income tax on
all of their income, whether derived from Belize or not, although foreign earned
income is taxed only on remittances to Belize. A company is resident if it is
incorporated in Belize or if it's central management and control are exercised
in Belize. If a company does not operate under a Fiscal Incentives (Approved
Enterprise Order) the total tax payable is 35% of the chargeable income. All
companies should file a Company's Income Tax Return, together with their
financial statements within three (3) months of the end of the financial period,
to the nearest Income Tax Department. If more time is required, a request in
writing should be directed to the Commissioner of Income Tax before the due
date. Otherwise a penalty for late filing is a levy of 3% of the tax for the
financial period, for each month or part of the month in which the return is
late to a total of twenty (20) months. The penalty for late payment of income
tax is 1.5% per month on the unpaid amount from the due date to the date of
payment. This applies to any deficiencies in installment as well as to any
other amount. In the case of installments this charge is based on the tax
calculated on the chargeable income for the previous financial period or the
actual income tax for the financial period for which this return is filed,
whichever is less. This charge also applies to any amount unpaid after the date
for final payment. A company should pay its income tax by quarterly
installments. Installments are due no later than the last day of the 3rd, 6th,
9th, and 12th month of the company's financial period. If a company wishes to
employ foreign consultancy, technicians etc. who are not normally resident in
Belize, their names should be registered at the Income Tax Department and a
company should deduct 25% of total income paid to non-residents.
20-F Page 34 of 40
Corporate income tax is charged on net profits, as adjusted for tax
purposes. Net profits comprise the aggregate amount of net income derived from
conducting business in Belize. Inventory valuation is not specifically
addressed in income tax law and, in any event, is inapplicable to the Company.
Methods that conform to generally accepted accounting principles may be used as
long as they are consistently applied. Dividends are taxable in the hands of
recipients, the cash amount of the dividends paid being grossed up by the amount
of corporate income tax paid by the distributing company, although the latter is
liable only for corporate income tax and does not actually account to the tax
authorities for any withholding. Some dividends are not taxable on recipients,
including those paid to exempt entities and those paid under specified tax
incentives.
Foreign Source Income
Foreign-source earned income is taxable only when it is remitted to Belize.
Income derived from the United Kingdom qualifies for tax credit relief under a
double tax treaty. Unilateral relief is available for income received from
countries in the British Commonwealth and from the CARICOM countries.
Belize's legislation does not specifically address exchange differences.
Realized exchange gains are in practice taxed like other business income, and
realized exchange losses are deducted like other business expenses.
Taxation Of Nonresident Entities
Nonresident companies are liable for tax at the normal rate of 35% on
income arising in Belize and all foreign income brought into Belize. Branches
of foreign companies operating in Belize must register there. Foreign entities
qualify for various tax and customs duty incentives when they satisfy the
relevant rules.
Tax Treatment Of Groups & Companies
Exempt in the case of public investment companies, there are no rules in
Belize under which consolidated returns can be submitted or losses transferred
between companies in a group. Also, there are no special rules governing
inter-company payments or transfers of assets within a group. Belize has no
specific provisions dealing with capitalization or transfer-pricing issues. As
far as public investment companies are concerned, a group consists of the public
investment company itself and its subsidiaries (those in which it has a greater
than 50% holding). Subsidiaries may or may not be public investment companies,
and they may include nonresident as well as resident companies. The group may
file one return as if it comprised a single company, and it effectively may
transfer losses between group companies. The public investment company group
pays tax as one entity on the combined net profit of the Belizean subsidiaries
at the special rate of 25%.
License Fees
License Fees are payable by the 31st of December in the year following
incorporation, and then annually. Companies with an authorized capital up to
$5,000 pay the sum of $100.00 per year, which is fixed for a period of twenty
years. Companies with a share capital between $5,001 and $50,000 pay $300.00
per year, and companies with share capitals in excess of $50,001 pay the sum of
$1,000 per year. Companies whose authorized capitals have some or all of its
shares with no par value pay the sum of $350.00 per year
Financial Statement Requirement
20-F Page 35 of 40
While there is no requirement to file audited accounts with the
authorities, a company is required to keep financial records that reflect the
financial position of a company.
F. DIVIDENDS AND PAYING AGENTS.
The Company has a plan for paying dividends to EFHC shareholders in the
form of non-cash dividends of each of the client companies successfully served
by EFHC. The EFHC Board of Directors approved the distribution of non-cash
dividends during December of 2000. The timing of the distribution of such
dividends is dependent upon many factors including the time and uncertainty of
completing the US Securities and Exchange Commission registration process and
listing the client company's stock on the NASD OTCBB for trading. On December
28, 2000, the Company distributed equity securities of two client companies, QVP
International Ltd. and International Technology Enterprises Ltd. to its
registered shareholders. The stock transfer agent, Transfer Online, Inc. of
Portland Oregon, U.S.A consummated the distribution. The records are available
to shareholders through Internet access. The Company plans to distribute
certificates documenting ownership when both International Technology
Enterprises Ltd. and QVP International Ltd. are registered with the Securities
and Exchange Commission.
G. STATEMENT BY EXPERTS.
Not Applicable.
H. DOCUMENTS ON DISPLAY.
Not Applicable.
I. SUBSIDIARY INFORMATION.
The Company is a subsidiary of no other corporation and the Company has no
subsidiaries.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Since the Company does not maintain nor invest in market sensitive or
interest rate sensitive holdings, the Company has no quantitative or qualitative
exposure to market risk associated with activities in derivative financial
instruments, other financial instruments and derivative commodity instruments.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
Not Applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
Not applicable.
20-F Page 36 of 40
ITEM 15. [Reserved]
ITEM 16. [Reserved]
PART III
ITEM 17. FINANCIAL STATEMENTS
Not Applicable
ITEM 18. FINANCIAL STATEMENTS
Not Applicable
ITEM 19. EXHIBITS
None
20-F Page 37 of 40
SIGNATURES
The registrant 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 annual report on its behalf.
EQUITY FINANCE HOLDING CORPORATION
(Registrant)
/s/ Jack L. Mahan, Jr.
-----------------------
Jack L. Mahan, Jr., President
(Signature)*
Date: 17 April 2001
---------------
20-F Page 38 of 40