UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(MARK ONE)
[ ] 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 MARCH 31, 2001
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 number: 0-30314
Dealcheck.com Inc.
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(Exact name of Registrant as specified in its charter)
Inapplicable
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(Translation of Registrant's name into English)
Province of Ontario, Canada
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(Jurisdiction of incorporation or organization)
65 Queen Street West, Suite 1905, Toronto, Ontario M5H 2M5, Canada
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on
which registered
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Inapplicable
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Securities registered or to be registered pursuant to Section 12(g) of the Act.
Inapplicable
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act
Common shares without par value
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(Title of 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
4,619,916 Common shares without par value as at March 31, 2001
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 report) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark which financial statement item the registrant has elected
to follow
Item 17: Item 18 X
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TABLE OF CONTENTS
PAGE NO.
--------
Forward-looking Statements 1
Foreign Private Issuer Status and Currencies and Exchange Rates 2
PART I
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Item 1. Identity of Directors, Senior Management and Advisors 3
Item 2. Offer Statistics and Expected Timetable 3
Item 3. Key Information 4
Item 4. Information on the Company 8
Item 5. Operating and Financial Review and Prospects 12
Item 6. Directors, Senior Management and Employees 23
Item 7. Major Shareholders and Related Party Transactions 26
Item 8. Financial Information 27
Item 9. The Offer and Listing 28
Item 10. Additional Information 30
Item 11. Quantitative and Qualitative Disclosures About Market Risk 39
Item 12. Description of Securities Other Than Equity Securities 39
PART II
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Item 13. Defaults, Dividend Arrearages and Delinquencies 40
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds 40
Item 15. [Reserved] 40
Item 16. [Reserved] 40
PART III
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Item 17. Financial Statements 40
Item 18. Financial Statements 40
Item 19. Exhibits 40
FORWARD LOOKING STATEMENTS
This annual report includes "forward-looking statements." All statements, other
than statements of historical facts, included in this annual report that address
1
activities, events or developments, which we expect or anticipate, will or may
occur in the future are forward-looking statements.
The words "believe", "intend", "expect", "anticipate", "project", "estimate",
"predict" and similar expressions are also intended to identify forward-looking
statements.
These forward-looking statements address, among others, such issues as:
- - future earnings and cash flow, - future plans and capital expenditures, -
expansion and other development trends of the Internet and high technology
industry,
- - expansion and growth of our business and operations, and
- - our prospective operational and financial information.
These statements are based on assumptions and analyses made by us in light of
our experience and our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe are
appropriate in particular circumstances. However, whether actual results and
developments will meet our expectations and predictions depends on a number of
risks and uncertainties, which could cause actual results to differ materially
from our expectations, including the risks set forth in "Item 3-Key
Information-Risk Factors" and the following:
- - Fluctuations in prices of our products and services,
- - Potential acquisitions and other business opportunities,
- - General economic, market and business conditions, and
- - Other risks and factors beyond our control.
Consequently, all of the forward-looking statements made in this annual report
are qualified by these cautionary statements. We cannot assure you that the
actual results or developments anticipated by us will be realized or, even if
substantially realized, that they will have the expected effect on us or our
business or operations.
Unless the context indicates otherwise, the terms "Dealcheck.com Inc." the
"Company" and "Dealcheck" are used interchangeably in this Annual Report.
FOREIGN PRIVATE ISSUER STATUS AND CURRENCIES AND EXCHANGE RATES
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FOREIGN PRIVATE ISSUER STATUS:
2
Dealcheck.com, Inc., (the "Company"), is a Canadian corporation incorporated
under the laws of the Province of Ontario. 89% of its common stock is held by
non-United States citizens and residents; our business is administered
principally outside the United States; and most of our assets are located
outside the United States. As a result, we believe that we qualify as a "foreign
private issuer" for continuing to report regarding the registration of our
common stock using this Form 20-F annual report format.
CURRENCY AND EXCHANGE RATES
The financial information presented in this Annual Report is expressed in
Canadian dollars ("CDN $") and the financial data in this Annual Report is
presented in accordance with accounting principles generally accepted in Canada
("Can. GAAP"). Such financial data conforms in all material respects with
accounting principles generally accepted in the United States ("U.S. GAAP")
except as disclosed in Note 17 of the Notes to Consolidated Financial Statements
contained herein.
All dollar amounts set forth in this report are in Canadian dollars, except
where otherwise indicated. The following table sets forth (i) the rates of
exchange for the Canadian dollar, expressed in U.S. dollars, in effect at the
end of each of the periods indicated; (ii) the average exchange rates in effect
on the last day of each month during such periods; (iii) the high and low
exchange rate during such periods, in each case based on the noon buying rate in
New York City for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York.
2001 2000 1999
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Rate at end of Period .6336 .6879 .6626
Average Rate During Period .6633 .6810 .6629
High Rate .6793 .6925 .7055
Low Rate .6336 .6636 .6351
PART 1
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ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
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Not applicable.
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE
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3
Not applicable.
ITEM 3 - KEY INFORMATION
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(A) SELECTED FINANCIAL DATA
This Report includes consolidated financial statements of the Company for the
years ended March 31, 2001, 2000 and 1999.These financial statements were
prepared in accordance with accounting principles generally accepted in Canada.
Reference is made to Financial Statement Notes for a discussion of the material
differences between Canadian GAAP and U.S. GAAP, and their effect on the
Company's financial statements.
The following is a selected financial data for the Company for each of the
fiscal years ended March 31, 1997,98, 99,2000 and 2001, on a consolidated basis.
The data is extracted from the audited financial statements of the Company for
each of the said years.
SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY FINANCIAL STATEMENTS (Canadian
$)
OPERATING DATA - FISCAL YEAR ENDED MARCH 31
2001 2000 1999 1998 1997
Sales/ Gross revenue $ 351,242 $ 35,861 $ 12,837 NIL NIL
Loss from Continuing $1,717,204 $1,390,457 $477,596 $563,035 $626,488
Operations
Loss from discontinued NIL NIL NIL $190,959 $ 446
Operations
Loss per Share $ 0.40 $ 0.52 $ 0.35 $ 0.51 $ 0.75
BALANCE SHEET DATA - AS AT MARCH 31:
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2001 2000 1999 1998 1997
Working Capital $ 526,296 $ 1,483,128 $ 28,690 ($649,329) ($198,830)
(Deficit)
Total Assets $ 908,644 $ 2,542,932 $ 259,706 $ 61,541 $ 116,744
Long Term Liabilities NIL NIL NIL NIL NIL
Total Liabilities $ 149,123 $ 220,312 $ 98,290 $ 705,028 $ 234,596
4
Shareholders' Equity $ 759,521 $ 2,322,620 $ 161,416 ($643,487) $ 117,852
(Deficit)
Number of Shares 4,619,316 4,117,616** 2,832,616xx 1,122,615 1,086,056
Outstanding
<FN>
* Recalculated on the basis of the 15:1 common share consolidation on October
29, 1998 to make them comparable with the fiscal 1999.
** The number of shares includes 68,300 shares, subscribed and paid for but
not yet issued
xx The number of shares included 700,000 shares to be issued to shareholders
in settlement of their advances of $525,000 at $0.75 per share. Shares were
issued subsequent to the year-end.
(B) CAPITALIZATION AND INDEBTEDNESS
Not applicable
(C) REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable
(D) RISK FACTORS
UNFAVORABLE MARKET CONDITIONS
The downward turn in the Technology Sector over the last year has made the
climate for Internet start-ups unfavorable and reduced their liquidity.
Consequently, the demand and market acceptance for Internet and high technology
products is subject to a high level of uncertainty and risk. As a result, the
incubation of Internet and high technology oriented businesses creates a
substantial risk to the Company and may cause adverse impacts on the Company and
its investee entities.
SECURITIES OF INFORMATION
Concerns regarding security of transactions and transmitting confidential
Information over the Internet may have an adverse impact on the businesses of
the entities in which the Company holds equity or non-equity interest. The
management believes that concern regarding the security of confidential
information transmitted over the Internet prevents many potential customers from
engaging in online transactions. If the Company or its investee entities that
depend on such transactions do not add sufficient security features to the
future product releases, the products and services may not gain market
acceptance or there may be additional legal exposure.
5
The network infrastructure, i.e. E-Mail server, of the Company and its investee
entities is potentially vulnerable to physical or electronic break-ins, viruses
or similar problems. If a person circumvents the security measures imposed, he
or she could misappropriate proprietary information or cause interruption in
operations of the Company. Security breaches that result in access to
confidential information could damage the reputation of the company and expose
it to a risk of loss or liability. The Company and its investee entities may be
required to make significant investments and efforts to protect against or
remedy security breaches.
RISKS RELATED TO LEGAL UNCERTAINTIES
Because much of the investee entities' potential success and value lies in the
ownership and use of intellectual property, and the failure to protect this
intellectual property could negatively affect the Company and its investee
entities. The ability to compete effectively is dependent in large part upon
the maintenance and protection of intellectual property. We currently do not
have patents or trademark registrations protecting our investee entities'
products and other intellectual property. To date, we have relied on trade
secret and copyright law, as well as confidentiality procedures and licensing
arrangements, to establish and protect the rights to investee entities'
technology. Typically, confidentiality or license agreements are entered in with
investee entities' consultants, customers, strategic partners and vendors in an
effort to control access to and distribution of investee entities' software,
firmware, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the proprietary technology without authorization. Policing unauthorized
use of our intellectual property is difficult. The steps we take may not prevent
misappropriation of our investee entities' intellectual property, and the
agreements entered may not be enforceable. In addition, effective intellectual
property protection may be unavailable or limited in some jurisdictions outside
Canada and the United States. Litigation may be necessary in the future to
enforce or protect our investee entities' intellectual property rights or to
determine the validity and scope of the proprietary rights of others. That
litigation could cause us to incur substantial costs and divert resources away
from our daily business, which in turn could materially adversely affect our
business.
Investee entities may be subject to damaging and disruptive intellectual
property litigation.
TECHNOLOGY OBSOLESCENCE
6
The Company and its investee entities plan to operate in markets characterized
by rapid technology change, frequent new product and service introductions and
evolving industry standards. Significant technological changes could render the
existing Web site technology or other products and services of the Company and
its investee entities obsolete. The e-commerce market's growth and intense
competition may exacerbate these conditions.
If the Company and its investee entities are unable to successfully respond to
these developments or do not respond in a cost-effective way, their business,
financial condition and operating results will be adversely affected. To be
successful the Company and its investee entities must adapt to the rapidly
changing markets by continually improving the responsiveness, services and
features of our products and services and by developing new features to meet the
needs of their customers. Success will depend, in part, on their ability to
license leading technologies useful in their businesses, enhance their products
and services and develop new offerings and technology that address the needs of
their customers. The Company and its investee entities will also need to respond
to technological advances and emerging industry standards in a cost- effective
and timely manner.
GOVERNMENT REGULATIONS
Government regulations and legal uncertainties may place financial burdens on
the business of The Company and its investee entities.
As at March 31, 2001, there were few laws or regulations directed specifically
at e-commerce. However, because of the Internet's popularity and increasing use,
new laws and regulations may be adopted. These laws and regulations may cover
issues such as the collection of and use of data from Web site visitors and
related privacy issues, pricing, content, copyrights, online gambling,
distribution and the quality of goods and services. The enactment of any
additional laws or regulations may impede the growth of the Internet and
e-commerce, which could decrease the potential revenue and place additional
financial burdens on the business of the Company and its investee entities.
LAWS AND REGULATIONS DIRECTLY APPLICABLE TO E-COMMERCE OR INTERNET
Communications are becoming more prevalent. For example, US Congress recently
enacted laws regarding online copyright infringement and the protection of
information collected online from children. Although these laws may not have a
direct adverse effect on the proposed business of the Company and its investee
entities, they add to the legal and regulatory burden faced by e-commerce
companies.
DEPENDENCE ON KEY INDIVIDUALS
7
Terence E. Robinson, Chairman of the Board of Directors and Chief Executive
Officer of the Company, and Kam Shah, Director and Chief Financial Officer, have
been primarily responsible for the development and expansion of the Company's
business, and the loss of the services of either of or both those individuals
could have a material adverse effect on the Company. The Company currently has
five-year consulting agreements with each of Messrs. Robinson and Shah, expiring
on April 1, 2005.
EXCHANGE RATE RISK
The Company records its transactions and prepares its financial statements in
Canadian dollars. During the Company's 2001 fiscal year, a material percentage
of the Company's business was transacted in currencies other than the Canadian
dollar. Any change in the value of the United States dollar against the Canadian
dollar will affect revenues and earnings of the Company when translated into
Canadian dollars.
SERVICE OF LEGAL PROCESS AND ENFORCEMENT OF JUDGMENTS
It may be difficult for investors to effect service of process and to enforce
judgments against the Company or those of its officers and Directors who are not
resident in or citizens of the United States. The Company is an Ontario
corporation. All of its Directors and officers are residents of Canada and all
or a substantial portion of the assets of each of those persons and a
substantial portion of the assets of the Company are located outside the United
States. Consequently, it may be difficult for United States investors to effect
service within the United States upon the Company or upon Directors or officers
of the Company, or to satisfy judgments of courts of the United States
predicated upon civil liabilities under United States federal securities laws.
ABSENCE OF DIVIDENDS
The Company has not paid any cash dividends and does not anticipate paying any
dividends on its Common Stock in the foreseeable future. The Company anticipates
that earnings, if any, will be retained to finance future growth.
ITEM 4 - INFORMATION ON THE COMPANY
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(A) HISTORY AND DEVELOPMENT OF THE COMPANY
Dealcheck.com Inc. ("the Company') was incorporated under the Business
Corporation Act (Ontario) in 1973 and is based in Toronto, Ontario, Canada.
The Company went through seven name changes and four major changes in its
business activities. Details of these changes were provided in the Registration
8
Statement F-20 dated June 12, 2000. The significant changes, briefly, were as
follows:
a. The Company was incorporated under the name "Kamlo Gold Mines Limited
and remained an inactive shell from the date of incorporation to 1985.
b. Between 1986 and 1982, the Company was involved in the development of
a new technology for the marine propulsion business. During this
period, the Company went through three name changes.
c. Between 1993 and 1996, the Company was involved in the distribution
and manufacture of a snack food. During this period, the Company went
through two more name changes.
The Company remained an inactive shell since the closure of snack food business
in November 1996 until December 1998 when it changed its name to the current
name and agreed on a new business strategy.
The Company had no sales since April 1, 1996 and incurred significant losses
since inception. Accumulated deficit at March 31, 2001 was approx. $19 million.
The Company's operating cash requirement during the fiscal year 2001 was
primarily funded out of the $3.3 million private placement done at the end of
fiscal 2000.
CAPITAL EXPENDITURES
The Company spent $17,850 on capital assets, mainly comprising computers,
leasehold improvements and furniture during the year ended March 31, 2001
compared to $9,896 in fiscal 2000 and $20,921 in fiscal 1999.
(B) BUSINESS OVERVIEW
In December 1999, the Company successfully initiated a private placement and
raised a net amount of $3.2 million from the sale of 885,000 Company units, each
unit priced at $2.80 US and comprised of one Company common share and one share
purchase warrant,
The Company invested the funds raised in short term investments in marketable
securities of new or emerging public companies, in non-marketable securities of
private companies and in convertible debenture of a private company. All these
companies were primarily engaged in development of Internet related businesses.
Market value of these investments at March 31, 2000 was approx. $1.2 million.
The company developed a new Internet business concept and began the design and
development work on this project, known as IRCheck.com. The project comprised
9
development of a comprehensive, content-driven web site, which would provide
details on Investors Relations firms for the small to medium size public
companies seeking to outsource their investor relation matters. The revenue
opportunities would include subscription fees chargeable to the owners of the
contents included in the portal (IRCheck.com - IR firms) and user fees to the
visitors to the portal requiring customized information beyond the basic free
information. Other sources of revenue would include sponsorship, product
packaging and sale of proprietary database. The Company spent a total of $10,000
up to the end of the fiscal year.
The Company also spent about $155,000 on developing its own comprehensive web
site. And two other web site projects. However, at the year-end these projects
were not considered commercially viable and the costs incurred were written off.
The Company made equity investments in three different new and emerging Internet
businesses whose business strategy shows synergy with the Company's core
business. Net amount invested in these businesses at March 31, 2000 was
$782,687.
During the fiscal year the company provided certain accounting and
administrative services to one of the investees for which the Company charged a
fee of $10,000. The arrangement with this investee expired on March 31, 2000 and
no further services were expected to be provided to the said investee.
OVERVIEW OF THE FISCAL YEAR ENDED MARCH 31, 2001
SHORT TERM INVESTMENTS
Funds available from the private placement were invested in marketable
securities of high technology companies, which were essentially in start up,
or development stage mode, given the much higher value appreciation the shares
of these companies were showing at that time. Investments in marketable
securities were made through three major brokerage firms with whom the Company
opened accounts for this purpose. These investments were intended to be for a
short period of less than six months, until identification of and investment
into long-term business opportunities.
Unfortunately, the period from January 2000 to date proved to be a disaster for
the entire high tech sector and particularly for the emerging and start up
companies, which were forced to down size or close its operations due to severe
shortage of cash. The market values of their shares plunged significantly. While
the company managed to liquidate some of its investments, it suffered heavy
losses on most of them. The net realized loss for the fiscal 2001 was
approximately $600,000.
10
BUSINESS PROJECTS
The IRCheck project, which began in fiscal 2000 was completed and launched in
March 2001. The IR Check is wholly owned and funded by the Company. It is an
investor relations portal providing on line database of investors relations
firms in North America. As part of this project, the company licensed to an
affiliated company, its database of brokerage firms and investors relations
firms for an annual fee plus a usage fee based on revenue earned from the use of
this database. Revenue of about $152,000 was earned from such licensing.
Dataloom Inc., in which the Company invested $500,000US in fiscal 2000 for about
5% equity went through restructuring in March 2001 resulting in transfer of its
assets to a new company. The Company received 5% equity in the new company at a
nominal additional cost in return for supporting the restructure. Although the
management believes that the restructuring will provide better protection to its
investment value, a more conservative view was taken for accounting purposes and
the investment was fully written off at the year-end.
During the fiscal 2001, the company funded a new project through an Ontario
private company in which the Company has full equity ownership. The investee
company's business strategy is to develop and market and/or license web enabled
wireless and portable Internet appliances using latest wireless connectivity
technologies like Bluetooth. First of its projects relates to a medical data
logging device. The Company invested about $113,000 by March 31, 2001 towards
the development of a prototype of the device.
The Company also lent about $200,000 to an affiliated company engaged in the
entertainment industry. These advances are convertible in the equity of that
company at the option of the Company.
Full details of these investments and related business activities are provided
under "Operating and Financial Review and Prospects " section of this Report.
FULFILLMENT SERVICES
During the year, the company charged $120,000 to an affiliated company for
lending the services of its consultants. The management believes that similar
types of fulfillment services may be required on a regular basis and will form
part of one of the regular revenue sources for the Company.
(C) ORGANIZATIONAL STRUCTURE
The Company has two wholly owned subsidiaries. Foodquest Inc. and 1388755
Ontario Inc. Foodquest Inc. has been inactive since 1998 and is currently a
shell with no assets or liabilities. 1388755 Ontario Inc. is engaged in
11
development of a prototype of a wireless and portable Internet appliance for
medical data logging system. The Company directly carries out all other
investments and operations.
(D) PROPERTY PLANTS AND EQUIPMENT
The administrative head office of the Company is located in leased premises at
65 Queen Street West, Suite 1905, Toronto, Ontario, Canada. The current lease
will expire on May 30, 2005.
Total area of the premises is approximately 4,000 sq. ft., about 68% of these
premises have been sub leased to affiliated entities.
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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(A) OPERATING RESULTS
The following discussion should be read in conjunction with the financial
Statements of the Company and notes thereto contained elsewhere in this report.
RESULTS OF OPERATIONS
Year ended March 31 2001 2000 1999
--------------in 000' CDN$-------------
Income 351 36 13
Expenses 2,068 1,426 490
-----------------------------------------
Net Loss for year 1,717 1,390 477
Deficit at end of year 19,055 17,338 15,948
OVERVIEW
During fiscal year 1999, the management developed a new business strategy, which
comprised investing in Internet oriented businesses and projects and fulfillment
services.
During the fiscal year 2000, the Company successfully completed a private
placement and raised about $3.3 million. The management also began reviewing and
investing in various Internet business opportunities.
Fiscal year 2001 saw a melt down of high technology sector forcing many new and
emerging Internet businesses to cut down and restructure their businesses
significantly or even close them due to severe cash shortage. The Company's
investments were therefore adversely affected. The Company had to liquidate and
12
salvage whatever value it could recover from its investments while continuing
its business strategy in a selective way. The Company survived the year with
higher deficit but with a cleaner assets portfolio and clearer business strategy
for the future.
Three identifiable business segments evolved during the fiscal 2001.
INCUBATION - This segment related to investing mainly in start up companies with
Internet and high technology oriented business plans.
This was according to the stated business strategy of the Company, which it
pursued, in the fiscal 2000. Unfortunately, the adverse business climate for
this sector during the year resulted in the Company sustaining heavy losses in
this segment.
COMMERCIAL WEB SITES AND PROJECT DEVELOPMENT: This segment related to the
Company's investments in wholly owned commercial web sites and projects. The
company invested in two projects - IRCheck.com, which was completed and began
generating revenue during the fiscal 2001 and the Biochex project through an
Ontario private company where the Company has full ownership equity. Both these
projects are further detailed later in this report.
FULFILLMENT SERVICES: This segment provides administration and operational
services to investee companies and other entities where the company may choose
to invest in future.
INCOME
Overall revenue of the Company increased significantly to $351,242 in fiscal
2001 compared to $35,861 in fiscal 2000 and $12,837 in fiscal 1999.
Various sources of income are discussed below.
OPERATIONAL SERVICES INCOME
The company earned $120,000 from providing consulting services to an Ontario
affiliate. These services comprised lending the services of two of its directors
during the fiscal year in the finance and business development areas of the
affiliate. The Company earned $10,000 in fiscal 2000 from similar services to a
non-affiliated investee.
LICENSE AND USAGE FEES
The Company was able to license its database related to its commercial web site
- - IRCheck.com to an affiliate under a licensing agreement. A total of $151,508
13
was earned from this source. No such income was received in the earlier fiscal
years.
The licensing agreement was entered with an affiliate on arms length terms. The
income consisted of an annual license fee of $75,000 plus a usage fee at 10% of
the gross revenue, which for the fiscal 2001 came to $76,508.
OTHER INCOME
The other income totaled $79,734 in the fiscal 2001 compared to $25,861 in
fiscal 2000 and $12,837 in fiscal 1999.
The other income included Interest earned of $15,383 (2000: $20,524, 1999: nil)
on funds with the brokerage firms and interest charged on advances and balances
receivable.
Other item in other income was an exchange gain of $49,269 (2000: $5,337 and
1999: $12,837). The exchange gain mainly resulted from conversion of US Dollar
items into Canadian Dollar. The exchange rate between these currencies changed
from $1.4537 Canadian to one US Dollar at the end of fiscal 2000 to $1.5784
Canadian at the end of fiscal 2001
The remaining of the other income of $15,082 related to a one-time facilitation
fee earned during the fiscal 2001. No such income was earned in the prior fiscal
years.
EXPENSES
The overall analysis of the expenses is as follows:
2001 2000 1999
Operating expenses $ 703,634 $ 835,609 $490,433
Net loss on investment 1,364,812 590,709 -
- ------------------------------------------------------------------------
$2,068,446 $1,426,318 $490,433
- ------------------------------------------------------------------------
OPERATING EXPENSES
TRAVEL, PROMOTION AND CONSULTING -
Year ended March 31 2001 2000 1999
- ------------------------------------------------------------------------
Travel, meals and entertainment $ 51,566 $ 102,545 $ 17,310
Consulting 170,252 315,376 306,027
Promotion 142 49,914 -
14
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$ 221,960 $ 467,835 $323,337
========================================================================
% of operating expenses 32% 56% 66%
During the fiscal 2001, the management focused more on liquidating and
preserving the existing investments in the light of the adverse business climate
in high tech industry sector and handling more own web site and technical
projects. As a result, traveling and related costs reduced considerably.
Increase in travel, meals and entertainment costs during the fiscal 2000
compared to the earlier years was due to significant increase in the business
activities involving review and discussions with regards to various business
opportunities.
Consulting costs include a consulting fee of $90,493 (2000: $176,550, 1999:
$177,972) charged by a shareholder under a Consulting agreement. The services
provided included arranging non-interest bearing working capital funds,
introduction to business opportunities and public relations. This contract
expired on September 30, 2000 and was not renewed. Other consulting fees of
$79,760 in fiscal 2001 ($138,826 in fiscal 2000 and $128,055 in fiscal 1999)
related to fees paid for general IT, management and corporate services.
Significant decrease reflected the management's decision to consolidate its
activities rather than expand as explained earlier.
Promotion costs in the fiscal 2000 comprised advertisements in magazines and on
the Internet, relating to the Company's business strategy to attract business
opportunities. No additional promotional efforts were made in the fiscal 2001.
PROFESSIONAL FEES
Professional fees in fiscal 2001 were $97,593 compared to $94,688 in fiscal 2000
and $39,113 in fiscal 1999. The fees related to the professional services
availed in connection with accounting, audit and various compliance matters.
PROJECTS DEVELOPMENT COSTS
Total costs were $15,121 in fiscal 2001 compared to $155,370 in fiscal 2000.
There were no such costs in the prior years. There were four projects under
development in fiscal 2000 compared to one in fiscal 2001, which accounts for
the reduction in costs in fiscal 2001. Further details of these projects are
given in the Investment section under "Liquidity and Capital Requirements"
SHAREHOLDERS INFORMATION
15
Total costs during the fiscal 2001 were $204,005 compared to $6,268 in fiscal
2000 and $11,350 in fiscal 1999. Fiscal 2001 costs include an investor relations
cost of $180,425, which alone accounted for the significant increase in this
year compared to the earlier years. Effective April 1, 2000, an investor
relations contract was signed with an affiliate at the fee of $10,000 US, which
is in line with the fees charged by the said firm to its other non related
clients. The management believed that an effective communication was essential
with the shareholders and other investing community in view of the Company's
listing on the Over The Counter Bulletin Board of NASDAQ and significant
increase in its business activities and therefore have decided to contract this
work to a professional firm.
Other costs related to the costs of press releases, annual and special meeting
of the shareholders and fees for various statutory filings with regulatory
bodies in Canada and the USA.
OTHER OPERATING COSTS
These costs include rent, telephone, Internet, transfer agents fees and other
general and administration costs. Other operating costs in fiscal 2001 were
$164,955 compared to $111,448 in fiscal 2000 and $116,597 in fiscal 1999.
NET LOSS ON INVESTMENTS
The net loss in fiscal 2001 was $1,364,812 compared to $590,709 in the fiscal
years 2000 and $ nil in fiscal year 1999.
The net loss is made up of three components -
HOLDING GAIN OR LOSS related to short term investments in marketable securities
of new and developing companies and resulted from adjusting the costs of these
investments to their quoted market values at the year end as per the stated
accounting policy. At March 31, 2001, there was no such significant loss or gain
since most of the short-term investments were disposed of during the fiscal
year. The holding loss at March 31, 2000 was $612,794, which related to the
securities that were disposed off during the fiscal 2001.
PROVISION FOR NON-TEMPORARY IMPAIRMENT related to the reduction made in the
carrying value of a long-term investment at the year-end based on the
management's conservative evaluation of the factors leading to a decline in the
value of a permanent nature as per the stated accounting policy. Investment in
Dataloom Inc. of US$500,000 was written down to nil value at March 31, 2001
resulting in a provision of $789,200 for non-temporary impairment. The amount of
such provision in the fiscal 2000 was $72,470, which related to investment in
Ouryearbook.com Inc.
16
REALIZED GAINS AND LOSSES RELATED to the difference between the net proceeds and
carrying value of investments as per the stated accounting policy. At the end of
fiscal 2000, the company invested funds from the private placement proceeds in
various marketable securities in new and start up companies in the technology
sector. However, significantly adverse market conditions in this industry sector
forced the management to begin disposing these securities as quickly as possible
in the light of the fast declining market values of these securities. The
company's investments, as a result, realized a net loss of $575,612 in the
fiscal 2001 compared to a net gain of $94,555 in fiscal 2000.
Further details on the major investments are given under Investment section of
"Liquidity and Capital Requirement " below.
(B) LIQUIDITY AND CAPITAL RESOURCES
CASH AND WORKING CAPITAL
Cash on hand at March 31, 2001 was $40,737 compared to $425,968 at March 31,
2000. Similarly, net working capital at March 31, 2001 was approx. $0.5 million
compared to approx. $1.5 million at March 31, 2000.
During the fiscal 2001, the company was able to recover the full amount of
$489,173 of the subscription advance given in fiscal 2000, which the company
decided not to proceed with at the end of fiscal 2000. No further advances were
received from shareholder. Further capital of $32,105 was raised from the
exercise of the warrants by two of the private placees during the year. An
advance of $122,000 provided by a shareholder in the earlier year was converted
to equity in the fiscal 2001.
Significant improvement in the liquidity of the Company in fiscal 2000 was the
result of a successful private placement of approx. $3.3 million and non
interest bearing advances arranged by a shareholder under a consulting contract
of approx. $480,000; $300,000 of which were converted to equity during the year.
Trade payables and accruals at March 31, 2001 were $64,804 compared to $40,549
at March 31, 2000.
The net cash spent on operations during the fiscal 2001 was $546,873 compared to
$678,197 in fiscal 2000 and $511,295 in fiscal 1999. A marginal decrease was
due to reduction in travel, entertainment and consulting costs as explained
earlier.
The management estimates that its working capital requirements to remain at
around $500,000 for the next twelve months, which it hopes to cover from the
funds expected from the operational services fee, IRCheck data base licensing
and usage fee and IRCheck web site products and services sales.
17
NEW EQUITY CAPITAL
PRIVATE PLACEMENT
During the fiscal 2001, the directors extended the expiry date of the warrants
attached to the Units sold under a private placement in the fiscal 2000 to March
12, 2001 and also revised the exercise price to US$0.20 per warrant. Two of the
private placees exercised their warrants and acquired 101,200 common shares for
US$20,240. The changes to the terms of the warrants were within the authority
granted to the directors by the shareholders in their annual and special meeting
on November 13, 2000. The directors thought this to be a prudent decision as
the company is in need of working capital.
Some of the other private placees had indicated their intention to exercise
their warrants after they had been apprised of the financial condition of the
company based on the audited financial statements. As such, the directors
decided to grant a further extension of the warrants after the audited financial
statements are sent to the shareholders.
DEBT CONVERSION INTO EQUITY
During the fiscal 2001, the company converted debt of $122,000 into equity by
issuance of 400,000 at US$0.20, which price approximated the then prevailing
market price. Such conversions were within the approval given by the
shareholders in their annual and special meeting of November 13, 2000.
INVESTMENTS
SHORT TERM INVESTMENTS AND SUBSCRIPTION ADVANCE
The relative holdings for the two years at market value are as follows:
2001 2000
Various trading securities $38,068 $ 371,917
Idea Lab.com - subscription advance - 489,173
World Vacation Club.com Inc. - 288,616
Developersnetwork.com Inc. -debenture - 36,741
- ----------------------------------------------------------
$38,068 $1,186,447
- ----------------------------------------------------------
These investments were intended only for a short period of less than six months
until the management could identify investment opportunities according to the
stated business strategy of the Company.
18
As explained earlier, worsening market conditions for the technology section
since March 2000 forced to management to begin disposal of these securities as
soon as possible to minimize the losses. These losses were estimated at around
$612,000 at March 31, 2000, and were fully provided as holding losses in the
fiscal 2000.
TRADING SECURITIES
At March 31, 2001, The Company's major investment in this portfolio consisted of
80,000 common shares of Mecaserto Inc. bought at a cost of about $165,000US in
fiscal 2000. This investment was valued at the market value of $31,568
($20,000US) and the balance was fully provided for as holding losses - $229,514
($145,000US). Given the value involved, the management visited Mecaserto
operations in France during the fiscal 2001 and reviewed their latest business
plans and financial details. Based on these reviews, the management is of the
opinion that the market value of this investment is likely to improve in the
near future once Mecaserto is able to move from Pink sheet listing to OTCBB of
NASDAQ.
IDEALAB.COM
During the fiscal 2000, The Company agreed to buy and paid for 25,000 common
shares of Idealab.com from a private purchaser. However, the paperwork
processing was lengthy and meanwhile the management re examined the business
strategy of Idealab.com and felt that the Company might not generate as much
value growth as was originally thought. The management therefore canceled the
purchase and full amount was, as a result, refunded in May 2000.
WORLD VACATION CLUB.COM
The Company was one of the founding members of World Vacation Club.com, (WVC) a
Nevada Private Company seeking to develop online vacation properties
rental/management services, currently at a development stage. The Company
invested $64,914 in equity capital of WVC up to March 31, 1999 and acquired
further equity interest during fiscal 2000 raising its investment to 289,616 by
January 2000, which constituted about 35% equity interest in WVC. The Company's
cost of this investment averaged $0.20 per share or approx. US$0.15 per share.
The company however never intended to exercise any control nor did it have any
representation on the board of WVC. The original intention of the Company was to
benefit from value growth when WVC was to go public.
However, in May 2000, the Company received a legal opinion that the proposed
business activity of WVC could amount to trading in securities and that WVC
might have to first comply with various securities and real estate regulations
in the US before it could pursue its business plan. This might considerably
delay WVC plans to go public or launch its proposed activities and also might
19
entail much more financing than originally envisaged. As a result, the
management decided to dispose of this investment. Investments with the carrying
value of $79,837 were sold at cost to an arms-length purchaser in May 2000 and
the management was actively seeking purchasers of its remaining equity interest
in WVC. Unfortunately, WVC was unable to initiate any further interest from the
prospective investors and remained an inactive shell without any cash. Although
the management of WVC still continues to look for alternative ways to keep the
company and their business plan alive, the Company decided not to hold this
investment at the year end owing to the regulatory issues as explained above.
The Company therefore sold on March 22, 2001, the balance of the investment in
WVC to a non-related third party for a nominal price of $10 and wrote off the
balance $228,463 subject to a condition that would survive the sale for five
years from the date of the sale, that should the purchaser realize more than $10
from the disposal of these shares during this period, 80% of the proceeds would
be payable to the Company.
DEVELOPERSNETWORK.COM INC.
The Company invested in Developersnetwork.com (DN) during the fiscal 2000 by way
of convertible debentures. As at March 31, 2000, total amount invested was
$36,741.
DN however, canceled the arrangement subsequently and repaid the Company's
investment in full with interest. In addition, the Company received an option to
purchase 50,000 common shares of DN at $1 per share exercisable within two
years.
PRODUCT DEVELOPMENT
The following is a summary of product development costs incurred by project:
2001 2000
IRCheck.com $ 21.370 $10,000
Biochecx.com $113,151 -
- --------------------------------------------------------------------------------
$134,521 $10,000
================================================================================
IRCHECK.COM
The concept was internally developed during the fiscal 2000 and involves
developing a web site which provides a comprehensive data base of investors
relation firms to facilitate an informed decision for the prospective public
companies desiring to outsource its investors relation and media relation work
to an independent firm. The Company spent $10,000 up to March 31, 2000, in
getting the web site design completed by an independent design firm. A further
20
sum of $15,010 was incurred in the fiscal 2001 in development work and the Web
site was eventually completed and launched on March 5, 2001, as www.ircheck.com
---------------
As part of this project, the company is compiling a comprehensive database of
Investors relations firms and brokerage firms in North America. The company has
licensed the use of this database to an affiliated Ontario company on a
non-exclusive basis for an up front fee plus a percentage of the gross revenue.
Total income earned from this source during the fiscal 2001 was $151,508.
The company will now focus on marketing the web site to Investor Relations Firms
in an attempt to increase hits and traffic to the Site during the fiscal 2002.
BIOCHEX.COM
During the fiscal 2001, the Company acquired full equity ownership of 1388755
Ontario Inc., which is an Ontario incorporated private company.
1388755 Ontario Inc.'s objective is to innovate and develop cost-effective,
secure and portable Internet appliances, with wireless connection to the Web,
using the latest technologies for wireless connectivity such as Bluetooth (short
range, low power radio technology), 802.11HR and Wi-Fi.
1388755 Ontario's first project, named "Biochex", is the development of an
Internet enabled medical data logging device, that is both wireless and
portable. Mr. Jose Laraya, an electronic engineering graduate of Tokyo
University, who has developed other innovative technologies, leads the
development work. Mr. Laraya developed the world's first APL computer using an
8-bit microprocessor, the first IBM compatible LCD laptop computer employing
voice recognition, encryption systems based on digital speed compressors and
many others.
1388755 Ontario Inc. continues to work on the development of Biochex and
anticipates a fully functional and secured web site by October 2001.
LONG TERM INVESTMENTS
As part of the Company's Internet strategy, the Company invested in certain new
and emerging Internet businesses that have demonstrated significant potential
for growth in the long run. While these investments reflect only a small
fraction of the investee companies' equity, the management believes that they
are likely to provide much higher return on the investment and offer
opportunities for synergistic business relationship among the other companies
and projects within the Company's portfolio. The details of these investments
are as follows:
21
2001 2000
Hotlamp Interactive Technologies Inc. $55,802 $ 55,802
Dataloom Inc. - 726,885
- --------------------------------------------------------
XLoom Inc. 2,488
- --------------------------------------------------------
$58,290 $782,687
HOTLAMP INTERACTIVE TECHNOLOGIES INC.
Hotlamp is a Nevada based private company engaged in software development and
multimedia products. The Company's equity investment is less than 1% of the
Hotlamp's equity.
DATALOOM INC. / XLOOM INC.
Dataloom Inc., a Seattle, Washington based private company, in which Dealcheck
invested $500,000US representing about 5% of the equity of that company,
restructured its operations on March 31, 2001, by transferring its intellectual
properties and certain assets to a newly formed Seattle, Washington based
private company, XLoom Holdings Inc.(XLoom). Dealcheck now owns 165,921 common
shares of XLoom representing approximately 5% of the issued shares of XLoom. The
current shares structure of XLoom replaces about 24.8 million shares of Dataloom
Inc. with 3.3 million shares of XLoom.
Dataloom Inc., a software development company, ran into financial difficulty and
was unable to raise sufficient funds to continue its operations.
XLoom has a new CEO, Mr. Gordon Harter who brings over 20 years of experience in
operations management with global expansion in high technology sector. XLoom is
engaged in development and marketing of the xLoom Application Framework software
(xFrame). XFrame rapidly extends existing business applications, allowing secure
wired, wireless and even voice-enabled access to critical enterprise data.
Integrated with Microsoft's .NET Framework, xFrame will allow businesses to
rapidly and securely extend applications to include currently popular wired and
wireless devices. Since April 1, 2001, Xloom generated over $230,000US in
billings to date to a major Japanese customer, Janet (Japan Network Systems Co.
Ltd.) on the Nikkei Desktop Project.
The management of the Company supported the restructuring since it believed that
the new company was better structured with less liabilities and burn rate and
more focused product development and marketing strategy. It is more likely to
attract further investment and be commercially successful than Dataloom Inc.
However, since the restructuring resulted in Dataloom Inc. becoming an inactive
shell company, the management, following a conservative accounting policy,
decided to write off its investment in Dataloom Inc. in full at the end of the
fiscal 2001.
22
(C) RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES ETC.
Not applicable
(D) TREND INFORMATION
The management focus during the fiscal 2002 will be on marketing its IRCheck.com
web site and completing the "Biochex" prototype and then exploring strategic
partners and investors for initiating commercial application of the "Biochex"
products.
The Company is also seeking acquisition and merger possibilities as well as
other new potential financial partners.
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
- ----------------------------------------------------------
(A) DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth all current directors and executive officers of
the Company, with each position and office held by them in the Company, and the
period of service as such:
- ------------------------------------------------------------
Name and Position Commencement of
With the Company age Service
- ------------------------------------------------------------
Terence Edward Robinson 41 October 1, 1991
Chairman and
Chief Executive Officer
Kam Shah 49 January 3, 1999
Director and
Chief Financial Officer
Dean Bradley 68 November 13, 2000
Director
- ------------------------------------------------------------
TERENCE ROBINSON is Chairman of the Board and Chief Executive Officer of the
Company. Mr. Robinson is responsible for the shareholders relations, arranging
23
the required financing, reviewing investment opportunities and overall operating
strategies for the Company. He has over 18 years of experience as merchant
banker and venture capitalist and has successfully secured financing for a
number of start-up and small cap companies.
During the last five years, Mr. Robinson acted as a CEO of Dealcheck.com Inc and
an executive officer of Current Capital Corp., a private Ontario corporation,
having its head office in Toronto. CCC provides venture capital financing to
start up companies and investors' relations services to public companies.
Mr. Robinson was also an executive producer of a children's film, "Beethoven
Lives Upstairs," which won him an Emmy Award in 1992.
KAM SHAH joined the Company as a Chief Financial Officer and was appointed to
the Board on January 3, 1999. He worked with Pricewaterhouse Coopers LLP and
Ernst & Young. He is a US Certified Public Accountant and a Canadian Chartered
Accountant. He has over fifteen years of international experience in corporate
financial analysis, mergers & acquisitions. Mr. Shah is responsible for the
financial and statutory matters of the Company and will also assist the Chairman
in reviewing investment opportunities and strategic planning.
DEAN BRADLEY is a non-executive director based in Seattle, Washington. He
assists the Company from time to time in introducing new businesses and liaising
with businesses in the USA in which the Company has equity interest. Mr. Bradley
had been CEO of many corporations including real estate, mining, manufacturing,
and import/export and financial services corporations. Currently he is the
President and CEO and a director of PhotoWorld Inc., a Seattle, Washington,
based private corporation engaged in providing in-store digital photographic
services.
JOHN ROBINSON was the director and president of the Company. He resigned in
December 2000 owing to his commitments with other companies.
Mr. Terence Robinson and Mr. John Robinson are related to each other as
brothers.
MANAGEMENT TEAM
The Company 's current management team consists of the following individuals:
Mr. Terence Robinson - see above for his background.
Mr. Kam Shah - see above for his background.
Both, Mr. Robinson and Mr. Shah signed consulting agreements on April 1, 2000,
for a term of five years. Copies of these agreements are included in the
24
Exhibits. These contracts were ratified by the shareholders in their annual and
special meeting on November 13, 2000.
(B) COMPENSATION
The compensation payable to directors and officers of the Company and its
subsidiary is summarized below:
1. GENERAL
The Company does not compensate directors for acting solely as directors. Except
as described below, the Company does not have any arrangements pursuant to which
directors are remunerated by the Company or its subsidiary for their services in
their capacity as directors, other than options to purchase shares of the
Company which may be granted to the Company's directors from time to time and
the reimbursement of direct expenses.
The Company does not have any pension plans.
2. DIRECTORS AND OFFICERS OF THE COMPANY
During the fiscal year ended March 31, 2001, the aggregate cash remuneration
paid or payable by the Company and its subsidiary to its directors and executive
officers for services rendered was $150,400 and total expenses reimbursed were
$55,959.
(C) BOARD PRACTICES
Directors may be appointed at any time in accordance with the by-laws of the
Company and then re-elected annually by the shareholders of the Company.
Directors receive no compensation for serving as such, other than stock option
and reimbursement of direct expenses. Officers are elected annually by the Board
of Directors of the Company and serve at the discretion of the Board of
Directors.
The Company has not set aside or accrued any amount for retirement or similar
benefits to the directors.
AUDIT COMMITTEE
The members of the audit committee consist of Terence Robinson and Kam Shah. The
audit committee is charged with overseeing the Company's accounting and
financial reporting policies, practices and internal controls. The committee
reviews significant financial and accounting issues and the services performed
25
by and the reports of our independent auditors and makes recommendations to our
Board of Directors with respect to these and related matters.
(D) EMPLOYEES
The Company presently has no permanent employees. It uses the services of
consultants from time to time.
(E) SHARE OWNERSHIP
In the Annual General Meeting held on November 13, 2000, the shareholders
empowered the directors to increase the limit on maximum number of stock options
that might be issued from time to time to employees, officers, consultants and
directors of the Corporation under the 1999 Stock Option Plan from 10% to 25% of
the issued and outstanding common shares of the Corporation at the time of such
issue.
No options have been granted under this Plan.
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
- ------------------------------------------------------------------
(A) MAJOR SHAREHOLDERS
The Company's securities are recorded on the books of its transfer agent in
registered form. The majority of such shares are, however, registered in the
name of intermediaries such as brokerage houses and clearing-houses on behalf of
their respective clients. The Company does not have knowledge of the beneficial
owners thereof.
To the best of its knowledge the Company is not directly nor indirectly owned or
controlled by another corporation(s) or by a foreign government.
The following table sets forth information on all stockholders known to the
Company to be beneficial owners of more than 5% of the outstanding Common Stock,
as of May 31, 2001, provided by the Company's transfer agents, the depository
trust company and brokers. Except as may be otherwise indicated in the footnotes
to the table, each person has sole voting power and sole dispositive power as to
all of the shares shown as beneficially owned by them.
Name of Common Stock Percent
Beneficial Owner Beneficially Owned Owned
Frank Calandra in Trust 300,000 6%
Adolph Weinacker 300,000 6%
26
There are no voting agreements or similar arrangements (formal, informal,
written, or oral) known to management to exist.
Holders of Common stock are entitled to one vote per share.
At May 31, 2001, the Company had 4,619,316 shares of common stock outstanding,
which as per the details provided by the Transfer Agents, were held by 1,042
record holders, 506 of which, holding an aggregate of 501,514 shares of common
stock, were in the United States.
(B) RELATED PARTY TRANSACTIONS
Transactions with related parties are incurred in the normal course of business
and are measured at the exchange amount, which is the consideration established
and agreed to by the respective parties. Related party transactions have been
listed below:
- - Licence and usage fee income of $151,508 (2000 - Nil; 1999 - Nil) and
consulting service fee income of $120,000 (2000 - $10,000; 1999 - Nil) were
earned from a corporation, which has common management
- - Included in shareholders information expense is $180,425 (2000 - Nil; 1999
- Nil) to a corporation, which has common management
- - Rent and telephone expense are net of recoveries of $110,587 (2000 -
$43,106; 1999 - Nil) from corporations, which share common management and
directors.
- - Interest earned from related corporations amounts to $8,458 (2000 - $1,669;
1999 - Nil).
- - Consulting fees include amounts to a shareholder corporation of $90,482
(2000 - $176,550; 1999 - $177,972).
(C) INTERESTS OF EXPERTS AND COUNSEL
Not applicable
ITEM 8 - FINANCIAL INFORMATION
- ----------------------------------
(A) CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
27
Information regarding our financial statements is contained under the caption
"Item 18. Financial Statements" below.
LEGAL PROCEEDINGS
There are no material legal proceedings in progress or to the knowledge of the
Company, pending or threatened to which the Company is a party or to which any
of its properties is subject.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Shares and does not
currently intend to declare and pay dividends on its Common Stock in the
foreseeable future.
(B) SIGNIFICANT CHANGES
There have been no significant changes since the date of the financial
statements included in this annual report.
ITEM 9 - THE OFFER AND LISTING
- ------------------------------------
(A) OFFER AND LISTING DETAILS
The following table sets forth the reported high and low sale prices and volume
traded for the common shares as quoted on OTCBB or Pink Sheet on a quarterly
basis since April 1, 1999
- -------------------------------------------------------
PERIOD (M/D/Y) HIGH LOW VOLUME FOR
(IN US DOLLAR) QUARTER
- -------------------------------------------------------
4/1/99 - 6/30/99* 3.125 1.375 230,700
7/1/99 - 9/30/99* 2.50 1.75 152,700
10/1/99 - 12/31/99 8.00 2.00 277,500
1/1/00 - 3/31/00 6.50 2.75 223,000
4/1/00 - 6/30/00 1.80 .875 925,000
7/1/00 - 9/30/00 1.70 .625 983,000
10/1/00 - 12/31/00 1.06 .21 1,945,000
1/1/01 - 3/31/01 .40 .13 1,630,000
28
- Reflects prices after the consolidation of 15 old common shares into 1
new common share.
- --------------------------------------------------------------------------------
The following table sets forth the reported high and low sale prices and average
volume traded for the common shares as quoted on CDN on a quarterly basis since
April 1, 1999
- --------------------------------------------------------------------------------
PERIOD (M/D/Y) HIGH LOW VOLUME FOR
(IN CANADIAN DOLLAR)
================================================================================
4/1/99 - 6/30/99* x
7/1/99 - 9/30/99* x
- Reflects prices after the consolidation of 15 old common shares into 1
new common share.
X There was only one transaction - 1,000 shares traded for $3.75 - since
Consolidation date till to date.
- --------------------------------------------------------------------------------
As of May 31, 2001, the Company's share register indicated that 501,514 of the
issued and outstanding common shares were held by 506 shareholders with
addresses in the United States, representing approximately 11% of the issued and
outstanding common shares of the Company.
(B) PLAN OF DISTRIBUTION
Not applicable
(C) MARKETS
The Company's common shares were traded on the Over The Counter Bulletin Board
(OTCBB) and Canadian Dealing Network (CDN) under different symbols ending with
the symbol "FDQI" until January 20, 1999.
Following the name change and 15:1 common shares consolidation in December 1998,
the Company's common shares were traded primarily on OTCBB under the symbol
"Deal" effective January 21, 1999. The symbol was further changed to "NMBC" on
August 13, 1999 and then to "DCHK" on November 3, 1999.
On May 26, 2000, the Company shares were de-listed from OTCBB and began trading
on the "Pink Sheet" pending clearance of the Registration Statement, F-20 by
29
Securities and Exchange Commission (SEC). The Company filed F-20 originally in
December 1999 and then filed several amendments in response to the comments
received from SEC to its submissions. The SEC clearance was finally received on
June 16, 2000 and the common shares of the Company began trading again on OTCBB
effective August 2, 2000.
(D) SELLING SHAREHOLDERS
Not applicable
(E) DILUTION
Not applicable
(F) EXPENSES OF THE ISSUE
Not applicable
ITEM 10 - ADDITIONAL INFORMATION
- ------------------------------------
(A) SHARE CAPITAL
Not applicable
(B) MEMORANDUM AND ARTICLES OF ASSOCIATION
The Memorandum and Articles of the Company are incorporated by reference to the
information in our registration statement on Form 20-F filed with the Securities
and Exchange Commission, in Washington, D.C. on June 12, 2000 to which our
Articles of Incorporation and Memorandum were filed as exhibits.
(C) MATERIAL CONTRACTS
Except for contracts entered into in the ordinary course of business, the
Company has not entered into any material contracts in the preceding two years.
(D) EXCHANGE CONTROLS
There is no law, governmental decree or regulation in Canada that restricts the
export or import of capital, or that affects the remittance of dividends,
interest or other payment to non-resident holders of Common Stock, other than
withholding tax requirements. Additional information is contained under the
caption "Item 10(E) Taxation" below.
There is no limitation imposed by Canadian law or by the Articles of
Amalgamation or other constituent documents of the Company on the right of a
30
non-resident to hold or vote Common Stock, other than as provided by the
Investment Canada Act (Canada), as amended, including as amended by the
Canada-United States Free Trade Agreement Implementation Act (Canada) and the
World Trade Organization Agreement Implementation Act (Canada). The following
summarizes the principal features of the Investment Canada Act for non-residents
who propose to acquire Common Stock.
The Investment Canada Act (the "Act"), enacted on June 20, 1985, as amended up
to March 31, 2001, including as amended by the North American Free Trade
Agreement Implementation Act (Canada) and the World Trade Organization Agreement
Implementation Act (Canada), requires the prior notification and, in certain
cases, advance review and approval by the Government of Canada of the
acquisition by a "non-Canadian" of "control" of a "Canadian business," all as
defined in the Act. For purposes of the Act, "control" can be acquired through
the acquisition of all or substantially all of the assets used in the Canadian
business, or the direct or indirect acquisition of voting interests or shares in
an entity that carries on a Canadian business or which controls the entity which
carries on the Canadian business whether or not that controlling entity is
Canadian. Under the Act, control of a corporation is deemed to be acquired
through the acquisition of a majority of the voting shares of a corporation, and
is presumed to be acquired where at least one-third, but less than a majority,
of the voting shares of a corporation or of an equivalent undivided ownership
interest in the voting shares of a corporation are acquired, unless it can be
established that the corporation is not controlled in fact through the ownership
of voting shares. Other rules apply with respect to the acquisition of
non-corporate entities.
Investments requiring review and approval include (i) a direct acquisition of
control of a Canadian business with assets with a value of CDN $5,000,000 or
more, (ii) an indirect acquisition of control of a Canadian business where the
value of the assets of the Canadian business and of all other Canadian entities
the control of which is acquired directly or indirectly is CDN $50,000,000 or
more; and (iii) an indirect acquisition of control of a Canadian business where
the value of the assets of the Canadian business and of all other Canadian
entities the control of which is acquired directly or indirectly is CDN
$5,000,000 or more and represents greater than 50% of the total value of the
assets of all of the entities, control of which is being acquired. Subject to
certain exceptions, where an investment is made by a "WTO investor" or the
Canadian business is controlled by a WTO investor (as defined in the Act), the
monetary thresholds discussed above are higher. In these circumstances the
monetary threshold with regard to the acquisitions discussed in (i) and (iii)
above for 2001 is CDN $209,000,000 multiplied by the quotient obtained by
dividing the current nominal gross domestic product of Canada ("GDP") by the
previous year's GDP, as determined in accordance with the Act. Other indirect
acquisitions of Canadian businesses by or from WTO investors are not subject to
review. A "WTO investor", as defined under the Act, includes an individual who
is a national of a member of the World Trade Organization or who has the right
of permanent residence in relation to such member, and an entity that is
31
controlled by a WTO investor in accordance with the Act. Certain other
corporations, limited partnerships and trusts may also qualify as WTO investors.
Special rules apply with respect to investments by non-Canadians to acquire
control of Canadian businesses that engage in certain specified activities,
including financial services, transportation services and activities relating to
Canada's cultural heritage or national identity.
If an investment is reviewable, an application for review in the form prescribed
by regulation is normally required to be filed with the Director of Investments,
established by the Act, prior to the investment taking place and the investment
may not normally be consummated until the review has been completed and
ministerial approval obtained.
The Director of Investments will submit the application for review to the
Minister, together with any other information or written undertakings given by
the acquirer and any representation submitted to the Director of Investments by
a province that is likely to be significantly affected by the investment. The
Minister will then determine whether the investment is likely to be of "net
benefit to Canada", taking into account the information provided and having
regard to certain factors of assessment prescribed under the Act. Among the
factors to be considered are: (i) the effect of the investment on the level and
nature of economic activity in Canada, including the effect on employment, on
resource processing, on the utilization of parts, components and services
produced in Canada, and on exports from Canada; (ii) the degree and significance
of participation by Canadians in the Canadian business and in any industry in
Canada of which it forms a part; (iii) the effect of the investment on
productivity, industrial efficiency, technological development, product
innovation and product variety in Canada; (iv) the effect of the investment on
competition within any industry or industries in Canada; (v) the compatibility
of the investment with national, industrial, economic and cultural objectives
enunciated by the government or legislature of any province likely to be
significantly affected by the investment; and (vi) the contribution of the
investment to Canada's ability to compete in world markets.
Within 45 days after a completed application for review has been received, the
Minister must notify the investor that (a) he is satisfied that the investment
is likely to be of "net benefit to Canada," or (b) he is unable to complete his
review in which case he shall have 30 additional days to complete his review
(unless the investor agrees to a longer period) or (c) he is not satisfied that
the investment is likely to be of "net benefit to Canada."
If the Minister is unable to complete his review and no decision has been taken
within the prescribed or agreed upon time, the Minister is deemed to be
satisfied that the investment is likely to be of "net benefit to Canada."
Where the Minister has advised the investor that he is not satisfied that the
investment is likely to be of "net benefit to Canada," the acquirer has the
right to make representations and submit undertakings within 30 days of the date
32
of the notice (or any further period that is agreed upon between the investor
and the Minister). On the expiration of the 30-day period (or an agreed
extension), the Minister must notify the investor whether or not he is satisfied
that the investment is likely to be of "net benefit to Canada." In the latter
case, the investor may not proceed with the investment or, if the investment has
already been consummated, must divest itself of control of the Canadian
business.
(E) TAXATION
The following summary describes the principal US federal income and Canadian tax
consequences of the beneficial ownership and disposition of Common Stock. This
summary does not purport to be a comprehensive description of all the tax
considerations that may be relevant. This summary is not intended as tax advice
and is limited to US Holders and Non-US Holders (as defined below) who hold the
Common Stock as a capital asset, whose functional currency is the US dollar and
who do not own Common Stock in carrying on a business through a permanent
establishment, or in connection with a fixed base, in Canada. This summary does
not address the tax treatment of US Holders that may be subject to special US
federal income tax rules, such as regulated investment companies, real estate
investment trusts, banks, tax-exempt entities, insurance companies, US Holders
subject to the alternative minimum tax, brokers or dealers in securities or
currencies, and persons holding the Common Stock as part of a "hedging,"
"straddle," "conversion transaction," "synthetic security" or "integrated
investment" for federal income tax purposes or other risk-reduction transaction,
or US Holders who own (directly, indirectly or constructively by attribution)
10% or more of the total combined voting power of all classes of the Company's
stock entitled to vote.
For purposes of this summary, the term "US Holder" means a beneficial owner of
Common Stock that is, for US federal income tax purposes, (i) a citizen or
resident of the US, (ii) a corporation or other entity created or organized
under the laws of the US or any political subdivision thereof, (iii) an estate
the income of which is subject to US federal income tax regardless of its
source, or (iv) a trust if a US court can exercise primary supervision over the
administration of such trust and one or more US persons has the authority to
control all substantial decisions of the trust. A "Non-US Holder" is such a
beneficial owner that is not a US Holder.
The summary of US tax considerations is based on the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations, rulings and judicial
decisions in effect as of the date of hereof, all of which are subject to
change, with possible retroactive effect. No ruling from the Internal Revenue
Service (the "IRS") will be sought with respect to the Common Stock, and the IRS
could take a contrary view with respect to the matters described below. Holders
should consult their tax advisors as to the US federal, state, local, and other
33
tax consequences to them of the purchase, ownership and disposition of Common
Stock.
The discussion of Canadian Tax considerations is based upon the provisions of
the Income Tax Act (Canada) (the "Tax Act"), all proposed amendments to the Act
and the regulations thereto as of the date hereof, the Convention and counsel's
understanding of published administrative practices of the Canada Customs and
Revenue Agency and judicial decisions, all of which are subject to change. The
discussion does not take into account the tax laws of the various provinces or
territories of Canada or the tax laws of the various state and local
jurisdictions in the United States.
THIS DISCUSSION IS GENERAL IN NATURE AND IS NOT INTENDED TO BE NOR SHOULD IT BE
CONSTRUED AS LEGAL OR TAX ADVICE TO ANY PARTICULAR SECURITYHOLDER. THEREFORE,
SECURITYHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES OF THEIR INVESTMENT IN THE COMMON STOCK.
CANADIAN TAX CONSIDERATIONS
Dividends paid or credited on the Common Stock to Unconnected US Shareholders
will be subject to a Canadian withholding tax. Under the Convention, the rate of
withholding tax generally applicable to dividends paid to Unconnected US
Shareholders that beneficially own Common Stock is 15%. In the case of
Unconnected US Shareholders that are US corporations that beneficially own 10%
or more of the voting shares of the Company, the applicable withholding tax rate
is 5%.
Gains recognized by Unconnected US Shareholders on the disposition of Common
Stock generally will not be subject to tax in Canada. If the holder, persons
with whom the holder did not deal at arm's length, or the holder together with
all such persons, owned at any time during the five-year period immediately
preceding the disposition, 25% or more of the issued shares of any class of the
capital stock of the Company, certain Canadian reporting requirements must be
complied with. Furthermore, gain recognized on the disposition of a share of the
capital stock of a company that is a resident of Canada, the value of whose
shares is derived principally from real property situated in Canada will be
subject to tax in Canada. The Company believes that the value of its shares does
not derive principally from real property situated in Canada.
UNITED STATES TAX CONSIDERATIONS: US HOLDER TAX CONSEQUENCES FOR COMMON STOCK
TAXATION OF DIVIDENDS ON COMMON STOCK
33
The gross amount of a distribution with respect to Common Stock (other than a
distribution in redemption or liquidation) will be treated as a taxable dividend
to the extent of the Company's current and accumulated earnings and profits,
computed in accordance with US federal income tax principles. For these
purposes, distributions to US Holders in Canadian dollars must be translated
into US dollars at the spot rate on the date the distribution is received. US
Holders should consult their tax advisor regarding potential recognition of
foreign currency gain or loss for US federal income tax purposes upon the
conversion Canadian dollars received into US dollars. Distributions in excess of
the Company's current and accumulated earnings and profits will be applied
against and will reduce the US Holder's tax basis in the Common Stock. To the
extent a distribution exceeds the US Holder's tax basis, the excess will be
treated as gain from a sale or exchange of such Common Stock. For special rules
regarding certain distributions from "passive foreign investment companies", see
"Passive Foreign Investment Company" below.
Subject to the limitations set forth in Section 904 of the Code (which limits
the extent to which a US taxpayer may credit against its US federal income tax
liability, any taxes paid by it to a foreign country), the Canadian tax withheld
or paid with respect to distributions on the Common Stock generally may be
credited against the US federal income tax liability of a US Holder if such US
Holder makes an appropriate election for the taxable year in which such taxes
are paid or accrued; alternatively, a US Holder who does not elect to credit any
foreign taxes paid during the taxable year may deduct such taxes in such taxable
year. In addition, a US Holder that owns 10% of more of the Common Stock who
receives a dividend is deemed to have received (and to have paid as a foreign
tax eligible for the foreign tax credit, subject to the limitations of Section
904 of the Code) a portion of the foreign taxes paid by the Company. Because the
foreign tax credit provisions of the Code are very complex (particularly the
provisions relating to the deemed paid foreign tax credit and the limitations on
the claiming of the credit), US Holders should consult their own tax advisors
with respect to the claiming of foreign tax credits.
Corporate US Holders will not be entitled to claim a dividends received
deduction in respect of dividends distributed on the Common Stock.
TAXATION ON SALE OR EXCHANGE OF COMMON STOCK
A US Holder will generally recognize gain or loss on the sale, exchange or other
disposition of Common Stock in an amount equal to the difference between the
amount realized on the sale or exchange and the US Holder's adjusted tax basis
in such Common Stock. Gain or loss upon the sale of the Common Stock will be
capital gain or loss if the Common Stock is a capital asset in the hands of the
US Holder and will be long-term capital gain or loss if at the time of sale or
exchange the Common Stock has been held for more than one year. Under current
law, long-term capital gain of individuals is generally taxed at lower rates
35
than items of ordinary income. Capital losses recognized on a sale or exchange
of Common Stock are subject to certain deductibility limitations. For special
rules regarding the sale or exchange of stock in a "passive foreign investment
company" see "Passive Foreign Investment Company" below.
PASSIVE FOREIGN INVESTMENT COMPANY
The Code contains special rules for the taxation of US persons who own shares in
a "passive foreign investment company" (a "PFIC"). A PFIC is a non-US
corporation that meets an income test and/or an asset test. The income test is
met if 75% or more of the corporation's gross income is "passive income"
(generally, dividends, interest, rents, royalties, and gains from the
disposition of assets producing passive income, such as shares of stock, subject
to certain exceptions). The asset test is met if at least 50% of the average
value of the corporation's assets produce, or are held for the production of,
passive income. US persons are denied capital gain treatment upon a sale or
exchange of stock in a PFIC and are subject to other special tax rules upon an
"excess distribution" in respect of stock in a PFIC, unless a "qualified
electing fund" election pursuant to Section 1295 of the Code, is made in the
first year that the foreign corporation constitutes a PFIC with respect to a US
Holder. Based on its income, assets and activities, the Company believes that it
has not been a PFIC in the past and that it will not be treated as a PFIC for
the current taxable year. Although the Company intends to conduct its business
and investment activities in a manner that avoids classification as a PFIC, no
assurance can be given that the Company will not become a PFIC for the current
taxable year or any subsequent taxable year. US Holders should consult with
their tax advisors regarding the US federal income tax consequences under the
PFIC rules and carefully consider whether to make a qualified electing fund
election with respect to the Common Stock if the Company becomes a PFIC.
CONTROLLED FOREIGN CORPORATION AND FOREIGN PERSONAL HOLDING COMPANY
US persons owning (directly, indirectly or by attribution) shares representing
10% or more of the voting power of the shares of a "controlled foreign
corporation" ("CFC") are required to include as ordinary income their pro rata
share of the "Subpart F Income" derived by the CFC (as well as certain income of
its subsidiaries). Among other items, and subject to certain exceptions,
"Subpart F Income" includes dividends, interest, annuities, gains from the sale
or shares and securities, certain gains from commodities transactions, certain
types of insurance income and income from certain transactions with related
parties. A foreign corporation is a CFC if more than 50% of its stock (by vote
or value) is owned (directly, indirectly, or by attribution) by US persons who
each own (directly, indirectly or by attribution) 10% or more of the total
combined voting power of its shares. The Company has not been and does not
expect to be a CFC for the current year. However, future changes of ownership of
the Company's stock could cause the Company to become a CFC in the future. US
36
Holders should consult their tax advisors regarding the US federal income tax
consequences of owning Common Stock in a CFC.
Similarly, US persons who own shares (directly or indirectly) of a foreign
corporation that is a "foreign personal holding company" ("FPHC") on the last
day of the foreign corporation's taxable year must include in their gross
income, for the shareholder's taxable year in which or with which the taxable
year of the FPHC ends, a pro rata share of the FPHC's undistributed "foreign
personal holding company income" (or "FPHCI"). A foreign corporation will
constitute an FPHC if more than 50% of its stock (by vote or value) is owned
(directly, indirectly or by attribution) by five or fewer individuals who are US
citizens or residents and at least 60% (50% in certain years following the year
in which the corporation becomes an FPHC) of its gross income consists of FPHCI.
FPHCI generally consists of passive income such as interest, dividends,
royalties, certain rents, and gain from the sale of stock or securities, from
whatever geographic source derived. The Company does not expect to meet the FPHC
stock ownership test and, therefore, the Company does not expect to be an FPHC.
However, future changes in ownership could cause the Company to become an FPHC
if the FPHC gross income test is then also met. US Holders should consult their
tax advisors regarding the US federal tax income consequences of owning Common
Stock in an FPHC.
NON-US HOLDERS
A Non-US Holder should not be subject to US federal income, withholding, or
capital gains taxes with respect to the sale, disposition or any distribution in
respect of the Common Stock, unless (i) such income is effectively connected
with trade or business conducted by such Non-US holder within the United States,
or (ii) in the case of an individual, such Non-US Holder is a nonresident alien
who holds the Common Stock as a capital asset and is present in the United
States for 183 days or more during a taxable year and certain other conditions
are satisfied.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Common Stock is outstanding, the Company,
its agents or paying agents or a broker may be required to provide the IRS with
certain information, including the Holder's name, address and taxpayer
identification number, information concerning distributions on the Common Stock
during the calendar year and the amount of tax withheld, if any. This obligation
however, does not apply with respect to certain Holders, including corporations,
tax-exempt organizations, qualified pension and profit sharing trusts,
individual retirement accounts. A backup withholding tax will apply to payments
if a US Holder fails to provide a taxpayer identification number. Backup
withholding is applied at a rate of 30.5% (which rate shall be reduced
periodically to 28% for payments made in 2006).
37
Backup withholding and information reporting generally will not apply to
distributions made to a Non-US Holder that provides an IRS Form W-8BEN to the
relevant withholding agent, paying agent or broker, together with all
appropriate attachments, signed under penalties of perjury, identifying the
Non-US Holder and stating that the Non-US Holder is not a US person or otherwise
qualifies for an exemption.
The payment of the proceeds on the disposition of Common Stock by a Holder to or
through the US office of a broker generally will be subject to information
reporting and backup withholding unless the Holder either certifies its status
as a Non-US Holder as described above or otherwise establishes an exemption. The
payment of the proceeds on the disposition of Common Stock by a Non-US Holder to
or through a non-US office of a non-US broker will not be subject to backup
withholding or information reporting unless the non-US broker is a "US related
person" (as defined below). The payment of proceeds on the disposition of Common
Stock by a Non-US Holder to or through a Non-US office of a US broker or a US
related person generally will be subject to information reporting (but not
backup withholding) unless the Holder establishes an exemption as described
above or the broker has certain documentary evidence in its files as to a Non-US
Holder's foreign status and the broker has no actual knowledge to the contrary.
For purposes of the preceding paragraph, a "US related person" is (i) a CFC,
(ii) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
US trade or business, or (iii) for payments made on or after January 1, 2001, a
foreign partnership if at any time during its tax year one or more of its
partners are US persons who, in the aggregate, hold more than 50 percent of the
income or capital interest of the partnership or if, at any time during its
taxable year, the partnership is engaged in the conduct of a US trade or
business.
Backup withholding is not an additional tax and may be refunded (or credited
against the Holder's US federal income tax liability, if any), provided the
required information is furnished to the IRS. The information reporting
requirements may apply regardless of whether withholding is required. Copies of
information returns and withholding information also may be made available to
the tax authorities in the country in which a Non-US Holder is a resident under
the provisions of an applicable income tax treaty or agreement.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF CANADIAN OR US FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF COMMON STOCK IN
LIGHT OF SUCH HOLDER'S PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
38
CONSEQUENCES THAT WOULD RESULT FROM THEIR OWNERSHIP AND DISPOSITION OF COMMON
STOCK OF THE COMPANY, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND
OTHER TAX LAWS.
(F) DIVIDEND AND PAYING AGENTS
Not applicable
(G) STATEMENT BY EXPERTS
Not applicable
(H) DOCUMENTS ON DISPLAY
The documents concerning the Company referred to in this Annual Report may be
inspected at the Company's office at 65 Queen Street West, Suite 1905, Toronto,
Ontario, Canada, M5H 2M5. The Company may be reached at (416) 860-0211.
Documents filed with the Securities and Exchange Commission ("SEC") may also be
read and copied at the SEC's public reference room at Room 1024, Judiciary Plaza
Building, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms.
(I) SUBSIDIARY INFORMATION
The documents concerning the Company's subsidiaries referred to in this Annual
Report may be inspected at the Company's office at 65 Queen Street West, Suite
1905, Toronto, Ontario, Canada, M5H 2M5
ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -----------------------------------------------------------------------------
Not applicable
ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
- -------------------------------------------------------------------------
Not applicable
PART II
-------
39
ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
- ----------------------------------------------------------------
None.
ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
- --------------------------------------------------------------------------------
PROCEEDS
- --------
None.
ITEM 15 - [RESERVED]
- -----------------------
ITEM 16 - [RESERVED]
- -----------------------
PART III
--------
ITEM 17 - FINANCIAL STATEMENTS
- ----------------------------------
Information regarding our financial statements is contained under the caption
"Item 18. Financial Statements" below.
ITEM 18 - FINANCIAL STATEMENTS
- ----------------------------------
The following documents are filed as part of this Annual Report on Form 20-F
immediately following the text of this 20-F, beginning on page .
Audited Consolidated financial statements of the Company for the years ended
March 31, 2001 and 2000,
- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of Cash Flows
- Notes to Consolidated Financial Statements
ITEM 19 -- EXHIBITS
- ----------------------
The following documents are filed as part of this Annual Report on Form 20-F
1.1 Articles of Incorporation of the Company - INCORPORATED HEREIN BY
REFERENCE to Exhibit 1(ix) to the Company's Registration
Statement on Form 20-F filed on June 12, 2000
40
1.2 By-Laws of the Company - INCORPORATED HEREIN BY REFERENCE to
Exhibit 1(xi) to the Company's Registration Statement on Form
20-F filed on June 12, 2000
1.3 Summary of the history of name changes since inception of the
Company INCORPORATED HEREIN BY REFERENCE to Exhibit 1(i) to the
Company's Registration Statement on Form 20-F filed on June 12,
2000
1.4 Certificate of Incorporation of Kamlo Gold Mines Limited. -
INCORPORATED HEREIN BY REFERENCE to Exhibit 1(ii) to the
Company's Registration Statement on Form 20-F filed on June 12,
2000
1.5 Certificate of name change from Kamlo Gold Mines Limited to NRT
Research Technologies Inc. - INCORPORATED HEREIN BY REFERENCE to
Exhibit 1(iii) to the Company's Registration Statement on Form
20-F filed on June 12, 2000
1.6 Certificate of name change from NRT Research Technologies Inc. to
NRT Industries Inc. - INCORPORATED HEREIN BY REFERENCE to Exhibit
1(iv) to the Company's Registration Statement on Form 20-F filed
on June 12, 2000
1.7 Certificate of name change from NRT Industries Inc. to CUDA
Consolidated Inc. - INCORPORATED HEREIN BY REFERENCE to Exhibit
1(v) to the Company's Registration Statement on Form 20-F filed
on June 12, 2000
1.8 Certificate of name change from CUDA Consolidated Inc. to
Foodquest Corp. - INCORPORATED HEREIN BY REFERENCE to Exhibit
1(vi) to the Company's Registration Statement on Form 20-F filed
on June 12, 2000
1.9 Certificate of name change from Foodquest Corp. to Foodquest
International Corp. - INCORPORATED HEREIN BY REFERENCE to Exhibit
1(vii) to the Company's Registration Statement on Form 20-F filed
on June 12, 2000
1.10 Certificate of name change from Foodquest International Corp. to
Dealcheck.com Inc. - INCORPORATED HEREIN BY REFERENCE to Exhibit
1(viii) to the Company's Registration Statement on Form 20-F
filed on June 12, 2000
41
2 Specimen Common Share certificate - INCORPORATED HEREIN BY
REFERENCE to Exhibit 2(i) to the Company's Registration Statement
on Form 20-F filed on June 12, 2000
4(a) Agreement dated March 31, 2001 covering sale of shares in World
Vacation Club.com Inc.
4b).1 Security Agreement dated January 1, 2001 re funds advanced to
Current Capital Corp.
4(b).2 Promissory Note dated April 1, 2000 re funds advanced to First
Empire Entertainment.com Inc. and First Empire Entertainment
Corp.
4.(b).3 Expense sharing agreement dated April 1, 2000 with Current
Capital Corp.
4(b).4 Expense sharing agreement dated April 1, 2000 with First Empire
Entertainment.com Inc.
4(c).1 Consulting Agreement dated April 1, 2000 with Kam Shah
4(c).2 Consulting Agreement dated April1, 2000 with Terence Robinson
SIGNATURES
- ----------
PURSUANT TO THE REQUIREMENTS OF SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934, THE COMPANY CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON
FORM 20-F AND HAS DULY CAUSED THIS (REVISED) REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED
/s/ Terence Robinson
----------------------
Terence Robinson
-----------------
Chairman & CEO
Dealcheck.com Inc.
July 27, 2001
42
- --------------------------------------------------------------------------------
DAREN, MARTENFELD, CARR, TESTA AND COMPANY LLP
CHARTERED ACCOUNTANTS
20 Eglinton Avenue West Telephone: 416-480-0160
Suite 2100 Facsimile: 416-480-2646
Toronto, Ontario
M4R 1K8
AUDITORS' REPORT
To the Shareholders of
Dealcheck.com Inc.
- -------------------
We have audited the consolidated balance sheets of DEALCHECK.COM INC. as at
MARCH 31, 2001 AND 2000 and the consolidated statements of operations and
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at MARCH 31, 2001
AND 2000 and the results of its operations and cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the year ended March 31, 2001 and
the shareholders' equity as at that date to the extent summarised in Note 17 to
the consolidated financial statements.
DAREN, MARTENFELD, CARR, TESTA AND COMPANY LLP ( SIGNED)
DAREN, MARTENFELD, CARR, TESTA AND COMPANY LLP
June 7, 2001
A Member Firm of
Midsnell International
- --------------------------------------------------------------------------------
43
DEALCHECK.COM INC.
CONSOLIDATED BALANCE SHEETS
(CANADIAN DOLLARS)
MARCH 31, 2001 AND 2000
=============================================================================================
NOTE 2001 2000
- ---------------------------------------------------------------------------------------------
ASSETS
Current
- -------
Cash $ 40,737 $ 425,968
Short-term Investments 3 38,068 697,274
Subscription advance 4 - 489,173
Amounts receivable 5 584,234 91,025
Prepaid and sundry assets 12,380 -
- ---------------------------------------------------------------------------------------------
675,419 1,703,440
LONG-TERM INVESTMENTS 3 58,290 782,687
PRODUCT DEVELOPMENT COSTS 6 134,521 10,000
CAPITAL ASSETS 7 40,414 46,805
- ---------------------------------------------------------------------------------------------
$ 908,644 $ 2,542,932
- ---------------------------------------------------------------------------------------------
LIABILITIES
Current
- ---------------------------------------------------------------------------------------------
Accounts payable and accrued liabilities $ 64,803 $ 40,549
Advance from shareholder, non-interest bearing 84,320 179,763
- ---------------------------------------------------------------------------------------------
149,123 220,312
- ---------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK 8 19,814,829 19,660,724
DEFICIT (19,055,308) (17,338,104)
- ---------------------------------------------------------------------------------------------
759,521 2,322,620
- ---------------------------------------------------------------------------------------------
$ 908,644 $ 2,542,932
- ---------------------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS - NOTE 13
SEE ACCOMPANYING NOTES.
APPROVED BY THE BOARD KAM SHAH(SIGNED) Director
---------------------------------
TERENCE ROBINSON (SIGNED) Director
---------------------------------
44
- -------------------------------------------------------------------------------
DEALCHECK.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(CANADIAN DOLLARS)
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
===============================================================================
NOTE 2001 2000 1999
- -------------------------------------------------------------------------------
Income
- -------------------------------------------------------------------------------
Operational services $ 120,000 $ 10,000 $ -
Licence and usage fee 151,508 - -
Interest 15,383 20,524 -
Exchange gain 49,269 5,337 12,837
Other income 15,082 - -
- -------------------------------------------------------------------------------
351,242 35,861 12,837
- -------------------------------------------------------------------------------
EXPENSES
Travel, promotion and consulting 221,960 467,835 323,337
Professional fees 97,593 94,688 39,113
Net loss on investments 14 1,364,812 590,709 -
Projects development costs 15,121 155,370 -
Bank charges and interest 9,694 3,905 -
Rent 45,814 23,548 24,800
Telephone, Internet and courier 11,796 26,673 26,942
Transfer agents fees 15,665 21,047 14,684
Shareholders information 204,005 6,268 11,350
Amortization 34,926 21,468 18,386
Office and general 47,060 14,807 31,821
- -------------------------------------------------------------------------------
2,068,446 1,426,318 490,433
- -------------------------------------------------------------------------------
NET LOSS FOR YEAR (1,717,204) (1,390,457) (477,596)
DEFICIT AT BEGINNING OF YEAR (17,338,104) (15,947,647) (15,470,051)
- -------------------------------------------------------------------------------
DEFICIT AT END OF YEAR $(19,055,308) $(17,338,104) $(15,947,647)
===============================================================================
Net loss per share 10 $ (0.40) $ (0.52) $ (0.35)
===============================================================================
SEE ACCOMPANYING NOTES.
- -------------------------------------------------------------------------------
45
DEALCHECK.COM INC.
Consolidated Statements of Cash Flows
- -----------------------------------------
(CANADIAN DOLLARS)
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
====================================================================================
2000 1999 1998
- ------------------------------------------------------------------------------------
Cash flows from operating activities
- ------------------------------------
Net loss for year $(1,717,204) $(1,390,457) $ (477,596)
Amortization 34,926 21,468 18,386
Write-off of product development costs 15,121 155,370 -
Net loss on investments 1,364,812 590,709 -
- ------------------------------------------------------------------------------------
(302,345) (622,910) (459,210)
Amounts receivable (268,784) (28,414) (62,615)
Prepaid and sundry assets (12,380) - -
Accounts payable and accrued liabilities 24,254 (26,873) 10,530
- ------------------------------------------------------------------------------------
(546,873) (678,197) (511,295)
- ------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- ------------------------------------------------------------------------------------
Purchase of capital assets (17,850) (9,896) (20,921)
Settlement of Note payable - (23,250) -
Refund of subscription advance 489,173
Investments 18,779 (2,494,930) (41,664)
Product development costs (150,327) (155,935) (9,435)
- ------------------------------------------------------------------------------------
339,785 (2,684,011) (72,020)
- ------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net advances from shareholder 26,557 472,147 641,984
Net advances to affiliates (151,114) - -
Net advances to directors (73,311)
Common shares issued 32,105 3,251,661 -
(178,143) 3,723,808 641,984
INCREASE (DECREASE) IN CASH DURING YEAR (385,231) 361,600 58,669
CASH AT BEGINNING OF YEAR 425,968 64,368 5,699
- ------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 40,737 $ 425,968 $ 64,368
====================================================================================
Supplemental disclosures
- ------------------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
- -------------------------------------------
Conversion of debts to equity $ 122,000 $ 300,000 $1,282,500
Note issued on acquisition of investment - - 23,250
====================================================================================
SEE ACCOMPANYING NOTES.
46
DEALCHECK.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
MARCH 31, 2001 AND 2000
================================================================================
1. NATURE OF OPERATIONS
Dealcheck.com Inc. ("the Company") is an Internet development and business
services Company. The Company's Internet strategy includes development and
operations of wholly owned Internet business concepts as well as investing
in new and emerging Internet companies that have demonstrated synergies
with the Company's core business. In addition the Company offers business
services to its investees and related companies The Company's strategy also
envisions and promotes opportunities for synergistic business relationships
among the companies within its portfolio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These_consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada and do not
materially differ from accounting principles generally accepted in the
United States (U.S. GAAP) except as described in Note 17 "Differences from
United States Accounting Principles".
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All inter-company balances and
transactions have been eliminated on consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 period. Actual results could differ from those estimates.
47
INVESTMENTS
SHORT-TERM INVESTMENTS
-----------------------
Short-term investments are investments that are either highly liquid or are
to be disposed of within a one year period and are recorded at cost.
Events may occur during the holding period, which may result in the Company
having the right exercise control or significant influence. However, such
control or significant influence may be waived or rectified and is not
intended to continue. Accordingly, the accounts of the investee companies
in which the Company holds an interest which allow for control or
significant influence are not consolidated or accounted for according to
the equity method.
Short-term investments, which have quoted market values and are publicly
traded on a recognized exchange, are recorded at a value based on the
quoted market price at the balance sheet date. The holding losses of the
short-term investment are recorded in the Statement of Operations.
LONG-TERM INVESTMENTS
----------------------
Long-term investments are not highly liquid and management does not intend
on disposing of them within one year. The investment is recorded at cost.
Management writes down the Company's long-term investments when a permanent
impairment occurs.
In order to determine if there has been a permanent impairment in carrying
value the Company compares the carrying value of the investment with the
financial condition and expected income from the investment.
Where the Company can exert significant influence over the investment the
investment is accounted for under the equity method. Under this method, the
interest in the investment is carried on the balance sheet at cost plus the
company's share of undistributed earnings since acquisition.
PRODUCT DEVELOPMENT
--------------------
The costs relating to the development of the web site and other technical
projects, which are intended to generate revenue in future are deferred and
amortized on a straight-line basis over the estimated economic life of the
project not exceeding three years. Amortization commences when the project
becomes commercially active. The development costs will be written off when
it is determined that they are not recoverable or when the project is
abandoned.
48
CAPITAL ASSETS
---------------
Capital assets are carried at cost, less accumulated amortization, which is
based on management's estimates of the assets' useful lives. Amortization
is provided for on a straight-line method at annual rate of 20% for office
furniture and equipment. Leasehold improvements are amortized over five
years on a straight-line basis.
FOREIGN CURRENCY TRANSLATION
------------------------------
Monetary assets and liabilities are translated at exchange rates in effect
at the balance sheet date. Non-monetary assets are translated at exchange
rates in effect when they were acquired. Revenue and expenses are
translated at the approximate average rate of exchange for the year, except
that amortization is translated at the rates used to translate related
assets. The resulting gains or losses on translation are included in the
consolidated statement of operations.
FINANCIAL INSTRUMENTS
----------------------
The fair values of amounts receivable, accounts payable and accrued
liabilities and advances from shareholder approximate their carrying values
due to the short-term maturity of those instruments.
FUTURE INCOME TAXES
---------------------
Effective April 1, 2000, the company adopted the new recommendations of the
Canadian Institute of Chartered Accountants with respect to accounting for
income taxes. Under the new recommendations, the liability method of tax
allocation is used in accounting for income taxes. Under this method,
future income tax assets and liabilities are determined based on temporary
differences between financial reporting and tax bases of assets and
liabilities, as well as for the benefit of losses available to be carried
forward to future years for tax purposes. Future income tax assets and
liabilities are measured using substantively enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Future
income tax assets are recorded in the financial statements if realization
is considered more likely than not.
Prior to the adoption of the new recommendation, income tax expense was
determined using the deferral method of tax allocation. This change in
reporting was applied retroactively and does not have an impact on net
operations for the prior year.
STOCK-BASED COMPENSATION PLAN
-------------------------------
The Company maintains a stock-based compensation plan, which is described
in Note 9. No compensation expense is recognized for this plan when stock
options or shares are issued to employees. Any consideration received from
49
plan participants upon exercise of stock options or purchase of shares is
credited to share capital.
RESEARCH AND DEVELOPMENT COSTS
---------------------------------
Research costs are charged to operations when incurred. Development costs
are expensed in the year incurred unless they meet the deferral criteria
under generally accepted accounting principles for deferral and
amortization. Amortization commences with the successful commercial
production or use of the product. Deferred development costs are amortized
using the straight-line method over the estimated selling life of the
product to a maximum of three years.
On an ongoing basis, management reviews the valuation and amortization of
deferred development costs. If, in any year, any particular product is
found to have insufficient market potential to recover the investment, any
unamortized balance in respect of that product will be charged to
operations.
INVESTMENT TAX CREDITS
------------------------
Investment tax credits are accrued when qualifying expenditures are made
and there is reasonable assurance that the credits will be realized. The
Company accounts for the investment tax credits using the cost reduction
method.
2. INVESTMENTS
A. SHORT TERM INVESTMENTS
----------------------------------------------------
MARKET
COST VALUE
----------------------------------------------------
MARCH 31, 2001
MARKETABLE TRADING SECURITIES $ 261,082 $ 38,068
----------------------------------------------------
$ 261,082 $ 38,068
----------------------------------------------------
MARCH 31, 2000
MARKETABLE TRADING SECURITIES $ 976,780 $371,918
NON MARKETABLE SECURITIES:
World Vacation Club.com (i) 288,616 288,616
CONVERTIBLE DEBENTURES:
50
DevelopersNetwork.com (ii) 36,741 36,740
----------------------------------------------------
$1,302,137 $697,274
====================================================
(i) WORLD VACATION CLUB.COM ("WVC")
On May 19, 2000 management decided to dispose of its investment
in WVC and sold 450,000 common shares of at cost. The balance of
the Company's investment was sold to a non-related person on
March 22, 2001, which resulted in the Company realizing a loss of
$228,463, which is included in the net loss on investments. A
condition of the sale is that in the event that the purchaser is
able to sell the shares by March 22, 2006 the Company will be
entitled to 80% of the proceeds.
(ii) DEVELOPERS NETWORK.COM INC.
The Company agreed to provide financing to Developers Network.com
Inc., an Ontario private Corporation, up to $ 750,000 in the form
of a debenture carrying interest at 5.5% and convertible, at the
option of the Company, into the common shares of
DevelopersNetwork.com Inc. which would give a maximum of 30%
equity interest to the Company under a Memorandum of Agreement
dated February 23, 2000.
The Company called its debentures in DevelopersNetwork.com Inc.
as a result of a decision by all the related parties to cancel
the Memorandum of Understanding. The Company's investment with
interest was fully refunded on May 29, 2000. The Company also
received an option to acquire 50,000 common shares in
DevelopersNetwork.com Inc. at $1 each exercisable within two
years.
B. LONG-TERM INVESTMENTS
--------------------------------------------------------------
MARCH 31, 2000 MARCH 31, 2001
--------------------------------------------------------------
Hotlamp Interactive Inc. (i) $ 55,802 $ 55,802
Dataloom Inc. (iii) 726,885 -
XLoom (iii) 2,488
--------------------------------------------------------------
$ 782,687 $ 58,290
--------------------------------------------------------------
(i) HOTLAMP INTERACTIVE TECHNOLOGIES INC.
The Company's investment represents less than 1% of the equity
interest in Hotlamp Interactive Technologies Inc., a private
51
Nevada Corporation. It is a software development company focused
on multimedia products.
As at March 31, 2001, the carrying value approximates the fair
value of this investment
(ii) DATALOOM INC.
Dataloom Inc., a Seattle, Washington based private company, in
which the company invested $500,000US representing about 5% of
the equity of that company, restructured its operations on March
31, 2001 by transferring its intellectual properties and certain
assets to a newly formed Seattle, Washington based private
company, XLoom Holdings Inc.(XLoom). The Company was offered and
has subscribed to 165,921 common shares of XLoom representing
approximately 5% of the issued shares at a price of $.01US.
XLoom is engaged in development and marketing of the xLoom
Application Framework software (xFrame).
However, since the restructure resulted in Dataloom Inc. becoming
an inactive shell company, the management decided to write off
its investment in Dataloom Inc. in full.
4. SUBSCRIPTION ADVANCE
The Company agreed to purchase shares in Idealab.com from an individual
shareholder. Funds were forwarded to and were held by the seller's lawyer
in escrow pending the completion of the paperwork. The Company cancelled
its subscription in the common shares of Idealab.com on April 17, 2000 and
received the full refund of funds invested of $489,173.
5. AMOUNTS RECEIVABLE
==========================================
2001 2000
------------------------------------------
Secured receivable (i) $295,549 $ -
Convertible loans (ii) 205,479 54,365
Due from directors 73,311 -
Other receivables 9,895 36,660
------------------------------------------
$584,234 $91,025
==========================================
52
(i) Amounts are due from a related corporation, bear interest at 5% per
annum and are due on demand. The amounts are fully secured against
marketable securities owned by the related corporation.
(ii) Convertible loans are funds advanced to a related public corporation,
bearing interest at 5% per annum and payable on demand. The advances
are convertible, at the option of the Company into the common shares
of the related entity at $0.05 per share.
6. PRODUCT DEVELOPMENT COSTS
=================================================================================
Balance at Incurred Written Amortized Balance at
- ---------------------------------------------------------------------------------
MARCH 31, DURING OFF DURING DURING MARCH 31,
2000 YEAR YEAR YEAR 2001
=================================================================================
Shellfn.com (a) $ - $ 111 $ (111) $ - $ -
IRCheck.com (b) 10,000 2,055 - (10,685) 21,370
Dealcheck.com(c) - 15,010 (15,010) - -
Biochex.com (d) - 113,151 - - 113,151
- ---------------------------------------------------------------------------------
$ 10,000 $ 150,327 $ (15,121) $ (10,685) $ 134,521
=================================================================================
Balance at Incurred Written Amortized Balance at
- ---------------------------------------------------------------------------------
MARCH 31, DURING OFF DURING DURING MARCH 31,
1999 YEAR YEAR YEAR 2000
=================================================================================
Shellfn.com $ 9,435 $ 68,149 $ (77,584) $ - $ -
IRCheck.com 10,000 - - 10,000
EduVu.com - 33,500 (33,500) - -
Dealcheck.com - 44,286 (44,286) - -
- ---------------------------------------------------------------------------------
$ 9,435 $ 155,935 $ (155,370) $ - $ 10,000
- ---------------------------------------------------------------------------------
(a) SHELLFN.COM web site was intended to become an electronic advertising
medium for shell companies to attract prospective buyers. During
fiscal 2000, the management decided to put a hold on this project for
an indefinite period of time. The costs incurred to date were
therefore fully written off.
(b) IRCHECK.COM web site is developed to provide a comprehensive database
of investors relation firms to facilitate an informed decision for the
prospective public companies desiring to outsource its investors
relation and media relation work to an independent firm. The costs
incurred to date represent costs towards web site design and
development. The Web site development work was completed and the site
53
was launched on March 5, 2001. The company negotiated licensing of its
database to a related company for a fee (see Note 13). Accordingly,
one third of the costs were amortized during the year. All future on
going costs will be expensed as incurred.
(c) DEALCHECK.COM web site is a corporate web site, which provides
information about the Company, its management, its investments, press
release and other corporate information useful for investors,
shareholders and other. While the basic design and development work of
the site was completed in fiscal 2000, the site is being continually
updated. The costs relating to this site are expensed as incurred.
BIOCHEX.COM is a project initiated by the Company's subsidiary,
1388755 Ontario Inc. The project involves the design and development
of a prototype of a wireless and portable Internet appliance for
medical data logging system
7. CAPITAL ASSETS
========================================================
ACCUMULATED NET
COST AMORTIZATION 2001
--------------------------------------------------------
Office furniture $ 56,190 $ 40,740 $15,450
Office equipment 63,946 41,661 22,285
Leasehold improvements 10,000 7,321 2,679
--------------------------------------------------------
$130,136 $ 89,722 $40,414
========================================================
========================================================
ACCUMULATED NET
COST AMORTIZATION 2000
--------------------------------------------------------
Office furniture $ 47,378 $ 30,383 $16,995
Office equipment 57,007 29,567 27,440
Leasehold improvements 7,900 5,530 2,370
--------------------------------------------------------
$112,285 $ 65,480 $46,805
========================================================
8. CAPITAL STOCK
A. AUTHORIZED
Unlimited number of common shares
54
B. ISSUED
2001 2000
- ---------------------------------------------------------------------------------
COMMON COMMON
SHARES AMOUNT SHARES AMOUNT
=================================================================================
Beginning of year 4,117,616 $19,660,724 2,832,616 $16,109,064
On conversion of debt B (i) 400,000 122,000 400,000 300,000
Issued for cash on conversion of
Warrants C ( I) 101,700 32,105 885,000 3,251,660
- ---------------------------------------------------------------------------------
4,619,916 $19,814,829 4,117,616 $19,660,724
=================================================================================
<FN>
(i) During the year, the company converted $122,000 of shareholders'
advances into 400,000 shares at a price, which approximated the market
price at the time of conversion. Directors approved the issuance of
the shares.
C. WARRANTS
(i) In the Annual and special meeting of the shareholders held on
November 13, 2000, the shareholders approved to extend the expiry
date of the warrants attached to the private placement completed
in fiscal 2000 by one year and authorize the directors to revise
the exercise price at their discretion. The directors in their
meeting on January 17, 2001 approved revision of the exercise
price to US$0.20 per warrant and set the expiry date to March 12,
2001. The directors also resolved to initiate further revisions
in the expiry date within the time limit mandated by the
shareholders should they consider it necessary. Two of the
private placees exercised their warrants, resulting in issuance
of 101,700 shares for US$20,340 (CDN$32,105).
At the end of the year, there are 783,300 warrants which are
exercisable at a price of US$0.20 per warrant and expired on
March 12, 2001 however the expiry date of these warrants may be
extended by the Company to any other date up to November 13,
2002.
No further revision has been proposed to date.
9. STOCK OPTION PLAN
In the Annual General Meeting held on November 15, 1999, the shareholders
approved the creation of the "1999 Stock Option Plan" pursuant to which the
directors were authorized to issue stock options from time to time to
employees, officers, consultants and directors of the Company up to 10% of
the issued and outstanding common shares of the Company at the time of such
issue, at a minimum price allowed under the applicable securities laws. In
55
the Annual general and special meeting held on November 13, 2000, the
shareholders approved an increase in the limit of maximum number of stock
options to 25% of the issued and outstanding common shares of the
corporation at the time of such issue.
No options were allowed under the Plan during the year and no options are
outstanding at the year end.
10. LOSS PER SHARE
Loss per share is calculated on the weighted average number of
post-consolidated common shares outstanding during the year, which were
4,259,424 shares for the year ended March 31, 2001 (2000 - 2,690,266).
Fully diluted earnings per share information has not been presented as
potential conversions are anti dilutive.
11. INCOME TAXES
The effective tax rate of nil (2000 - nil) for income taxes varies from the
statutory income tax rate of 44% (2000 - 45%) due to the fact that no tax
recoveries have been recorded for losses incurred, as management has not
determined it is more likely than not that the losses will be utilized
before they expire.
The temporary differences that give rise to future income tax assets and
future income tax liabilities are presented below:
=================================================================================
2001 2000
Amounts related to tax loss and credit carry forwards $ 4,152,000 $ 4,033,000
Unrealized and holding losses on investments 421,000 266,000
Capital assets 39,000 28,000
- ---------------------------------------------------------------------------------
Net future tax assets 4,612,000 4,327,000
Less: valuation allowance (4,612,000) (4,327,000)
- ---------------------------------------------------------------------------------
$ - $ -
=================================================================================
The Company has carry forward tax losses of approximately $9.4 million,
which may be applied against future taxable income and expire as detailed
below. The benefit arising from these losses has not been included in the
financial statements.
56
2002 5,036,000
2003 1,133,000
2004 617,000
2005 536,000
2006 460,000
2007 683,000
2008 970,000
---------------------
$ 9,435,000
=====================
12. COMMITMENTS
(a) The Company entered into a consulting agreement with a related
corporation on April 1, 2000. The agreement requires the corporation
to provide investors relations services. The consulting fee is US
$10,000 per month payable in advance. The agreement expires on March
31, 2002.
(b) Rental payable under operating leases for premises, net of expected
recoveries is $45,000 for each of the years ending March 31, 2002,
2003, 2004, 2005 and $7,500 for the year ending March 31, 2006.
13. RELATED PARTY TRANSACTIONS
Transactions with related parties are incurred in the normal course of
business and are measured at the exchange amount. Related party
transactions and balances have been listed below, unless they have been
disclosed elsewhere in the financial statements.
- Licence and usage fee income of $151,508 (2000 - Nil; 1999 - Nil) and
consulting service fee income of $120,000 (2000 - $10,000; 1999 - Nil)
were earned from a corporation, which has common management.
- Included in shareholders information expense is $180,425 (2000 - Nil;
1999 - Nil) to a corporation, which has common management.
- Rent and telephone expense are net of recoveries of $110,587 (2000 -
$43,106; 1999 - Nil) from corporations, which share common management
and directors.
- Interest earned from related corporations amounts to $8,458 (2000 -
$1,669; 1999 - Nil).
- Included in professional and consulting fees is $150,400 (2000 -
$114,592; 1999 - $36,390) paid to directors of the Company.
57
- Business expenses of $55,959 (2000 - $108,249; 1999 - $36,144) were
reimbursed to directors of the corporation.
- Consulting fees include amounts to a shareholder corporation of
$90,482 (2000 - $176,550; 1999 - $177,972).
14. NET LOSS ON INVESTMENTS
2001 2000 1999
- ----------------------------------------------------------
Holding losses $ - $612,794 $ -
Provision for non-temporary
Impairment in value 789,200 72,470 -
Realized loss (gains) 575,612 (94,555) -
- ----------------------------------------------------------
$1,364,812 $590,709 $ -
==========================================================
15. COMPARATIVE FIGURES
Certain figures presented for comparative purposes have been reclassified
to conform to the current year's method of presentation.
16. SEGMENTED INFORMATION
The Company's operations include three reportable operating segments -
BUSINESS SERVICES: this segment includes management and operational
services to investee companies and others
PRODUCT DEVELOPMENT: This segment includes revenue from the Company's own
web sites and technical projects
INCUBATION: This segment includes dividend and/or capital gains earned
through long-term investments in start-ups and emerging companies
The accounting policies of the segments are same as those described in Note
2. The Company evaluates each segment's performance based on its
contribution to consolidated net earnings. There are no inter-segmental
charges or transactions. The following table presents summarised financial
information for the fiscal years ended March 31, 2001 and 2000.
GEOGRAPHIC INFORMATION
The Company operates from one location in Canada. All its assets are
located at this location.
58
BUSINESS SEGMENTS
BUSINESS PRODUCT INCUBATION
SERVICES DEVELOPMENT
- -------------------------------------------------------------------
2001
Total revenue 120,000 151,508 -
Earnings(Losses) from operations 120,000 136,387 (1,589,772)
Total assets - 134,521 58,920
Total liabilities - - 64,803
- -------------------------------------------------------------------
2000
Total revenue 10,000 - -
Earnings (Losses) from operations 10,000 (155,370) (1,058,544)
Total assets - 10,000 782,687
Total liabilities - - 40,549
- -------------------------------------------------------------------
RECONCILIATION TO FINANCIAL STATEMENTS:
2001 2000
- ------------------------------------------------------------------------
REVENUES
Total revenue from reportable segments 271,508 10,000
Other 79,734 25,861
- ------------------------------------------------------------------------
351,242 35,861
- ------------------------------------------------------------------------
NET LOSS
Total earnings (Losses) from continuing operations for
Reportable segments (1,333,385) (1,203,914)
Other (383,819) (186,543)
- ------------------------------------------------------------------------
(1,717,204) (1,390,457)
- ------------------------------------------------------------------------
ASSETS
Total assets used for reportable segments
193,441 792,687
Other 715,203 1,750,245
- ------------------------------------------------------------------------
908,644 2,542,932
- ------------------------------------------------------------------------
LIABILITIES
59
Total liabilities used for reportable segments 64,803 40,549
Other 84,320 179,763
- ------------------------------------------------------------------------
149,123 220,312
- ------------------------------------------------------------------------
17. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
PRODUCT DEVELOPMENT COSTS
- ---------------------------
The costs of developing the commercial web sites and technical projects are
allowed to be deferred under the Canadian Generally Accepted Accounting
Principles. However, these costs should be expensed under US GAAP.
Accordingly, under the US GAAP, net loss for year would be $1,851,725 (2000
- $ 1,400,457). Total assets would be $774,123 (2000 - $2,532,932) and
deficit would be $19,189,829 (2000 - $17,348,104).
INVESTMENTS
- -----------
Investments in marketable equity securities that are classified as
short-term investments under Canadian GAAP, are grouped into trading and
available-for-sale categories and accounted for at fair value under the US
GAAP. Unrealised holding gains or losses on trading securities are included
in the income. Unrealised holding gains and losses on available-for-sale
securities are included in shareholders' equity.
Investments in equity securities that are classified as long term
investments under the Canadian GAAP, are accounted for at fair value under
the US GAAP. Unrealised holding gains and losses are included in
shareholders' equity.
No significant adjustment would be required in the net loss for year, total
assets and deficit under the US GAAP.
STOCK-BASED COMPENSATION
- -------------------------
The Company accounts for common stock purchase options and warrants granted
to non-employees pursuant to Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS No.123) and
Emerging Issues Task Force ("EITF") No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." These standards require that
the fair value of equity instruments, including options and warrants, be
recognized in the financial statements. FAS No. 123 permits a company to
account for employee stock options under the method specified by the
previous standard, Accounting Principles Board Opinion No. 25 ("APB
No.25"), "Accounting for Stock Issued to Employees." Under APB No.25, if
the exercise price of fixed employee stock options equals or exceeds the
60
market price of the underlying stock on the date of grant, no compensation
expense is recorded. For such options, FAS No.123 requires disclosure of,
among other things, the fair value of options granted, the assumptions used
in determining the fair value and the pro-forma effect on earnings as if
measurement provisions of FAS No. 123 had been applied. The Company will
apply the measurement principles of APB No.25, supplemented by the required
FAS No.123 disclosures, for any stock options it grants to employees in the
future.
RECENT ACCOUNTING DEVELOPMENT
- -------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and, as amended by SFAS No. 137, was adopted
by the Company on July 1, 2000. This statement requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. The accounting for changes in fair value of a
derivative instrument depends on its intended use and the resulting
designation. The adoption of this statement does not impact the Company's
historical financial statements, as the Company currently does not use
derivative instruments.
61