U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: March 31, 2000
Commission File Number: 0-29011
THE STORM HIGH PERFORMANCE SOUND CORPORATION
(Exact name of small business issuer as specified in its charter)
Florida
(State or other jurisdiction of incorporation or organization)
52-2048394
(IRS Employer Identification No.)
8756 122nd Avenue NE
Kirkland, Washington
(Address of principal executive offices)
98033
(Zip Code)
(425) 827-7817
(Issuer's Telephone Number)
--------------------------------------------------
(Former name, former address and former fiscal year,
if changed last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days:
Yes X No .
--- ---
The number of shares of the registrant's only class of common stock issued and
outstanding, as of March 31, 2000, was 30,317,623 shares.
1
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three month period ended March 31,
2000, are attached hereto.
The unaudited financial statements presented herein are those of North Coast
Productions Inc., ("North Coast") successor to The Storm High Performance Sound
Corporation ("Storm"). North Coast was incorporated in the state of Washington
on December 29, 1999 and had no business activity prior to that date.
Therefore, there are no comparative financial statements for the three months
ended March 31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
- - Plan of Operations
The following discussion should be read in conjunction with the Financial
Statements and notes thereto included herein.
North Coast became a successor to Storm under a Stock Purchase Agreement between
Storm and North Coast dated January 28, 2000 and effective March 31, 2000 and a
related Share Exchange Agreement and Plan of Merger between Storm and North
Coast dated as of April 4, 2000 and effective as of April 5, 2000. The Stock
Purchase Agreement and the Share Exchange Agreement ("the Agreements") were
disclosed previously in Storm's Form 8-K filed on April 3, 2000 and Storm's Form
8-K filed on April 24, 2000.
Under the Agreements, North Coast shareholders became the holders of the
majority of the issued and outstanding common stock of Storm and the plan of
operations of North Coast became that of Storm.
Storm had no operations and little or no assets and liabilities immediately
prior to its merger with North Coast. The transaction is treated as a capital
transaction in substance rather than a business combination and has been
accounted for as a reverse merger. Although Storm is considered the acquiring
entity, since North Coast became the successor company as a result of North
Coast's shareholders becoming the holders of the majority of the voting common
stock and since North Coast's plan of operations became that of the successor
company, the financial history and reports are those of North Coast, the
acquired entity.
2
The transactions relating to the reverse merger of North Coast and Storm based
on the Agreements are summarized as follows:
- - Immediately prior to the merger effective March 31, 2000, all of the
assets of Storm with a recorded value of $86,486 were distributed to the former
officers and controlling shareholders of Storm, Messrs. Hannaberry and Zacharoff
as partial consideration for Storm's purchase and redemption of 7,030,377 shares
of common stock tendered to Storm by such shareholders.
- - North Coast paid $300,000 cash into an escrow account and was issued
7,115,593 shares of common stock of Storm as partial consideration effective
March 31, 2000. The funds were disbursed by the escrow agent to liquidate the
liabilities of Storm recorded at $167,699, to pay a finder's fee of $100,043
with the remainder paid to Messrs. Hannaberry and Zacharoff as the balance of
the consideration for the 7,030,377 shares of common stock tendered to Storm by
them. The finder's fee also included 326,400 shares of common stock.
- - Under a Share Exchange Agreement and Plan of Merger between North Coast
and Storm effective April 5, 2000 North Coast's shareholders were issued 25
million shares of common stock of Storm at $0.0001 per share ($2500 total) in
exchange for 5 million shares of North Coast's common stock originally issued to
them at $0.001 per share ($5000 total). The Share Exchange Agreement was
treated as a continuance of the Stock Purchase Agreement between North Coast and
Storm and therefore was given effect as of March 31, 2000. North Coast was
merged into Storm and all of North Coast's assets were transferred to Storm and
all of North Coast's liabilities were assumed by Storm and North Coast as a
separate legal entity ceased to exist. The 7,115,593 shares of Storm's common
stock issued to North Coast effective March 31, 2000 were cancelled by Storm.
Pursuant to a separate Stock Exchange Agreement dated as of March 31, 2000
between Storm and MRC Legal Services LLC ("MRC"), a majority shareholder of the
HiLiner Group Inc. ("HiLiner"), Storm issued 1,500,000 shares of its common
stock to MRC at $0.0001 per share in exchange for 100% of the issued and
outstanding common stock of HiLiner (1 million shares). Upon execution of the
Stock Exchange Agreement and delivery of the Storm shares to MRC as the sole
shareholder of HiLiner, pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, Storm became the
successor issuer to HiLiner for reporting purposes under the Securities Exchange
Act of 1934 and elected to report under the Act effective March 31, 2000.
Concurrent with and in connection with the Stock Exchange Agreement between
Storm and MRC, Storm also entered into a Consulting Agreement effective March
31, 2000, with several individuals (the "Consultants") whereby Storm agreed to
pay $125,000 cash and issue 2 million shares of its common stock as
consideration for services under the Consulting Agreement. A description of the
March 31, 2000 Stock Exchange Agreement and Consulting Agreement and additional
information regarding the transactions thereunder are set forth in Storm's Form
8-K filing with the SEC dated March 31, 2000 and filed April 3, 2000.
3
The transaction under the HiLiner agreements is treated as a capital transaction
in substance, rather than a business combination and has been accounted for as a
reverse merger.
The shares issued by Storm in connection with the reverse merger transaction
between Storm and North Coast and the shares issued by Storm in connection with
the HiLiner Share Exchange Agreement and related Consulting Agreement were
recorded effective March 31, 2000. Since there was insufficient volume or
trading history of Storm's common stock on the OTC Bulletin Board and no other
basis to reasonably determine fair value of the shares, such shares issued by
Storm were recorded at their par value of $0.0001 per share. The accounts of
North Coast were recorded at their historical values.
Storm intends to hold a special meeting of its shareholders to consider and vote
upon the following matters:
a) The redomiciling of Storm's state of incorporation from Florida to
Nevada.
b) The adoption of restated By-Laws and an Amendment of the Articles of
Incorporation approving a change in corporate name to North Coast Productions
Inc.
c) The adoption of an Amendment to the Articles of Incorporation increasing
the authorized capital stock to 200,000,000 shares of $0.001 par value voting
common stock and 50,000,000 shares of $0.001 par value preferred stock.
d) Other corporate matters to be set forth in a Notice of Special Meeting of
Stockholders to be sent to the Company's stockholders.
Until the name change is approved by the stockholders, Storm will carry on its
business as The Storm High Performance Sound Corporation dba North Coast
Productions Inc.
The Company generated no revenues during the three month period ended March 31,
2000. The Company's current plan is to concentrate its business development
efforts on opportunities available in the film production business, including
made for TV projects.
The Company plans to hire a team of industry professionals. Contact has been
made with several industry experienced individuals who have expressed an
interest in joining North Coast. Day to day operations, the selection of
projects and the marketing of the Company's productions and services will be by
industry professionals.
4
The Company's plan is to become operational during the second quarter of 2000.
The development of two motion picture projects will receive the bulk of the
Company's management time and financial resources, if and when the financial
resources become available.
North Coast is in the process of establishing itself as producer and distributor
of filmed entertainment products. Foreign or world wide distribution of USA
produced entertainment projects is one of the fastest growing segments of the
industry. It is the intention of North Coast to exploit that market as the
foundation of the Company's future.
The Company's major marketing strategy is based on selling "within budget"
productions to the marketplace at competitive prices. This includes video and
cable distribution outlets in addition to the foreign markets. The growing
availability for viewers in countries outside the USA to receive USA cable
network productions from HBO, Show Time and others, has increased demand for the
type of programming that North Coast is planning to produce.
North Coast plans to establish distribution outlets, through strategic
alliances, throughout its market place. A strong company representative
network, coupled with well-chosen, competently produced projects is designed to
provide a basis for success.
Under its marketing plan the Company is also developing relationships with
writers and independent producers to assure that North Coast has a constant flow
of projects under review. Included in this stream of projects are feature length
films, made for TV films, mini series for TV and TV feature series. While each
has a different market place, they all, as in any business, want the most for
the least cost. The Company has as one of its missions, the cost efficient
production of its projects. A strategy of cost efficiency is to become a
hallmark of North Coast and the source of the Company's internal growth.
The Company plans to formulate an aggressive joint venture acquisition plan for
stimulating growth. As in most industries, the consolidation movement is
growing. North Coast management believes that growth by strategic acquisition
is necessary for the Company to reach the Company's full potential. Management
has significant M&A experience.
To date North Coast's current business activities have consisted primarily of
developing a business plan, assembling a management team, and pursuing film
production opportunities and financing. Options to purchase Magellan
Entertainment of Malibu, CA and Nickel Palace, Inc. of Hollywood, CA have been
signed. Definitive agreements are under negotiation.
5
Magellan Entertainment owns the rights to Tuesday's Letters, a movie script that
is scheduled for production this summer. The budget for this project is $4.5
million. A division of Magellan, that will become the distribution arm of North
Coast is currently selling Tuesday's Letters into the foreign market place. In
April, 2000, North Coast advanced Magellan Entertainment $20,000.
Magellan's management team brings 20 plus years of industry experience to North
Coast. Their experience includes acting, distribution and most importantly,
producing. They have first hand knowledge of industry cost controls which will
assist North Coast in reaching its goal of being cost efficient.
Nickel Palace owns the rights to Rennie's Landing, a movie script that is
scheduled for filming in the summer of 2000. The budget for this project is
$980,000. The director and producers of this film are currently working on
bigger budget films for major studios. They are experienced, bright and have
the vision necessary to recognize what the viewing public, the 18 to 34 year old
wants to see. The addition of the Nickel executives to the North Coast
management team brings the X & Y Generation vision to the Company. In April
2000, North Coast loaned to Nickel Palace $110,000 for operating capital to
commence film production activities.
On April 7, 2000, the Company deposited $550,000 of proceeds it received under
the subscription agreement relating to the convertible debentures issued by
North Coast on March 28, 2000. The funds were used to pay down approximately
$400,000 of the Company's debt obligations. The balance is being used for
operating capital. The Company is in its early stages of business development
and funding of future operations is dependent on management's ability to raise
additional capital.
The Company estimates that it will have sufficient capital to enable it to meet
its financial needs to continue with its business development activity at a
minimal level until September 1, 2000. In order to proceed with its Plan of
Operations as described herein, the Company will have to raise additional funds
over the next 12 months.
The Company has no plans for any product research and development and no
expected purchase or sale of plant and significant equipment over the next 12
months.
The Company expects a significant increase in the number of its employees in
order to produce the film opportunities it is pursuing under its plan of
operations. The hiring of additional employees is dependent upon and subject to
the Company's ability to raise additional financing.
6
Forward Looking Statements
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
the Company cautions readers regarding certain forward looking statements in the
following discussion and elsewhere in this report and in any other statement
made by, or on the behalf of the Company, whether or not in future filings with
the Securities and Exchange Commission. Forward looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results or other developments. Forward
looking statements are necessarily based upon estimates and assumptions that are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which, with respect to future business decisions, are subject to
change. These uncertainties and contingencies can affect actual results and
could cause actual results to differ materially from those expressed in any
forward looking statements made by, or on behalf of, the Company. The Company
disclaims any obligation to update forward looking statements.
FINANCIAL STATEMENTS
The accompanying balance sheet of Storm (a development stage company) at March
31, 2000 and the statements of operations and cash flow for the three months
ended March 31, 2000, have been prepared by management and they do not include
all information and notes to the financial statements necessary for a complete
presentation of the financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included.
Operating results for the three months ended March 31, 2000, are not necessarily
indicative of the results that can be expected for the year ending December 31,
2000.
7
THE STORM HIGH PERFORMANCE SOUND CORPORATION
dba/ NORTH COAST PRODUCTIONS, INC.
(A Development Stage Company)
BALANCE SHEET
MARCH 31, 2000
(Unaudited)
ASSETS
Cash $ 1,721
-----------
$ 1,721
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 158,700
Loans payable - officers 289,000
-----------
Total current liabilities 447,700
-----------
OTHER LIABILITIES
Debentures payable 1,000,000
Less debenture subscription receivable (880,000)
-----------
Total other liabilities 120,000
-----------
567,700
-----------
STOCKHOLDERS' (DEFICIT)
Common stock $.0001 par value; 50,000,000 shares
authorized; 30,317,623 shares issued and outstanding 3,032
Retained deficit (569,011)
(565,979)
-----------
$ 1,721
===========
The Accompanying notes are an integral part of these financial statements
8
THE STORM HIGH PERFORMANCE SOUND CORPORATION
dba/ NORTH COAST PRODUCTIONS, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
(Unaudited)
Cumulative
Through the
Development
Three Months Stage
Ended (December 29, 1999
March 31, 2000 to March 31, 2000)
--------------- --------------------
EXPENSES
General and administrative $ 101,979 $ 106,979
--------------- -----------------
Net loss from operations 101,979 106,979
Interest and loan fees 39,000 39,000
Reverse merger consulting fees 125,200 125,200
--------------- -----------------
Net loss from continuing operations 266,179 271,179
Loss from discontinued operations 297,832 297,832
--------------- -----------------
Net loss $ 564,011 $ 569,011
=============== =================
LOSS PER COMMON SHARE $ 0.02 $ 0.02
=============== =================
LOSS PER COMMON SHARE, DISCONTINUED OPERATIONS $ 0.01 $ 0.01
=============== =================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 25,000,000 25,000,000
=============== =================
The Accompanying notes are an integral part of these financial statements
9
THE STORM HIGH PERFORMANCE SOUND CORPORATION
dba/ NORTH COAST PRODUCTIONS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Unaudited)
Cumulative
Through the
Development
Three Months Stage
Ended (December 29, 1999
March 31, 2000 to March 31, 2000)
---------------- --------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (564,011) $ (569,011)
Changes in accounts payable 158,700 158,700
Change in accrual of loan fees and interest added to debentures payable 39,000 39,000
Changes in loans payable to officers for accrued salary 50,000 50,000
Stock issued for services 200 5,005
NET CASH USED IN OPERATING ACTIVITIES (316,111) (316,306)
---------------- -----------------
CASH FLOW FROM INVESTING ACTIVITIES
Investment by North Coast into Storm (2,168) (2,168)
NET CASH USED IN INVESTING ACTIVITIES (2,168) (2,168)
---------------- -----------------
CASH FLOW FROM FINANCING ACTIVITIES
Loans from officers 305,000 305,000
Loans from others 15,000 15,000
Initial investment in North Coast 195
NET CASH FLOW FROM FINANCING ACTIVITIES 320,000 320,195
---------------- -----------------
NET INCREASE IN CASH 1,721 1,721
CASH AT BEGINNING OF PERIOD - -
CASH AT END OF PERIOD $ 1,721 $ 1,721
================ =================
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ - $ -
================ =================
Income taxes $ - $ -
================ =================
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Issuance of common stock related to reverse acquisition $ 2,180 $ 2,180
================ =================
Conversion of loans payable to debentures payable $ 120,000 $ 120,000
================ =================
The Accompanying notes are an integral part of these financial statements
10
THE STORM HIGH PERFORMANCE SOUND CORPORATION
dba/ NORTH COAST PRODUCTIONS, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Deficit
Accumulated Total
Additional During the Shareholders'
Common Stock Paid in Development Equity
-------------
Shares Amount Capital Stage Deficiency
------------- -------- ----------- ------------- --------------
BALANCE DECEMBER 29, 1999 (INCEPTION) - $ - $ - $ - $ -
Initial issuance of shares 5,000,000 5,000 5,000
Net loss at December 31, 1999 (5,000) (5,000)
------------- --------------
BALANCE DECEMBER 31, 1999 5,000,000 5,000 - (5,000) -
Cancel North Coast shares in reverse merger (5,000,000) (5,000) (5,000)
Capital of Storm at beginning of the period 8,521,600 852 852
Shares issued in reverse merger with North Coast 25,000,000 2,500 2,500
Shares cancelled in connection with reverse merger (7,030,377) (703) (703)
Shares issued in reverse merger with Hi Liner 1,500,000 150 150
Shares issued for consulting services in connection
with reverse mergers 2,326,400 233 233
Net loss (564,011) (564,011)
BALANCE MARCH 31, 2000 30,317,623 $ 3,032 $ - $ (569,011) $ (565,979)
============= ======== =========== ============= ==============
The Accompanying notes are an integral part of these financial statements
11
THE STORM HIGH PERFORMANCE SOUND CORPORATION
dba/ NORTH COAST PRODUCTIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
Note 1 - ORGANIZATION AND HISTORY
Storm was organized and incorporated under the laws of the State of Florida on
June 12, 1997. Storm was initially established to engage in the manufacture,
marketing and distribution of "high end" car stereo systems. However, due to
certain technical and market difficulties, the business of Storm did not develop
as expected. As a result, Storm ceased its operations in 1999 and began a
search for new business opportunities.
North Coast became a successor to Storm under a Stock Purchase Agreement between
Storm and North Coast dated January 28, 2000 and effective March 31, 2000 and a
related Share Exchange Agreement and Plan of Merger between Storm and North
Coast dated as of April 4, 2000 and effective as of April 5, 2000.
Under the Agreements, North Coast shareholders became the majority owners of the
shares of Storm and the plan of operations of North Coast became that of Storm.
Storm had no operations and little or no assets and liabilities immediately
prior to its merger with North Coast. The transaction is treated as a capital
transaction in substance rather than a business combination and has been
accounted for as a reverse merger. Storm is the legal acquirer and the
financial history and reports are those of the acquiree, North Coast.
The transactions relating to the reverse merger of North Coast and Storm based
on the Agreements are summarized as follows:
- - Immediately prior to the merger effective March 31, 2000 all of the assets
of Storm with a recorded value of $86,486 were distributed to the former
officers and controlling shareholders of Storm, Messrs. Hannaberry and Zacharoff
as partial consideration for Storm's purchase and redemption of 7,030,377 shares
of common stock tendered to Storm by such shareholders.
12
- - North Coast paid $300,000 cash into an escrow account and was issued
7,115,593 shares of common stock of Storm as partial consideration effective
March 31, 2000. The funds were disbursed by the escrow agent to liquidate the
liabilities of Storm recorded at $167,699, to pay a finder's fee of $100,043
with the remainder paid to Messrs. Hannaberry and Zacharoff as the balance of
the consideration for the 7,030,377 shares of common stock tendered to Storm by
them. The finder's fee also included 326,400 shares of common stock.
- - Under a Share Exchange Agreement and Plan of Merger between North Coast
and Storm effective April 5, 2000 North Coast's shareholders were issued 25
million shares of common stock of Storm at $0.0001 per share ($2500 total) in
exchange for 5 million shares of North Coast's common stock originally issued to
them at $0.001 per share ($5000 total). The Share Exchange Agreement was
treated as a continuance of the Stock Purchase Agreement between North Coast and
Storm and therefore was given effect to as of March 31, 2000. North Coast was
merged into Storm and all of North Coast's assets were transferred to Storm and
all of North Coast's liabilities were assumed by Storm and North Coast as a
legal entity ceased to exist. The 7,115,593 shares of Storm's common stock
issued to North Coast effective March 31, 2000 were cancelled by Storm.
Pursuant to a separate Stock Exchange Agreement dated as of March 31, 2000
between Storm and MRC Legal Services LLC ("MRC") a majority shareholder of the
HiLiner Group Inc. ("HiLiner") Storm issued 1,500,000 shares of its common stock
to MRC at $0.0001 per share in exchange for 100% of the issued and outstanding
common stock of HiLiner (1 million shares). Upon execution of the Stock
Exchange Agreement and delivery of the Storm shares to MRC as the sole
shareholder of HiLiner, pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, Storm became the
successor issuer to HiLiner for reporting purposes under the Securities Exchange
Act of 1934 and elected to report under the Act effective March 31, 2000.
Concurrent with and in connection with the Stock Exchange Agreement between
Storm and MRC, Storm also entered into a Consulting Agreement effective March
31, 2000, with several individuals (the "Consultants") whereby Storm agreed to
pay $125,000 cash and issue 2 million shares of its common stock as
consideration for services under the Consulting Agreement. The $125,000 is
included in accounts payable in the Balance Sheet
The transaction under the HiLiner agreements is treated as a capital transaction
in substance, rather than a business combination and has been accounted for as a
reverse merger.
13
The shares issued by Storm in connection with the reverse merger transaction
between Storm and North Coast and the shares issued by Storm in connection with
the HiLiner Share Exchange Agreement and related Consulting Agreement were
recorded effective March 31, 2000. Since there was insufficient volume or
trading history of Storm's common stock on the OTC Bulletin Board and no other
basis to reasonably determine fair value of the shares, such shares issued by
Storm were recorded at their par value of $0.0001 per share. The accounts of
North Coast were recorded at their historical values.
In December 1999, North Coast adopted a business plan to actively pursue
production and distribution of film properties and the purchase of scripts that
management had become aware of. It is the overall business goal of North Coast
to become a full service film production and distribution company whose
productions may be completed and brought to market within a budget of $5 million
and under per project. To date North Coast's current business activities have
consisted primarily of developing a business plan, assembling a management team,
and pursuing film production opportunities and financing.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying unaudited financial statements have been prepared assuming the
Company will continue as a going concern basis. The Company, since its inception
December 29, 1999 through March 31, 2000 has incurred net losses of
approximately $569,000 and has had negative cash flow from operations of
approximately $18,000. These conditions raise substantial doubt about its
ability to continue as a going concern. Management expects to incur additional
losses for the foreseeable future and recognizes the need to raise capital to
achieve their business plans. The Company has raised approximately $320,000 of
operating capital since inception for its business development activities and
plans to raise additional operating capital through various financing methods
including private placements of its equity securities. The accompanying
unaudited financial statements do not include any adjustments that might be
necessary should the Company be unable to continue in existence.
b. 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
revenues and expenses during the reporting period. Actual results could differ
from those estimates
14
c. Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes as set forth in FASB Statement No. 109, "Accounting for Income Taxes."
Under the asset and liability method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
d. Loss per share
The Company has adopted the provisions of Financial Accounting Standards No.
128, "Earnings per share." This statement requires that the Company report
basic and diluted earnings (loss) per share for all periods reported. Basic net
income (loss) per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding for the period,
adjusted for the dilutive effect of common stock equivalents of which there were
none.
The weighted average shares outstanding for the three months ended March 31,
2000, the effective date of the reverse merger (See Note 1) was the 25,000,000
shares issued to North Coast's shareholders in accordance with accounting
principles applicable to reverse mergers.
e. Cash and cash equivalents
For purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Note 3 - NOTES PAYABLE TO OFFICERS
At March 31, 2000 the following amounts were owed to officers:
Payable to
-----------
Interest Patrick F. Terrence K.
Rate Maturity Charles Picken
---- -------- ------- ------
12% Upon demand $144,500 $144,500
These Notes payable are uncollateralized. Patrick F. Charles is a director,
major shareholder and Chief Executive Officer of the Company and Terrence K.
Picken is a director, major shareholder and Executive Vice President of the
Company.
15
Note 4 - RELATED PARTY TRANSACTIONS
North Coast's executive and administrative offices are located in Kirkland,
Washington, in 1300 square feet of office space provided to it under a month to
month administrative support services agreement with Coast Northwest Inc., a
company controlled by Patrick F. Charles and Terrence K. Picken, Officers of
North Coast. Administrative support services provided under a verbal agreement
include use of office space, office equipment, clerical services, data
processing, local and long distance telephone service and other miscellaneous
administrative support services for which the Company currently pays $6,000 per
month. For the three months ended March 31, 2000 Coast Northwest, Inc. charged
$18,000 for administrative services for the quarter.
Note 5 - DEBENTURE PAYABLE
On March 31, 2000 the Company, in accordance with the Stock Purchase Agreement
and the related Share Exchange Agreement between North Coast and Storm assumed
the liabilities of North Coast including 8% Series A Senior Subordinated
Convertible Redeemable Debentures issued by North Coast in March, 2000 in the
aggregate principal amount of $1,000,000 as follows:
$50,000 to Patrick F. Charles, an officer, director, and major shareholder of
the Company as partial payment of loans to the Company.
$50,000 to Terrence K. Picken, an officer, director and major shareholder of the
Company as partial payment of loans to the Company.
$20,000 to an accredited investor as payment of a loan to the Company.
$880,000 to an accredited investor in a private placement, the subscription
receivable of which was outstanding at March 31, 2000.
The Series A Debentures are convertible into common stock at a conversion price
equal to 70% of the average closing bid price of the common stock for the five
(5) trading days immediately preceding the date of receipt of the conversion
notice. The debentures are convertible at any time prior to their payment due
date of March 28, 2002. After June 26, 2000, upon 5 days notice to holder, the
Company shall have the option to pay to the holder 130% of the principal amounts
of the Debenture, in full, to the extent conversion has not occurred, or pay
upon maturity if the Debenture is not converted.
Note 6 - COMMON STOCK ISSUED
Effective March 31, 2000, 25,000,000 shares of common stock of Storm were
issued, at par value of $.0001 (total of $2500), to the shareholders of North
Coast in exchange for 5,000,000 common shares, par value $0.001 (total of
$5,000) of North Coast issued and outstanding which were then cancelled.
16
Effective March 31, 2000, 1,500,000 shares of common stock of Storm were issued
at par value of $0.0001 in exchange for all of the issued and outstanding shares
of HiLiner in a reverse merger.
Effective March 31, 2000, 2,326,400 shares of common stock of Storm were issued
at par value of $0.0001 for consulting services in connection with reverse
mergers during the period.
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 123 (SFAS 123) addresses the accounting for stock-based compensation
arrangements. SFAS 123 permits a company to choose either a fair-value-based
method or the APB Opinion 25 intrinsic-value-based method of accounting for
stock-option-based compensation arrangements. Management will continue to
record stock-based compensation using APB Opinion 25 method and, believes
adoption of SFAS 123 will not impact the Company's financial position and
results of operations. The pro forma effect of use of fair-value-based
compensation would not have affected net loss for the three months ended March
31, 2000.
Note 7 - DESCRIPTION OF SECURITIES
Storm has one class of securities authorized, consisting of 50,000,000 shares of
common stock with a par value of $0.0001 per share.
The holders of common stock are entitled to one vote per share on all matters to
be voted on by shareholders and do not have cumulative voting rights. The
shares of common stock have no pre-emptive, subscription, conversion or
redemption rights and may be issued only as fully paid and non-assessable
shares. In the event of liquidation, dissolution or winding up of the company,
the holders of the common stock are entitled to share ratability in all assets
remaining which are available for distributing to them after payment of
liabilities and after provision has been made for each class or series of stock
having preference over the common stock. Holders of the common stock are
entitled to share pro rata in dividends and distributions with respect to the
common stock, as may be declared by the Board of Directors out of funds legally
available.
Note 8 - INCOME TAXES
As of March 31, 2000, Storm dba North Coast has an unused federal tax net
operating loss carryforward of approximately $569,000 that may be applied
against future taxable income and that expire in 2020. Additionally, Storm has
a net operating loss carryforward of approximately $189,000 for periods prior to
the reverse merger. The maximum potential tax benefit of the net operating loss
is approximately $258,000. The Company has established a 100% valuation
allowance with respect to the available unused tax benefit of the federal net
operating loss carryforwards because the likelihood of realization of this
benefit cannot be presently determined.
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Note 9 - LOSS FROM DISCONTINUED OPERATIONS
Storm was organized and incorporated under the laws of the State of Florida on
June 12, 1997. Storm was initially established to engage in the manufacture,
marketing and distribution of "high end" car stereo systems. However, due to
certain technical and market difficulties, the business of Storm did not develop
as expected. As a result, Storm ceased its operations in 1999 and began a
search for new business.
The $297,832 loss from discontinued operations represents the amount North Coast
agreed to pay to settle the obligations of Storm.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
ITEM 2 CHANGES IN SECURITIES
a) NONE
b) NONE
c)
The following is a summary of the information required for all the sales of
unregistered securities by Registrant for the reporting period January 1,
through .March 31, 2000.
Prior to the merger with Storm, North Coast issued 5,000,000 shares of its
common stock at $0.001 par value per share principally to its founding
stockholders and to others for services pursuant to Section 4 (2) of the
Securities Act of 1933.
In accordance with a Stock Purchase Agreement effective March 31, 2000 between
North Coast and Storm including the effect of a related Share Exchange Agreement
and Plan of Merger between North Coast and Storm, the 5,000,000 common shares of
North Coast were exchanged for 25,000,000 shares of Storm common stock recorded
at $0.0001 par value per share. The shares so issued were issued without
registration pursuant to an exemption from registration under Section 4 (2) of
the Securities Act of 1933.
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On March 31, 2000 the Company, in accordance with the Stock Purchase Agreement
and the related Share Exchange Agreement between North Coast and Storm assumed
the liabilities of North Coast including 8% Series A Senior Subordinated
Convertible Redeemable Debentures issued by North Coast in March, 2000 in the
aggregate principal amount of $1,000,000 as follows:
$50,000 to Patrick F. Charles, an officer, director, and major shareholder of
the Company as partial payment of loans to the Company.
$50,000 to Terrence K. Picken, an officer, director and major shareholder of the
Company as partial payment of loans to the Company.
$20,000 to an accredited investor as payment of a loan to the Company.
$880,000 to an accredited investor in a private placement, the subscription
receivable of which was outstanding at March 31, 2000.
The Series A Debentures and the shares of common stock into which they are
convertible were exempt from registration in reliance on Rule 504 of Regulation
D of the Securities Act of 1933. The Series A Debentures are convertible into
common stock at a conversion price equal to 70% of the average closing bid price
of the common stock for the five (5) trading days immediately preceding the date
of receipt of the conversion notice. The debentures are convertible at any time
prior to their payment due date of March 27, 2002. After June 26, 2000, upon 5
days notice to holder, the Company shall have the option to pay to the holder
130% of the principal amounts of the Debentures in full to the extent conversion
has not occurred, or pay upon maturity if the Debentures are not converted.
On March 31, 2000, the Company issued 326,400 shares of common stock at $0.0001
par value per share to an individual for consulting services in connection with
the North Coast / Storm reverse merger transaction. Such shares were issued
without registration pursuant to an exemption from registration under Section 4
(2) of the Securities Act of 1933.
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In accordance with a Stock Exchange Agreement dated as of March 31, 2000 between
Storm and MRC Legal Services Inc., the Company issued 1,500,000 shares of common
stock at $0.0001 par value per share to 5 individuals in exchange for all of the
issued and outstanding shares (1 million shares) of common stock of HiLiner
Group Inc. Such shares were issued without registration pursuant to an
exemption from registration under Section 4 (2) of the Securities Act of 1933.
In accordance with a Consulting Agreement between Storm and certain consultants
dated as of March 31, 2000 the Company issued 2,000,000 shares of common stock
at $0.0001 par value per share to four individuals as partial consideration for
advisory and legal services rendered relating to the Storm / HiLiner reverse
merger transaction. Such shares were issued without registration pursuant to an
exemption from registration under Section 4 (2) of the Securities Act of 1933.
On April 6, 2000 the Company filed a registration statement on Form S-8 to
register these shares in accordance with the requirements of Form S-8 under the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K -
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Storm High Performance Sound Corporation
Date: May 16 , 2000 By:/s/ Patrick F. Charles
Patrick F. Charles, President
and CEO
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